-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SFR4nTrvhfY2yGwwwxDht2OPq569tWwmFD7MTeORS1nZCUgL3knPWUuFO3ZT92Gs w4Rpmc9KDAYp2w5sRb9TyQ== 0000891804-03-001196.txt : 20030529 0000891804-03-001196.hdr.sgml : 20030529 20030529090833 ACCESSION NUMBER: 0000891804-03-001196 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030529 EFFECTIVENESS DATE: 20030529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUVEEN SELECT MATURITIES MUNICIPAL FUND CENTRAL INDEX KEY: 0000890119 IRS NUMBER: 363837799 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07056 FILM NUMBER: 03722457 BUSINESS ADDRESS: STREET 1: 333 WEST WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129177200 FORMER COMPANY: FORMER CONFORMED NAME: NUVEEN INTERMEDIATE OPPORTUNITY MUNICIPAL FUND DATE OF NAME CHANGE: 19600201 N-30D 1 nv29030.txt EAN-A-0303D Nuveen Municipal Closed-End Exchange-Traded Funds ANNUAL REPORT March 31, 2003 SELECT MATURITIES NIM DEPENDABLE, TAX-FREE INCOME BECAUSE IT'S NOT WHAT YOU EARN, IT'S WHAT YOU KEEP.(R) Logo: NUVEEN Investments FASTER INFORMATION RECEIVE YOUR NUVEEN FUND REPORT ELECTRONICALLY By registering for electronic delivery, you will receive an e-mail as soon as your Nuveen Fund information is available. Click on the link and you will be taken directly to the report. Your Fund report can be viewed and saved on your computer. Your report will arrive faster via e-mail than by traditional mail. Registering is easy and only takes a few minutes (see instructions at right). SOME COMMON CONCERNS: WILL MY E-MAIL ADDRESS BE DISTRIBUTED TO OTHER COMPANIES? No, your e-mail address is strictly confidential and will not be used for anything other than notification of shareholder information. WHAT IF I CHANGE MY MIND AND WANT TO RECEIVE INVESTOR MATERIALS THROUGH REGULAR MAIL DELIVERY AGAIN? If you decide you do not like receiving your reports electronically, it's a simple process to go back to regular mail delivery. IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS COME FROM YOUR FINANCIAL ADVISOR OR BROKERAGE ACCOUNT, FOLLOW THE STEPS OUTLINED BELOW: 1 Go to WWW.INVESTORDELIVERY.COM 2 Refer to the address sheet that accompanied this report. Enter the personal 13-CHARACTER ENROLLMENT NUMBER imprinted near your name. 3 You'll be taken to a page with several options. Select the NEW ENROLLMENT-CREATE screen. Once there, enter your e-mail address (e.g. yourID@providerID.com), and a personal, 4-digit PIN number of your choice. (Pick a number that's easy to remember.) 4 Click Submit. Confirm the information you just entered is correct, then click Submit again. 5 You should get a confirmation e-mail within 24 hours. If you do not, go back through these steps to make sure all the information is correct. 6 Use this same process if you need to change your registration information or cancel internet viewing. IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS COME DIRECTLY TO YOU FROM NUVEEN, FOLLOW THE STEPS OUTLINED BELOW: 1 Go to WWW.NUVEEN.COM 2 Select ACCESS YOUR ACCOUNT. Select the E-REPORT ENROLLMENT section. Click on Enrollment Today. 3 You'll be taken to a screen that asks for your Social Security number and e-mail address. Fill in this information, then click Enroll. 4 You should get a confirmation e-mail within 24 hours. If you do not, go back through these steps to make sure all the information is correct. 5 Use this same process if you need to change your registration information or cancel internet viewing. Logo: NUVEEN Investments Photo of: Timothy R. Schwertfeger Chairman of the Board SIDEBAR TEXT: "I'D ALSO LIKE TO DIRECT YOUR ATTENTION TO THE INSIDE FRONT COVER OF THIS REPORT, WHICH EXPLAINS THE QUICK AND EASY PROCESS TO BEGIN RECEIVING FUND REPORTS LIKE THIS VIA E-MAIL AND THE INTERNET." Dear SHAREHOLDER You may have noticed that this report is coming to you a little sooner than normal. That's because we have changed the end date of your Fund's fiscal year to March 31 from May 31. Going forward, annual reports will use the March 31 date and semi-annual reports will use a September 30 date. This is a simple administrative change designed to help your Fund operate more efficiently. It does not affect your Fund's investment objectives or management strategies. For the shortened period of this report, I am pleased to note that your Fund continued to provide you with monthly tax-free income. More detailed performance information based on the new reporting period is provided in the Portfolio Manager's Comments and Performance Overview sections of this report. I urge you to take the time to read them. With interest rates at historically low levels, many have begun to wonder how fixed-income investments will perform if interest rates begin to rise. No one knows what the future will bring, which is why we think a well-balanced portfolio that is structured and carefully monitored with the help of an investment professional is an important component in achieving your long-term financial goals. A well-diversified portfolio may actually help to reduce your overall investment risk, and we believe that municipal bond investments like your Nuveen Fund can be important building blocks in a portfolio crafted to perform well through a variety of market conditions. I'd also like to direct your attention to the inside front cover of this report, which explains the quick and easy process to begin receiving Fund reports like this via e-mail and the internet. Thousands of Nuveen Fund shareholders already have signed-up, and they are getting their Fund information faster and more conveniently than ever. I urge you to consider joining them. Since 1898, Nuveen Investments has offered financial products and solutions that incorporate careful research, diversification, and the application of conservative risk-management principles. We are grateful that you have chosen us as a partner as you pursue your financial goals. We look forward to continuing to earn your trust in the months and years ahead. Sincerely, /s/Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board May 15, 2003 1 Nuveen Select Maturities Municipal Fund (NIM) Portfolio Manager's COMMENTS Portfolio manager John Miller discusses U.S. economic conditions, key investment strategies, and the recent performance of the Fund. John, who has nine years of municipal market experience, assumed portfolio management responsibility for NIM in 2001. WHAT WERE THE MAJOR FACTORS AFFECTING THE U.S. ECONOMY AND THE MUNICIPAL MARKET DURING THIS REPORTING PERIOD? In many ways, economic and market conditions did not significantly change since the last shareholder report dated November 2002. We believe the most influential factors affecting the U.S. economy and the municipal market continued to be the slow pace of economic growth and interest rates that remained at 40-year lows. The ongoing threat of terrorism, the war in Iraq and continued geopolitical uncertainty also had an economic impact during this period. In the municipal market, the sluggish economic recovery and lack of inflationary pressures helped many bonds perform well during much of 2002 and the first part of 2003. However, during the fall of 2002 the market environment for all fixed-income investments was negatively impacted by a rebound in the equity markets. In the first quarter of 2003, fixed income yields remained in a relatively tight trading range as optimism over a successful military campaign in Iraq was counter balanced by continued sluggish economic growth. Market expectations for the timing of a possible Fed Funds rate increase shifted in 2003 to predictions that the Federal Reserve might cut rates in an effort to stimulate the economy. After record issuance of $357 billion in calendar year 2002, municipal bond new issue supply nationwide remained strong during the first quarter of 2003. More than $83 billion in new municipal bonds were issued in January, February and March 2003, up 22% over the same period in 2002. Demand for municipal bonds also remained strong over most of this reporting period, as many individual investors continued to seek tax-free income and increased diversification for their portfolios. Institutional investors, including traditional municipal bond purchasers such as property/casualty insurance companies as well as non-traditional purchasers such as hedge funds, arbitrage accounts, and pension funds, also were active municipal buyers over this reporting period. HOW DID NIM PERFORM OVER THE TWELVE MONTHS ENDED MARCH 31, 2003? The performance of the Fund, as well as relevant benchmarks, is presented in the accompanying table. TOTAL RETURN LEHMAN LIPPER MARKET YIELD ON NAV TOTAL RETURN1 AVERAGE2 - ------------------------------------------------------------------------- 1 YEAR 1 YEAR 1 YEAR TAXABLE- ENDED ENDED ENDED 3/31/03 EQUIVALENT3 3/31/03 3/31/03 3/31/03 - ------------------------------------------------------------------------- NIM 5.36% 7.66% 3.70% 10.56% 6.82% - ------------------------------------------------------------------------- Past performance is not predictive of future results. For additional information, see the individual Performance Overview for your Fund in this report. For the twelve months ended March 31, 2003, NIM's total return significantly trailed both the Lehman Brothers 7-Year Municipal Bond Index as well as the Lipper fund group average. While some of this below-average return can be attributed to general market factors, most came from the poor 1 The total annual return on common share net asset value (NAV) for NIM is compared with the total annual return of the Lehman Brothers 7-Year Municipal Bond Index, an un-leveraged index comprising a broad range of investment-grade municipal bonds with maturities ranging from six to eight years. Results for the Lehman index do not reflect any expenses. 2 NIM's total return is compared with the average annualized return of the nine funds in the Lipper General and Insured Unleveraged Municipal Debt Funds category. Fund and Lipper returns assume reinvestment of dividends. 3 The taxable-equivalent yield represents the yield that must be earned on a taxable investment in order to equal the yield of the Nuveen Fund on an after-tax basis. The taxable-equivalent yield is based on the Fund's market yield on the indicated date and a federal income tax rate of 30%. 2 performance of a few specific holdings within the Fund's portfolio. Looking at the general market context, credit spreads widened over much of the reporting period, as often happens during periods of economic uncertainty. When this occurs, higher-rated bonds may perform better than lower-rated bonds. This was the general market pattern over much of this twelve-month period. While most of NIM's portfolio as of March 31, 2003, was rated A or higher, more than 25% of its portfolio was in bonds rated BBB or not rated. The Fund also held several distressed bonds, which declined in value during much of the twelve-month period. In virtually every case, these bonds had been sold as of the end of the reporting period. As one example, the Fund held several bonds backed by private airlines. The value of these bonds fell over the past year, in part due to the general decline in passenger volume that affected many airlines and in part due to the bankruptcy declaration by United Air Lines. Specifically, NIM held a $3.45 million par value position in United-backed bonds that fell in market value from 60 cents on the dollar, and were sold at 30 cents on the dollar. The Fund also held a $4.5 million par value position in American Airlines bonds, which declined from 93 cents on the dollar as of March 31, 2002, and was sold at 53 cents on the dollar. Additionally, NIM's performance was impacted negatively by credit issues involving two other holdings: a $5 million par value position in Erie County (New York) bonds issued for CanFibre of Lackawanna and a $1.2 million par value holding of bonds issued for Winslow Memorial Hospital (Arizona). The CanFibre bonds, which funded a solid waste disposal facility, continued to depreciate following the failure of a restructuring plan, falling from 34.5 cents on the dollar as of March 31, 2002. We were able to take possession of the facility and sell it, resulting in a recovery of 15 cents on the dollar, which we believe was in the best interest of shareholders. The Winslow Hospital bonds also depreciated over the twelve-month period, to 70 cents from 95 cents, due to the poor financial performance of this small, non-rated hospital. HOW WERE NIM'S DIVIDEND AND SHARE PRICE AFFECTED? During the year ended March 31, 2003, the need to reinvest the proceeds from called and maturing bonds in today's relatively low interest rate environment, combined with the credit issues discussed above, resulted in one dividend cut in NIM. Over the course of this period, both the share price and the net asset value of NIM declined. The Fund moved from trading close to its net asset value to a 4.7% discount as of March 31, 2003 (see charts on the Performance Overview page). WHAT KEY STRATEGIES WERE USED TO MANAGE NIM DURING THE PERIOD ENDED MARCH 31, 2003? Over the period, our strategic focus was on enhancing the Fund's dividend-paying capability whenever possible, mitigating potential call risk, and working to resolve the specific credit issues discussed earlier. 3 As part of our efforts to enhance the Fund's call protection, we sold several bonds with short call dates and reinvested the proceeds in bonds that we believe added the prospects for long-term performance for our shareholders. Among the bonds added to the Fund were a number of BBB rated credits, including a $2 million purchase of bonds issued for Olin Corporation, the manufacturer of Winchester rifles and ammunition. These bonds, which offered a 6.75% coupon, have appreciated approximately 11% since our purchase. In the current geopolitical and economic climate, we believe maintaining overall credit quality is a key requirement. As noted earlier, more than one-quarter of the Fund's portfolio is rated BBB or is unrated. While we see advantages in holding these bonds, we are attempting to counterbalance this exposure with a significant holding of AAA/U.S. Guaranteed and AA rated bonds. As of March 31, 2003, 51% of the Fund's portfolio was rated within these two highest categories. WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET IN GENERAL AND NIM IN PARTICULAR? We expect inflation and interest rates to remain relatively low over the near term, while new municipal volume nationally should continue to be strong as issuers take advantage of the low rate environment for both new issues and refinancings. We believe demand for tax-exempt municipal bonds will remain solid, as investors continue to look for ways to rebalance their portfolios and reduce overall investment risk. We think that NIM offers a good level of call protection over the next two years, with call exposure of 14% in 2003 and about 2% in 2004. As mentioned, we've been working to mitigate the call risk and improve the overall positioning of this Fund. The number of actual calls experienced by NIM will depend largely on market interest rates in the months ahead. Some specific areas of concentration will include working through NIM's credit issues and emphasizing strategies that provide support for the Fund's long-term dividend-paying capabilities. We believe that the comparatively shorter average maturity of this Fund's portfolio, and its potential to benefit from any contraction between the interest rates of BBB rated bonds and higher rated bonds as the economy improves, places NIM in an excellent position to perform relatively well in an economic recovery. Overall, we believe the attractive tax-free income and portfolio diversification potential offered by this Fund continue to represent essential components in investors' long-range financial plans. 4 Nuveen Select Maturities Municipal Fund Performance OVERVIEW As of March 31, 2003 NIM PIE CHART: CREDIT QUALITY AAA/U.S. GUARANTEED 39% AA 12% A 23% BBB 21% NR 5% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $9.85 - -------------------------------------------------- Common Share Net Asset Value $10.34 - -------------------------------------------------- Market Yield 5.36% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 7.66% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $128,106 - -------------------------------------------------- Average Effective Maturity (Years) 12.65 - -------------------------------------------------- Average Duration 5.37 - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 9/92) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- 1-Year 0.55% 3.70% - -------------------------------------------------- 5-Year 2.62% 2.81% - -------------------------------------------------- 10-Year 4.11% 4.63% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Healthcare 20% - -------------------------------------------------- Utilities 19% - -------------------------------------------------- Education and Civic Organizations 10% - -------------------------------------------------- U.S. Guaranteed 8% - -------------------------------------------------- Long-Term Care 8% - -------------------------------------------------- BAR CHART: 2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 4/02 0.046 5/02 0.046 6/02 0.044 7/02 0.044 8/02 0.044 9/02 0.044 10/02 0.044 11/02 0.044 12/02 0.044 1/03 0.044 2/03 0.044 3/03 0.044 LINE CHART: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 4/1/02 10.1 10.18 10.1 10.15 10.22 10.25 10.33 10.2 10.45 9.98 9.93 9.79 10.12 10.29 10.2 10.1 10.03 9.99 9.97 9.81 9.93 10 10.02 9.97 9.88 10.16 10.35 10.22 9.9 9.78 10.08 10.19 10.04 9.66 9.8 9.8 9.63 9.55 9.61 9.79 9.6 9.65 9.65 9.82 9.91 9.75 9.74 9.89 9.9 9.88 9.77 3/31/03 9.8 1 Taxable-equivalent yield represents the yield on a taxable investment necessary to equal the yield of the Nuveen Fund on an after-tax basis. It is calculated using the current market yield and a federal income tax rate of 30%. 2 The Fund also paid shareholders a net ordinary income distribution in December 2002 of $0.0004 per share. 5 Report of INDEPENDENT AUDITORS THE BOARD OF TRUSTEES AND SHAREHOLDERS NUVEEN SELECT MATURITIES MUNICIPAL FUND We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Nuveen Select Maturities Municipal Fund as of March 31, 2003, and the related statements of operations, changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with 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 investments owned as of March 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 financial position of Nuveen Select Maturities Municipal Fund at March 31, 2003, and the results of its operations, changes in its net assets and financial highlights for the periods indicated therein in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Chicago, Illinois May 9, 2003 6 Nuveen Select Maturities Municipal Fund (NIM) Portfolio of INVESTMENTS March 31, 2003
PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ ALABAMA - 2.0% $ 2,000 Alabama 21st Century Authority, Tobacco Settlement Revenue 12/11 at 101.00 A1 $ 2,002,180 Bonds, Series 2001, 5.750%, 12/01/17 500 Marshall County Health Care Authority, Alabama, Revenue Bonds, 1/12 at 101.00 A- 534,770 Series 2002A, 6.250%, 1/01/22 - ------------------------------------------------------------------------------------------------------------------------------------ ARIZONA - 5.0% 2,470 Arizona Educational Loan Marketing Corporation, Educational 9/03 at 100.00 Aa2 2,502,357 Loan Revenue Bonds, 6.375%, 9/01/05 (Alternative Minimum Tax) 2,885 Industrial Development Authority of the City of Phoenix, Arizona, 4/08 at 101.50 AAA 3,091,653 Statewide Single Family Mortgage Revenue Bonds, 1998 Series C, 6.650%, 10/01/29 (Alternative Minimum Tax) 1,185 Industrial Development Authority of the City of Winslow, No Opt. Call N/R 823,907 Arizona, Hospital Revenue Bonds (Winslow Memorial Hospital Project), Series 1998, 5.750%, 6/01/08 - ------------------------------------------------------------------------------------------------------------------------------------ ARKANSAS - 2.3% 770 Arkansas Student Loan Authority, Student Loan Revenue Bonds, 6/03 at 100.00 A 774,628 Series 1992A-2 (Subordinate), 6.750%, 6/01/06 (Alternative Minimum Tax) 1,000 City of Fort Smith, Arkansas, Refunding and Construction Water 10/11 at 100.00 AAA 1,085,200 and Sewer Revenue Bonds, Series 2002A, 5.250%, 10/01/17 - FSA Insured 1,000 Jonesboro, Arkansas, Industrial Development Revenue Bonds, No Opt. Call A+ 1,043,100 Anheuser Busch Inc. Project, Series 2002, 4.600%, 11/15/12 - ------------------------------------------------------------------------------------------------------------------------------------ CALIFORNIA - 1.7% 2,115 Vernon, California, Electric System Revenue Bonds, Malburg 4/08 at 100.00 A2 2,157,342 Generating Station Project, Series 2003C, 5.250%, 4/01/17 (WI, settling 4/10/03) - ------------------------------------------------------------------------------------------------------------------------------------ COLORADO - 6.5% 1,500 Colorado Educational and Cultural Facilities Authority, Charter 7/12 at 100.00 BBB 1,467,165 School Revenue Bonds, DCS Montessori Project, Series 2002A, Douglas County School District RE-1, 6.000%, 7/15/22 1,000 Denver Health and Hospital Authority, Colorado, Health Care 12/11 at 100.00 BBB+ 1,016,440 Revenue Bonds, Series 2001A, 6.000%, 12/01/23 366 El Paso County, Colorado, Single Family Mortgage Revenue No Opt. Call Aaa 394,842 Tax-Exempt Refunding Bonds, Series 1992A Class A-2, 8.750%, 6/01/11 5,875 Northwest Parkway Public Highway Authority, Colorado, Senior 6/11 at 38.04 AAA 1,414,171 Revenue Bonds, Series 2001B, 0.000%, 6/15/27 - AMBAC Insured 1,000 Summit County, Colorado, Sports Facilities Refunding Revenue No Opt. Call AAA 1,181,250 Bonds (Keystone Resorts Management, Inc. Project), Series 1990, 7.750%, 9/01/06 2,845 University of Colorado Hospital Authority, Hospital Revenue 11/11 at 100.00 A3 2,894,418 Bonds, Series 2001A, 5.600%, 11/15/21 - ------------------------------------------------------------------------------------------------------------------------------------ CONNECTICUT - 1.6% Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue Bonds (Wheelabrator Lisbon Project), Series 1993A: 500 5.500%, 1/01/14 (Alternative Minimum Tax) 7/03 at 102.00 BBB 499,955 1,570 5.500%, 1/01/15 (Alternative Minimum Tax) 1/05 at 100.00 BBB 1,534,173 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRICT OF COLUMBIA - 4.5% District of Columbia, Washington, D.C., General Obligation Refunding Bonds, Series 1993A: 900 6.000%, 6/01/07 - MBIA Insured No Opt. Call AAA 1,037,790 4,105 6.000%, 6/01/07 - MBIA Insured No Opt. Call AAA 4,695,381 - ------------------------------------------------------------------------------------------------------------------------------------ FLORIDA - 0.7% 865 Escambia County, Florida, Pollution Control Revenue Bonds, 8/04 at 102.00 BBB 899,263 Champion International Corporation Project, Series 1994, 6.900%, 8/01/22 (Alternative Minimum Tax) 7 Nuveen Select Maturities Municipal Fund (NIM) (continued) Portfolio of INVESTMENTS March 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ GEORGIA - 0.2% $ 280 Urban Residential Finance Authority of the City of Atlanta, No Opt. Call N/R*** $ 290,976 Georgia, Revenue Bonds (Landrum Arms Project), Series 1994, 6.750%, 7/01/04 - ------------------------------------------------------------------------------------------------------------------------------------ ILLINOIS - 13.5% 2,095 Chicago Metropolitan Housing Development Corporation, 7/03 at 100.00 AAA 2,099,965 Illinois, Housing Development Revenue Refunding Bonds (FHA-Insured Mortgage Loan - Section 8 Assisted Project), Series 1993B, 5.700%, 1/01/13 - MBIA Insured 970 City of Chicago, Illinois, Tax Increment Allocation Bonds 1/09 at 100.00 N/R 965,160 (Irving/Cicero Redevelopment Project), Series 1998, 7.000%, 1/01/14 165 City of Danville, Vermilion County, Illinois, Single Family 11/03 at 102.00 A1 169,274 Mortgage Revenue Refunding Bonds, Series 1993, 7.300%, 11/01/10 2,000 Illinois Development Finance Authority, Revenue Refunding 4/10 at 102.00 BBB- 2,098,040 Bonds, Series 1993D, Olin Corporation Project, 6.750%, 3/01/16 4,995 Illinois Development Finance Authority, Revenue Bonds 4/11 at 105.00 Aaa 5,982,412 (Greek American Nursing Home Project), Series 2000A, 7.600%, 4/20/40 1,325 Illinois Development Finance Authority, Child Care Facility 9/03 at 101.00 N/R 1,353,951 Revenue Bonds, Series 1992 (Illinois Facilities Fund Project), 7.400%, 9/01/04 1,000 Illinois Health Facilities Authority, Revenue Refunding Bonds, 2/04 at 102.00 A+ 1,034,270 Series 1993A (Edward Hospital Project), 6.000%, 2/15/19 1,210 Illinois Health Facilities Authority, Revenue Refunding Bonds, 8/09 at 101.00 A- 1,225,210 Series 1999 (Silver Cross Hospital and Medical Centers), 5.500%, 8/15/19 1,335 Illinois Housing Development Authority, Section 8 Elderly 5/03 at 102.00 A 1,364,437 Housing Revenue Bonds (Skyline Towers Apartments), Series 1992B, 6.625%, 11/01/07 1,000 Illinois Educational Facilities Authority, Student Housing Revenue 5/12 at 101.00 Baa2 1,075,220 Bonds, Educational Advancement Foundation Fund, University Center Project, Series 2002, 6.625%, 5/01/17 - ------------------------------------------------------------------------------------------------------------------------------------ INDIANA - 0.9% 1,000 Indianapolis Local Public Improvement Bond Bank, Indiana, No Opt. Call AA 1,150,560 Series 1992 D Bonds, 6.600%, 2/01/07 - ------------------------------------------------------------------------------------------------------------------------------------ IOWA - 1.2% 1,800 Tobacco Settlement Authority, Iowa, Tobacco Settlement 6/11 at 101.00 A 1,488,492 Asset-Backed Revenue Bonds, Series 2001B, 5.300%, 6/01/25 - ------------------------------------------------------------------------------------------------------------------------------------ KANSAS - 2.8% 3,500 Wichita, Kansas, Hospital Revenue Refunding and Improvement 11/11 at 101.00 A+ 3,622,710 Bonds, Via Christi Health System, 2001 Series III, 5.500%, 11/15/21 - ------------------------------------------------------------------------------------------------------------------------------------ MARYLAND - 2.5% 2,000 Anne Arundel County, Maryland, Multifamily Housing Revenue No Opt. Call BBB- 2,034,040 Bonds (Woodside Apartments Project), Series 1994, 7.450%, 12/01/24 (Alternative Minimum Tax) (Mandatory put 12/01/03) 1,100 Maryland Energy Financing Administration, Limited Obligation 9/05 at 102.00 N/R 1,125,234 Cogeneration Revenue Bonds (AES Warrior Run Project), Series 1995, 7.400%, 9/01/19 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ MASSACHUSETTS - 0.8% 1,000 Massachusetts Industrial Finance Agency, Resource Recovery No Opt. Call BBB 991,690 Revenue Refunding Bonds, Ogden Haverhill Project, Series 1992A Remarketing, 4.850%, 12/01/05 - ------------------------------------------------------------------------------------------------------------------------------------ MICHIGAN - 3.3% 1,000 Cornell Township Economic Development Corporation, 5/12 at 100.00 BBB 1,004,550 Michigan, Environmental Improvement Revenue Refunding Bonds, MeadWestvaco Corporation - Escanaba Project, Series 2002, 5.875%, 5/01/18 2,181 Michigan State Hospital Finance Authority, Detroit Medical No Opt. Call Baa2 2,206,508 Center Collateralized Loan, Series 2001, 7.360%, 4/01/07 470 Michigan State Hospital Finance Authority, Revenue Bonds, No Opt. Call BBB- 470,197 Detroit Medical Center, Series 1988A Refunding, 8.125%, 8/15/12 600 Michigan State Hospital Finance Authority, Hospital Revenue 1/06 at 102.00 Ba1 562,188 Bonds, Sinai Hospital Refunding, Series 1995, 6.625%, 1/01/16 8 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ MINNESOTA - 0.9% $ 1,000 White Earth Band of Chippewa Indians, Minnesota, Revenue No Opt. Call A $ 1,132,710 Bonds, Series 2000A, 7.000%, 12/01/11 - ACA Insured - ------------------------------------------------------------------------------------------------------------------------------------ NEW YORK - 4.7% 1,500 New York State Energy Research and Development Authority, No Opt. Call A+ 1,532,940 Facilities Revenue Bonds, Consolidated Edison Company Inc. Project, Series 2001A, 4.700%, 6/01/36 (Alternative Minimum Tax) (Mandatory put 10/01/12) 1,665 New York State Medical Care Facilities Finance Agency, 2/06 at 102.00 AA+ 1,852,929 FHA-Insured Mortgage Hospital and Nursing Home Revenue Bonds, 1995 Series C, 6.100%, 8/15/15 2,130 City of Niagara Falls, Niagara County, New York, Water Treatment No Opt. Call AAA 2,673,917 Plant Serial Bonds, Series 1994, 8.500%, 11/01/07 (Alternative Minimum Tax) - MBIA Insured - ------------------------------------------------------------------------------------------------------------------------------------ OHIO - 4.1% 2,000 Akron, Bath and Copley Joint Township Hospital District, 5/03 at 102.00 Baa1 2,043,480 Ohio, Hospital Facilities Revenue Bonds, Series 1992 (Summa Health System Project), 6.250%, 11/15/07 3,000 County Of Hamilton, Ohio, Hospital Facilities Refunding No Opt. Call A*** 3,227,460 Revenue Bonds, Series 1992A (Bethesda Hospital, Inc.), 6.250%, 1/01/06 - ------------------------------------------------------------------------------------------------------------------------------------ OKLAHOMA - 0.8% 1,000 Oklahoma Industries Authority, Health System Revenue 8/06 at 102.00 AAA 1,039,780 Refunding Bonds (Obligated Group consisting of INTEGRIS Baptist Medical Center, Inc., INTEGRIS South Oklahoma City Hospital Corporation and INTEGRIS Rural Health, Inc.), Series 1995D, 5.000%, 8/15/14 - AMBAC Insured - ------------------------------------------------------------------------------------------------------------------------------------ PENNSYLVANIA - 5.8% 1,500 Pennsylvania Economic Development Financing Authority, 12/04 at 102.00 BBB- 1,555,560 Resource Recovery Revenue Bonds, Colver Project, Series 1994D, 7.150%, 12/01/18 (Alternative Minimum Tax) 3,800 Pennsylvania Higher Education Assistance Agency, Student 7/03 at 102.00 AAA 3,912,936 Loan Revenue Bonds, 1988 Series D, 6.050%, 1/01/19 (Alternative Minimum Tax) - AMBAC Insured 1,545 Pennsylvania Higher Educational Facilities Authority, No Opt. Call Aaa 1,925,935 College Revenue Bonds, Ninth Series, 7.625%, 7/01/15 - ------------------------------------------------------------------------------------------------------------------------------------ SOUTH CAROLINA - 1.4% 1,250 South Carolina Jobs-Economic Development Authority, No Opt. Call BBB 1,349,650 South Carolina, Hospital Revenue Bonds, Palmetto Health Alliance, Series 2000A, 7.000%, 12/15/10 500 Tobacco Settlement Revenue Management Authority, Tobacco 5/11 at 101.00 A 475,170 Settlement Asset-Backed Bonds, Series 2001B, 6.000%, 5/15/22 - ------------------------------------------------------------------------------------------------------------------------------------ TENNESSEE - 1.7% 2,000 Health, Educational and Housing Facility Board of the County 9/12 at 100.00 BBB+ 2,123,200 of Shelby, Tennessee, Hospital Revenue Bonds, Methodist Healthcare, Series 2002, 6.000%, 9/01/17 - ------------------------------------------------------------------------------------------------------------------------------------ TEXAS - 5.6% 475 Austin-Travis County, Texas, MHMR Center Revenue Bonds 3/05 at 101.00 AAA 519,375 (Mental Health and Mental Retardation Center Facilities Acquisition Program), Series 1995-A, 6.500%, 3/01/15 - CAP GTY/FSA Insured 500 Brazos River Harbor Navigation District, Brazoria County, 5/12 at 101.00 A- 513,155 Texas, Environmental Facilities Revenue Bonds, Dow Chemical Company Project, 2002 Series A-6, 6.250%, 5/15/33 (Alternative Minimum Tax) (Mandatory put 5/15/17) 310 City of Galveston Property Finance Authority, Inc., Texas, 9/03 at 101.00 A3 317,102 Single Family Mortgage Revenue Bonds, Series 1991A, 8.500%, 9/01/11 820 Texas Community MHMR Centers, Revenue Bonds (Mental 3/05 at 101.00 AAA 896,604 Health and Mental Retardation Center Facilities Acquisition Program), Series 1995C, 6.500%, 3/01/15 - CAP GTY/FSA Insured 2,750 Navigation District No. 1 of Matagorda County, Texas, Pollution No Opt. Call BBB+ 2,707,540 Control Revenue Bonds, Central Power and Light Company Refunding, Series 2001A, 4.550%, 11/01/29 (Mandatory put 11/01/06) 900 Tom Green County Health Facilities Development Corporation, No Opt. Call Baa3 930,897 Texas, Hospital Revenue Bonds, Shannon Health System Project, Series 2001, 5.600%, 5/15/06 9 Nuveen Select Maturities Municipal Fund (NIM) (continued) Portfolio of INVESTMENTS March 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TEXAS (continued) $ 500 Travis County Health Facilities Development Corporation, Texas, 11/03 at 102.00 Aaa $ 523,285 Hospital Revenue Bonds (Daughters of Charity National Health System - Daughters of Charity Health Services of Austin), Series 1993B, 5.900%, 11/15/07 645 Tri-County MHMR Services Revenue Bonds, Texas (Mental 3/05 at 101.00 AAA 705,256 Health and Mental Retardation Center Facilities Acquisition Program), Series 1995-E, 6.500%, 3/01/15 - FSA Insured - ------------------------------------------------------------------------------------------------------------------------------------ UTAH - 1.6% 2,055 City of Bountiful, Davis County, Utah, Hospital Revenue No Opt. Call N/R 2,051,650 Refunding Bonds (South Davis Community Hospital Project), Series 1998, 6.000%, 12/15/10 - ------------------------------------------------------------------------------------------------------------------------------------ VIRGINIA - 1.6% 2,000 Hampton Redevelopment and Housing Authority, Virginia, 7/03 at 102.00 A-1+ 2,068,400 Multifamily Housing Revenue Refunding Bonds, Series 1994 (Chase Hampton II Apartments), 7.000%, 7/01/24 (Mandatory put 7/01/04) - ------------------------------------------------------------------------------------------------------------------------------------ WASHINGTON - 9.2% Washington Public Power Supply System, Nuclear Project No. 1 Refunding Revenue Bonds, Series 1993A: 1,340 7.000%, 7/01/07 No Opt. Call Aa1*** 1,602,251 160 7.000%, 7/01/07 No Opt. Call Aa1 188,886 1,130 7.000%, 7/01/08 No Opt. Call Aa1*** 1,377,120 1,870 7.000%, 7/01/08 No Opt. Call Aa1 2,243,289 7,000 Washington Public Power Supply System, Nuclear Project No. 3 No Opt. Call Aa1 6,477,730 Refunding Revenue Bonds, Series 1990B, 0.000%, 7/01/06 - ------------------------------------------------------------------------------------------------------------------------------------ WEST VIRGINIA - 3.6% 2,000 County Commission of Harrison County, West Virginia, Solid 8/04 at 102.00 AAA 2,157,760 Waste Disposal Revenue Bonds, West Penn Power Company Project, Series 1994C, 6.750%, 8/01/24 (Alternative Minimum Tax) - MBIA Insured 2,450 South Charleston, West Virginia, Industrial Development No Opt. Call A- 2,456,003 Revenue Bonds, Union Carbide Chemicals and Plastic, Series 1990A, 8.000%, 8/01/20 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ WISCONSIN - 2.6% Badger Tobacco Asset Securitization Corporation, Wisconsin, Tobacco Settlement Asset-Backed Bonds, Series 2002: 1,000 6.125%, 6/01/27 6/12 at 100.00 A 946,940 1,480 6.375%, 6/01/32 6/12 at 100.00 A 1,301,805 1,000 Wisconsin Health and Educational Facilities Authority, Revenue 7/11 at 100.00 A- 1,045,180 Bonds, Agnesian Healthcare Inc., Series 2001, 6.000%, 7/01/21 - ------------------------------------------------------------------------------------------------------------------------------------ $ 118,752 Total Long-Term Investments (cost $113,974,662) - 93.1% 119,240,964 =============----------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 3.5% 500 Guildford County, North Carolina, General Obligation School VMIG-1 500,000 Improvement Serial Bonds, Variable Rate Demand Bonds, Series C, 1.150%, 10/01/21+ 4,000 Missouri Health and Educational Facilities Authority, Revenue A-1+ 4,000,000 Bonds (Rockhurst University), Variable Rate Demand Bonds, 1.150%, 11/01/32+ - ------------------------------------------------------------------------------------------------------------------------------------ $ 4,500 Total Short-Term Investments (cost $4,500,000) 4,500,000 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 3.4% 4,364,761 -------------------------------------------------------------------------------------------------------------------- Net Assets - 100% $128,105,725 ==================================================================================================================== * Optional Call Provisions (not covered by the report of independent auditors): 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 auditors): 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. Such 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. + 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. 10
Statement of ASSETS AND LIABILITIES March 31, 2003 - -------------------------------------------------------------------------------- ASSETS Investments, at market value (cost $118,474,662) $ 123,740,964 Cash 707,522 Receivables: Interest 1,922,917 Investments sold 3,993,583 Other assets 10,080 - -------------------------------------------------------------------------------- Total assets 130,375,066 - -------------------------------------------------------------------------------- LIABILITIES Payable for investments purchased 2,145,419 Accrued expenses: Management fees 54,544 Other 69,378 - -------------------------------------------------------------------------------- Total liabilities 2,269,341 - -------------------------------------------------------------------------------- Net assets $ 128,105,725 ================================================================================ Shares outstanding 12,394,977 ================================================================================ Net asset value per share outstanding (net assets divided by shares outstanding) $ 10.34 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Common shares, $.01 par value per share $ 123,950 Paid-in surplus 138,316,568 Undistributed (Over-distribution of) net investment income (370,195) Accumulated net realized gain (loss) from investments (15,230,900) Net unrealized appreciation of investments 5,266,302 - -------------------------------------------------------------------------------- Net assets $ 128,105,725 ================================================================================ See accompanying notes to financial statements. 11 Statement of OPERATIONS FOR THE PERIOD JUNE 1, 2002 THROUGH YEAR ENDED MARCH 31, 2003 5/31/02 - -------------------------------------------------------------------------------- INVESTMENT INCOME $ 6,049,100 $ 7,987,957 - -------------------------------------------------------------------------------- EXPENSES Management fees 539,254 674,605 Shareholders' servicing agent fees and expenses 18,407 26,410 Custodian's fees and expenses 43,820 44,429 Trustees' fees and expenses 1,456 1,811 Professional fees 22,232 54,881 Shareholders' reports - printing and mailing expenses 39,073 59,352 Stock exchange listing fees 14,103 28,191 Investor relations expense 17,954 28,876 Other expenses 6,004 9,212 - -------------------------------------------------------------------------------- Total expenses before custodian fee credit 702,303 927,767 Custodian fee credit (5,162) (10,079) - -------------------------------------------------------------------------------- Net expenses 697,141 917,688 - -------------------------------------------------------------------------------- Net investment income 5,351,959 7,070,269 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS Net realized gain (loss) from investments (8,696,173) (6,247,761) Change in net unrealized appreciation (depreciation) of investments 5,950,067 (969,471) - -------------------------------------------------------------------------------- Net gain (loss) from investments (2,746,106) (7,217,232) - -------------------------------------------------------------------------------- Net increase in net assets from operations $ 2,605,853 $ (146,963) ================================================================================ See accompanying notes to financial statements. 12 Statement of CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 1, 2002 THROUGH YEAR ENDED YEAR ENDED MARCH 31, 2003 5/31/02 5/31/01 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 5,351,959 $ 7,070,269 $ 7,734,751 Net realized gain (loss) from investments (8,696,173) (6,247,761) 308,404 Change in net unrealized appreciation (depreciation) of investments 5,950,067 (969,471) 412,312 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from operations 2,605,853 (146,963) 8,455,467 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS From and in excess of net investment income (5,458,748) (7,506,788) (7,799,896) From accumulated net realized gains from investment transactions -- (350,621) -- - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets from distributions to shareholders (5,458,748) (7,857,409) (7,799,896) - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Net proceeds from shares issued to shareholders due to reinvestment of distributions -- 158,873 -- - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets (2,852,895) (7,845,499) 655,571 Net assets at the beginning of period 130,958,620 138,804,119 138,148,548 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at the end of period $128,105,725 $130,958,620 $138,804,119 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of period $ (370,195) $ (240,437) $ 113,183 ====================================================================================================================================
See accompanying notes to financial statements. 13 Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The Fund covered in this report and its corresponding Common share New York Stock Exchange symbol is Nuveen Select Maturities Municipal Fund (NIM) (the "Fund"). The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, diversified management investment company. The Fund seeks to provide current income exempt from regular federal income tax, consistent with the preservation of capital by investing in a diversified, investment-grade quality portfolio of municipal obligations with intermediate characteristics having an initial average effective maturity of approximately ten years. In assembling and managing its portfolio, the Fund has purchased municipal obligations having remaining effective maturities of no more than fifteen years with respect to 80% of its total assets that, in the opinion of the Fund's investment adviser, represent the best value in terms of the balance between yield and capital preservation currently available from the intermediate sector of the municipal market. The Fund's investment adviser, Nuveen Advisory Corp. (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc. (formerly, The John Nuveen Company), will actively monitor the effective maturities of the Fund's investments in response to prevailing market conditions, and will adjust its portfolio consistent with its investment policy of maintaining an average effective remaining maturity for the Fund's portfolio of twelve years or less. On February 20, 2003, the Board of Trustees of the Fund approved a change in the Fund's fiscal year end from May 31 to March 31. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements in accordance with accounting principles generally accepted in the United States. Securities Valuation The prices of municipal bonds in the Fund's investment portfolio are provided by a pricing service approved by the Fund's Board of Trustees. When price quotes are not readily available (which is usually the case for municipal securities), the pricing service establishes fair market value based on yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, indications of value from securities dealers and general market conditions. If it is determined that market prices for a security are unavailable or inappropriate, the Board of Trustees of the Fund, or its designee, may establish a fair value for the security. 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. The securities so purchased are subject to market fluctuation during this period. The Fund has instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At March 31, 2003, the Fund had an outstanding when-issued purchase commitment of $2,145,419. Investment Income Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Federal Income Taxes The Fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income to its shareholders. Therefore, no federal income tax provision is required. Furthermore, the Fund intends to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal income tax, to retain such tax-exempt status when distributed to shareholders of the Fund. All monthly tax-exempt income dividends paid during the period June 1, 2002 through March 31, 2003, have been designated Exempt Interest Dividends. Dividends and Distributions to Shareholders Dividends from tax-exempt net investment income are declared and paid monthly. 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. 14 Distributions to shareholders of tax-exempt net investment income, net realized capital gains and/or market discount, if any, 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 accounting principles generally accepted in the United States. 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. Derivative Financial Instruments The Fund may invest in certain derivative financial instruments including futures, forward, swap and option contracts, and other financial instruments with similar characteristics. Although the Fund is authorized to invest in such financial instruments, and may do so in the future, it did not make any such investments during the period June 1, 2002 through March 31, 2003. Custodian Fee Credit The Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by credits earned on the 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 There were no share transactions during the period June 1, 2002 through March 31, 2003. During the fiscal year ended May 31, 2002, 14,191 shares were issued to shareholders due to reinvestment of distributions. There were no share transactions during the fiscal year ended May 31, 2001. 3. SECURITIES TRANSACTIONS Purchases and sales (including maturities) of investments in long-term municipal securities for the period June 1, 2002 through March 31, 2003, aggregated $12,335,440 and $19,799,440, respectively. Purchases and sales (including maturities) of investments in short-term securities for the period June 1, 2002 through March 31, 2003, aggregated $7,000,000 and $2,500,000, respectively. 4. INCOME TAX INFORMATION The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing income on taxable market discount securities and timing differences in recognizing certain gains and losses on security transactions. At March 31, 2003, the cost of investments owned was $118,395,348. The net unrealized appreciation of investments at March 31, 2003, aggregated $5,345,616 of which $6,184,294 related to appreciated securities and $838,678 related to depreciated securities. The tax components of undistributed net investment income and net realized gains at March 31, 2003, were as follows: - -------------------------------------------------------------------------------- Undistributed net tax-exempt income $76,094 Undistributed net ordinary income * 19,776 Undistributed net long-term capital gains -- ================================================================================ The tax character of distributions paid during the period June 1, 2002 through March 31, 2003 and fiscal year ended May 31, 2002, was designated for purposes of the dividends paid deduction as follows: 2003 - -------------------------------------------------------------------------------- Distributions from net tax-exempt income $5,478,580 Distributions from net ordinary income * 4,958 Distributions from net long-term capital gains -- ================================================================================ 2002 - -------------------------------------------------------------------------------- Distributions from net tax-exempt income $7,586,610 Distributions from net ordinary income * 349,903 Distributions from net long-term capital gains -- ================================================================================ * Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. At March 31, 2003, the Fund had an unused capital loss carryforward of $6,538,308 available to be applied against future capital gains, if any. If not applied, $14,922 of the carryforward will expire in the year 2010 and $6,523,386 will expire in 2011. The Fund has elected to defer net realized losses from investments incurred from November 1, 2002 through March 31, 2003 ("post-October losses") in accordance with Federal income tax regulations. The Fund has $8,692,592 of post-October losses that are treated as having arisen in the following fiscal year. 15 Notes to FINANCIAL STATEMENTS (continued) 5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Under the Fund's investment management agreement with the Adviser, the Fund pays an annual management fee, payable monthly, at the rates set forth below, which are based upon the average daily net assets of the Fund as follows: AVERAGE DAILY NET ASSETS MANAGEMENT FEE - -------------------------------------------------------------------------------- For the first $125 million .5000% For the next $125 million .4875 For the next $250 million .4750 For the next $500 million .4625 For the next $1 billion .4500 For net assets over $2 billion .4375 ================================================================================ The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Fund 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 Fund from the Adviser. 6. INVESTMENT COMPOSITION At March 31, 2003, the revenue sources by municipal purpose, expressed as a percent of total investments, were as follows: - -------------------------------------------------------------------------------- Consumer Staples 7% Education and Civic Organizations 10 Healthcare 20 Housing/Multifamily 6 Housing/Single Family 3 Long-Term Care 8 Materials 6 Tax Obligation/General 6 Tax Obligation/Limited 5 U.S. Guaranteed 8 Utilities 19 Other 2 - -------------------------------------------------------------------------------- 100% ================================================================================ In addition, 26% of the total investments owned by the Fund are either covered by insurance issued by several private insurers or are backed by an escrow or trust containing U.S. Government or U.S. Government agency securities, both of which ensure the timely payment of principal and interest in the event of default. Such insurance or escrow, however, does not guarantee the market value of the municipal securities or the value of the Fund's shares. For additional information regarding each investment security, refer to the Portfolio of Investments of the Fund. 7. SUBSEQUENT EVENT - DISTRIBUTIONS TO SHAREHOLDERS The Fund declared a dividend distribution of $.0440 per share from its tax-exempt net investment income which was paid on May 1, 2003, to shareholders of record on April 15, 2003. 16 Financial HIGHLIGHTS 17 Financial Highlights Selected data for a share outstanding throughout each period:
INVESTMENT OPERATIONS LESS DISTRIBUTIONS ------------------------------------ -------------------------------- NET FROM AND REALIZED/ IN EXCESS BEGINNING NET UNREALIZED OF NET ENDING ENDING NET ASSET INVESTMENT INVESTMENT INVESTMENT CAPITAL NET ASSET MARKET VALUE INCOME GAIN (LOSS) TOTAL INCOME GAINS TOTAL VALUE VALUE - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2003(a) $10.57 $.43 $(.22) $.21 $(.44) $-- $(.44) $10.34 $ 9.8500 2002 11.21 .57 (.57) -- (.61) (.03) (.64) 10.57 10.4500 2001 11.16 .62 .06 .68 (.63) -- (.63) 11.21 10.8700 2000 11.84 .63 (.59) .04 (.62) (.10) (.72) 11.16 10.1875 1999 11.95 .61 (.07) .54 (.61) (.04) (.65) 11.84 11.5625 1998 11.70 .61 .29 .90 (.61) (.04) (.65) 11.95 11.4375 ============================================================================================================================ TOTAL RETURNS RATIOS/SUPPLEMENTAL DATA ---------------------- --------------------------------------------------------------------------------------- BEFORE CREDIT AFTER CREDIT** ------------------------------- --------------------------- RATIO OF NET RATIO OF NET RATIO OF INVESTMENT RATIO OF INVESTMENT BASED ON BASED ON ENDING EXPENSES TO INCOME TO EXPENSES TO INCOME TO PORTFOLIO MARKET NET ASSET NET ASSETS AVERAGE AVERAGE AVERAGE AVERAGE TURNOVER VALUE+ VALUE+ (000) NET ASSETS NET ASSETS NET ASSETS NET ASSETS RATE - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2003(a) (1.48)% 2.03% $128,106 .65%* 4.95%* .65%* 4.96%* 6% 2002 1.87 (.06) 130,959 .69 5.23 .68 5.23 48 2001 13.15 6.19 138,804 .64 5.50 .61 5.53 35 2000 (5.48) .43 138,149 .61 5.48 .61 5.49 6 1999 6.87 4.64 146,630 .63 5.14 .62 5.15 31 1998 12.60 7.85 147,842 .65 5.17 .65 5.17 13 ==================================================================================================================================== * Annualized. ** After custodian fee credit, where applicable. + Total Return on Market Value is the combination of reinvested dividend income, reinvested capital gain distributions, if any, and changes in stock price per share. Total Return on Net Asset Value is the combination of reinvested dividend income, reinvested capital gain distributions, if any, and changes in net asset value per share. Total returns are not annualized. a) For the period June 1, 2002 through March 31, 2003.
See accompanying notes to financial statements. 18-19 SPREAD Trustees AND OFFICERS The management of the Fund, including general supervision of the duties performed for the Fund under the management agreement between Nuveen Advisory and the Fund, is the responsibility of the Board of Trustees of the Fund. The number of trustees of the Fund is currently set at seven. None of the trustees who are not "interested" persons of the Fund has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the trustees and officers of the Fund, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
NUMBER OF PORTFOLIOS POSITION(S) IN FUND HELD YEAR FIRST PRINCIPAL OCCUPATION(S) COMPLEX NAME, BIRTHDATE WITH THE ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN AND ADDRESS FUND APPOINTED(2) DURING PAST 5 YEARS BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Timothy R. Schwertfeger (1) Chairman of the 1994 Chairman and Director (since 1996) of Nuveen 142 3/28/49 Board and Investments, Inc. and Nuveen Investments, LLC; 333 W. Wacker Drive Trustee Director (since 1992) and Chairman (since 1996) of Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; Chairman and Director (since 1997) of Nuveen Asset Management, Inc.; Director (since 1996) of Institutional Capital Corporation; Chairman and Director (since 1999) of Rittenhouse Asset Management, Inc.; Chairman of Nuveen Investments Advisers Inc. (since 2002). TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Robert P. Bremner Trustee 1997 Private Investor and Management Consultant. 122 8/22/40 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Lawrence H. Brown Trustee 1993 Retired (since 1989) as Senior Vice President of The 122 7/29/34 Northern Trust Company; Director of the United Way of 333 W. Wacker Drive Highland Park-Highwood (since 2002). Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Anne E. Impellizzeri Trustee 1994 Retired, formerly, Executive Director (1998-2001) of 122 1/26/33 Manitoga/The Russel Wright Design Center; prior thereto, 333 W. Wacker Drive President and Chief Executive Officer of Blanton-Peale Chicago, IL 60606 Institute (since 1990); prior thereto, Vice President, Metropolitan Life Insurance Co. - ------------------------------------------------------------------------------------------------------------------------------------ Peter R. Sawers Trustee 1992 Adjunct Professor of Business and Economics, University of 122 4/3/33 Dubuque, Iowa; formerly (1991-2000) Adjunct Professor, Lake 333 W. Wacker Drive Forest Graduate School of Management, Lake Forest, Illinois; Chicago, IL 60606 prior thereto, Executive Director, Towers Perrin Australia, a management consulting firm; Chartered Financial Analyst; Certified Management Consultant; Director, Executive Service Corps of Chicago, a not-for-profit organization. - ------------------------------------------------------------------------------------------------------------------------------------ William J. Schneider Trustee 1997 Senior Partner and Chief Operating Officer, Miller-Valentine 122 9/24/44 Group, Vice President, Miller-Valentine Realty, a development 333 W. Wacker Drive and contract company; Chair, MiamiValley Hospital; Chair, Chicago, IL 60606 Miami Valley Economic Development Coalition; formerly, Member, Community Advisory Board, National City Bank, Dayton, Ohio and Business Advisory Council, Cleveland Federal Reserve Bank. - ------------------------------------------------------------------------------------------------------------------------------------ Judith M. Stockdale Trustee 1997 Executive Director, Gaylord and Dorothy Donnelley Foundation 122 12/29/47 (since 1994); prior thereto, Executive Director, Great Lakes 333 W. Wacker Drive Protection Fund (from 1990 to 1994). Chicago, IL 60606 20 NUMBER OF PORTFOLIOS POSITION(S) IN FUND HELD YEAR FIRST PRINCIPAL OCCUPATION(S) COMPLEX NAME, BIRTHDATE WITH THE ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN AND ADDRESS FUND APPOINTED(3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary 142 9/9/56 Administrative and Associate General Counsel, formerly, Vice President 333 W. Wacker Drive Officer and Assistant General Counsel of Nuveen Investments, LLC; Chicago, IL 60606 Managing Director (since 2002), General Counsel and Assistant Secretary, formerly, Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; Managing Director (since 2002), Assistant Secretary and Associate General Counsel, formerly, Vice President (since 2000), of Nuveen Asset Management, Inc.; Assistant Secretary of Nuveen Investments, Inc. (since 1994); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since May 2003); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant 142 2/3/66 and Assistant Vice President (since 2000), previously, Associate of 333 W. Wacker Drive Secretary Nuveen Investments, LLC. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Paul L. Brennan Vice President 1999 Vice President (since 2002), formerly, Assistant 135 11/10/66 Vice President (since 1997), of Nuveen Advisory Corp.; 333 W. Wacker Drive prior thereto, portfolio manager of Flagship Financial Inc.; Chicago, IL 60606 Chartered Financial Analyst and Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 142 11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); Vice 333 W. Wacker Drive President and Treasurer of Nuveen Investments, Inc. (since Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (since 1999); Vice President and Treasurer of Nuveen Asset Management, Inc. (since 2002) and of Nuveen Investments Advisers Inc. (since 2002); Assistant Treasurer of NWQ Investment Management Company, LLC (since 2002); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Susan M. DeSanto Vice President 2001 Vice President of Nuveen Advisory Corp. (since 2001); 142 9/8/54 previously, Vice President of Van Kampen Investment 333 W. Wacker Drive Advisory Corp. (since 1998); Vice President of Nuveen Chicago, IL 60606 Institutional Advisory Corp. (since 2002); prior thereto, Assistant Vice President of Van Kampen Investment Advisory Corp. (since 1994). - ------------------------------------------------------------------------------------------------------------------------------------ Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General Counsel 142 9/24/64 and Secretary (since 1998); formerly, Assistant Vice President (since 1998) 333 W. Wacker Drive of Nuveen Investments, LLC; Vice President (since 2002) Chicago, IL 60606 and Assistant Secretary (since 1998), formerly Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. 21 Trustees AND OFFICERS (CONTINUED) NUMBER OF PORTFOLIOS POSITION(S) IN FUND HELD YEAR FIRST PRINCIPAL OCCUPATION(S) COMPLEX NAME, BIRTHDATE WITH THE ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN AND ADDRESS FUND APPOINTED(3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): - ------------------------------------------------------------------------------------------------------------------------------------ Lorna C. Ferguson Vice President 1998 Vice President of Nuveen Investments, LLC; Vice 142 10/24/45 President (since 1998) of Nuveen Advisory Corp. and 333 W. Wacker Drive Nuveen Institutional Advisory Corp. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 142 3/2/64 LLC; Managing Director (since 2001), formerly Vice 333 W. Wacker Drive President of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp. (since 1995); Managing Director of Nuveen Asset Management, Inc. (since 2001); Vice President of Nuveen Investment Advisers Inc. (since 2002); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 142 5/31/54 and Controller 1998) of Nuveen Investments, LLC and Vice President and 333 W. Wacker Drive Funds Controller (since 1998) of Nuveen Investments, Inc.; Chicago, IL 60606 Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ J. Thomas Futrell Vice President 1992 Vice President of Nuveen Advisory Corp.; 135 7/5/55 Chartered Financial Analyst. 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Richard A. Huber Vice President 1997 Vice President of Nuveen Institutional Advisory Corp. 135 3/26/63 (since 1998) and Nuveen Advisory Corp. (since 1997); 333 W. Wacker Drive prior thereto, Vice President and Portfolio Manager of Chicago, IL 60606 Flagship Financial, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Steven J. Krupa Vice President 1990 Vice President of Nuveen Advisory Corp. 135 8/21/57 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, LLC, 142 3/22/63 previously Assistant Vice President (since 1999); prior 333 W. Wacker Drive thereto, Associate of Nuveen Investments, LLC; Certified Chicago, IL 60606 Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 142 8/27/61 President (since 1993) of Nuveen Investments, LLC. 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Larry W. Martin Vice President 1998 Vice President, Assistant Secretary and Assistant General 142 7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and 333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp.; Assistant Secretary of Nuveen Investments, Inc. and (since 1997) Nuveen Asset Management, Inc.; Vice President (since 2000), Assistant Secretary and Assistant General Counsel (since 1998) of Rittenhouse Asset Management, Inc.; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002). 22 NUMBER OF PORTFOLIOS POSITION(S) IN FUND HELD YEAR FIRST PRINCIPAL OCCUPATION(S) COMPLEX NAME, BIRTHDATE WITH THE ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN AND ADDRESS FUND APPOINTED(3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): - ------------------------------------------------------------------------------------------------------------------------------------ Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, 142 7/7/65 LLC; Managing Director (since 1997), formerly Vice 333 W. Wacker Drive President (since 1996) of Nuveen Advisory Corp. and Chicago, IL 60606 Nuveen Institutional Advisory Corp.; Managing Director of Nuveen Asset Management, Inc. (since 1999). Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. O'Shaughnessy Vice President 1999 Vice President (since 2002), formerly, Assistant 135 9/4/60 Vice President (since 1998), of Nuveen Advisory Corp.; 333 W. Wacker Drive prior thereto, portfolio manager. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas C. Spalding Vice President 1992 Vice President of Nuveen Advisory Corp. and Nuveen 135 7/31/51 Institutional Advisory Corp.; Chartered Financial Analyst. 333 W. Wacker Drive Chicago, IL 60606 (1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the Investment Company Act of 1940, because he is an officer and trustee of Nuveen Advisory Corp. (2) Trustees serve a one-year term until his/her successor is elected. (3) Officers serve one year terms through July of each year.
23 Build Your Wealth AUTOMATICALLY SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. Just like dividends or distributions in cash, there may be times when income or capital gains taxes may be payable on dividends or distrib utions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. FLEXIBILITY You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 24 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 CUSTODIAN State Street Bank & Trust Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 LEGAL COUNSEL Morgan, Lewis & Bockius LLP Washington, D.C. INDEPENDENT AUDITORS Ernst & Young LLP Chicago, IL POLICY CHANGE On November 14, 2002, the Board adopted a policy that allows this Fund, in addition to investments in municipal bonds, to invest up to 5% of its net assets (including assets attributable to preferred shares, if any) in tax-exempt or taxable fixed-income securities or equity securities for the purpose of acquiring control of an issuer whose municipal bonds (a) the Fund already owns and (b) have deteriorated or are expected shortly to deteriorate significantly in credit quality, provided Nuveen Advisory determines that such investment should enable the Fund to better maximize the value of its existing investment in such issuer. This policy is a non-fundamental policy of the Fund which means that it can be changed at any time by the Board of Trustees without vote of the shareholders. GLOSSARY OF TERMS USED IN THIS REPORT Average Annual Total Return: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return (including change in NAV and reinvested dividends) that would have been necessary on an annual basis to equal the investment's actual performance over the time period being considered. Average Duration: Duration is a measure of a bond or bond fund's sensitivity to changes in interest rates. Generally, the longer a bond or fund's duration, the more the price of the bond or fund will change as interest rates change. Average Effective Maturity: The average of all the maturities of the bonds in a fund's portfolio, computed by weighting each maturity date (the date the security comes due) by the market value of the security. This figure does not account for the likelihood of prepayments or the exercise of call provisions. Market Yield (also known as Dividend Yield or Current Yield): An investment's current annualized dividend divided by its current market price. Net Asset Value (NAV): A fund's NAV is calculated by subtracting the liabilities of the fund from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. Taxable-Equivalent Yield: The yield necessary from a fully taxable investment to equal, on an after-tax basis, the yield of a municipal bond investment. - --------- This Fund intends to repurchase shares of its own common stock in the future at such times and in such amounts as is deemed advisable. No shares were repurchased during the period ended March 31, 2003. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 25 Serving Investors FOR GENERATIONS Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. As a premier asset management firm, managing $80 billion in assets, Nuveen Investments offers access to a number of different asset classes and investing solutions through a variety of products. Nuveen Investments markets its capabilities under four distinct brands: Nuveen, a leader in tax-free investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; and Symphony, a leading institutional manager of market-neutral alternative investment portfolios. To learn more about the products and services Nuveen Investments offers and for a prospectus, where applicable, talk to your financial advisor, or call us at (800) 257-8787. Please read the information carefully before you invest. Distributed by NUVEEN INVESTMENTS, LLC | 333 West Wacker Drive | Chicago, Illinois 60606 | www.nuveen.com EAN-A-0303D -----END PRIVACY-ENHANCED MESSAGE-----