-----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, R+Z0v8cHOb0Y04/WxOpagN2jF8CRpPEXtGwg7RpfuXBmOdyMt7ogG9YTVdntK6XW E7Gi6zXBJHP/MrfdF/E9cg== 0000891804-03-000335.txt : 20030207 0000891804-03-000335.hdr.sgml : 20030207 20030207084353 ACCESSION NUMBER: 0000891804-03-000335 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030207 EFFECTIVENESS DATE: 20030207 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: 03543464 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 nv28116.txt ESA-A-1102D SEMIANNUAL REPORT November 30, 2002 Nuveen Municipal Closed-End Exchange-Traded Funds SELECT MATURITIES NIM Photo of: Girl and woman looking at starfish. Photo of: Couple walking. DEPENDABLE, TAX-FREE INCOME BECAUSE IT'S NOT WHAT YOU EARN, IT'S WHAT YOU KEEP.(R) Logo: NUVEEN Investments RECEIVE YOUR NUVEEN FUND UPDATES FASTER THAN EVER! By registering for online access, you can view and save on your computer the Fund information you currently receive in the mail. This information then can be retrieved any time, and you can select only the specific pages you want to view or print. Once you sign up, you'll receive an e-mail notice the moment Fund reports are ready. This notice will contain a link to the report - all you have to do is click on the internet address provided. You'll be saving time, as well as saving printing and distribution expenses for your Fund. Registering for electronic access is easy and only takes a few minutes. (see instructions at right) Your e-mail address is strictly confidential and will not be used for anything other than notifications of shareholder information. And if you decide you don't like receiving your reports electronically, it's a simple process to go back to regular mail delivery. Logo: NUVEEN Investments SIGN UP TODAY -- HERE'S ALL YOU NEED TO DO... 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 Look at the address sheet that accompanied this report. Enter the personal 13-CHARACTER ENROLLMENT NUMBER imprinted near your name on the address sheet. 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 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 the Access Account tab. Select the E-REPORT ENROLLMENT section. Click on Enrollment Page. 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. Photo of: Timothy R. Schwertfeger Chairman of the Board Sidebar text: "I URGE YOU TO CONSIDER RECEIVING FUTURE FUND REPORTS AND OTHER FUND INFORMATION THROUGH THE INTERNET AND BY E-MAIL... SEE THE INSIDE FRONT COVER OF THIS REPORT FOR STEP-BY-STEP INSTRUCTIONS." Dear SHAREHOLDER Once again, I am pleased to write that during the period covered by this report your Nuveen Fund continued to meet its objective of providing monthly income free from federal income taxes. Detailed information on your Fund's performance can be found in the Portfolio Manager's Comments and on the Performance Overview pages within this report. Please take the time to read them. In addition to providing regular tax-free income, we believe that a municipal bond investment like your Nuveen Fund also may offer opportunities to reduce the risk of your overall investment portfolio. This is because the prices of municipal bonds may move differently than the prices of the common stocks, mutual funds or other investments you may own. Since one part of your portfolio may be going up when another is going down, portfolio diversification may reduce your overall risk. Your financial advisor can explain the advantages of portfolio diversification in more detail. I urge you to contact him or her soon for more information on this important investment strategy. I also urge you to consider receiving future Fund reports and other Fund information through the Internet and by e-mail rather than in hard copy. Not only will you be able to receive the information faster, but this also may help lower your Fund expenses. Sign up is quick and easy - see the inside front cover of this report for step-by-step instructions. For more than 100 years, Nuveen has specialized in offering quality investments such as your Nuveen Fund to those seeking to accumulate and preserve wealth. Our commitment to careful research, constant surveillance and judicious trading by our seasoned portfolio management team has never been stronger. Our mission continues to be to assist you and your financial advisor by offering the investment solutions and services that can help you meet your financial objectives. We thank you for choosing us as a partner as you work toward that goal. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board January 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 May 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 and continued geopolitical uncertainty also had an economic impact during this reporting period. In the municipal market, the sluggish economic recovery and lack of inflationary pressures helped many bonds perform well during much of 2002. However, during October and, to a lesser degree, November 2002, the market environment for all fixed income investments was negatively impacted by a rebound in the equity markets, which appeared to prompt some investors to sell fixed income products and purchase common stocks. During the first eleven months of 2002, new municipal supply nationwide reached a record $328 billion, a 27% increase over January-November 2001 levels. Demand for municipal bonds also remained strong over most of this period, as many individual investors continued to seek investments offering tax-free income and diversification for their portfolios. Institutional investors, especially traditional municipal bond purchasers such as property/casualty insurance companies, also were active municipal buyers. HOW DID NIM PERFORM OVER THE TWELVE MONTHS ENDED NOVEMBER 30, 2002? Results for the Nuveen Select Maturities Municipal Fund as well as relevant benchmarks are presented in the table below. TOTAL RETURN LEHMAN LIPPER MARKET YIELD ON NAV TOTAL RETURN1 AVERAGE2 - --------------------------------------------------------------------------- 1 YEAR 1 YEAR 1 YEAR TAXABLE- ENDED ENDED ENDED 11/30/02 EQUIVALENT3 11/30/02 11/30/02 11/30/02 - --------------------------------------------------------------------------- NIM 5.39% 7.70% -0.04% 7.02% 4.12% - --------------------------------------------------------------------------- Past performance is not predictive of future results. For additional information, see the Performance Overview in this report. For the twelve months ended November 30, 2002, NIM's total return significantly trailed both the Lehman Brothers 7-Year Municipal Bond Index as well as its Lipper peer group average. We believe some of this disappointing performance can be attributed to general market factors, and the rest to a few specific holdings within the Fund's portfolio. Looking at the general market context, one important dynamic was the relatively short duration4 of the Fund, even after taking its intermediate-term positioning into account. Generally, longer duration funds would be expected to perform better than shorter duration funds during periods of falling interest rates - as was the case during much of the reporting period. As of November 30, 2002, NIM had a duration of 4.93, compared with 5.45 for the Lehman Index. Another general market factor was the widening of credit spreads over much of the reporting period. During periods of economic uncertainty, higher rated bonds may often perform better than lower rated bonds. This was the general market pattern over much of this reporting period. As of November 30, 2002, NIM had about 24% of its portfolio in bonds rated BBB or lower. 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 unleveraged 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%. 4 Duration is a measure of a Fund's NAV volatility in reaction to interest rate movements. 2 Part of the reason for this relatively large portion of lower-rated bonds were the Fund's holdings of distressed or nonperforming issues. As one example, the Fund held several bonds backed by private air carriers. 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 possibility of a bankruptcy declaration by United Air Lines. (United filed for bankruptcy protection on December 9, 2002.) Specifically, NIM held a $3.45 million par value position in United-backed bonds that fell in market value to 19 cents on the dollar from 61 cents over the twelve month period. The Fund also held a $4.5 million par value position in American Airlines bonds, which declined to 62 cents from 89 cents over the same period. Looking at the Fund's United bonds, we believe the positions we hold support important, ongoing operations, and that United has every intention of continuing to honor the obligations underlying these securities. Over the longer-term, we believe air travel will remain a major component of transportation in this country, and we think these airline-backed bonds, at their current depressed levels, are positioned to appreciate in value if and when the outlook for these companies improves. NIM's performance also was negatively impacted 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 $1.2 million par value holding of bonds issued for Winslow Memorial Hospital (Arizona). The CanFibre bonds, which funded a wood particle board facility, continued to depreciate following the failure of a restructuring plan, falling to 21 cents on the dollar from 41 cents over the year period. We are currently actively involved in talks regarding the sale of this facility. The Winslow Hospital bonds also depreciated over the twelve months ended November 30, 2002, to 68 cents from 96 cents, due to the poor financial performance of this small, non-rated hospital. Together, these airline, industrial and health care holdings totaled approximately 11% of the par value of the bonds held by the Fund. We were disappointed that several unrelated credit issues occurred more or less simultaneously within the portfolio of this one Fund. All of these distressed bonds are in various stages of recovery or workout, and we continue to monitor each situation carefully. In each case, we intend to pursue our rights and opportunities vigorously and will be guided by what we believe is in the best long-term interests of the Fund's shareholders. Because of this recent performance, we have subsequently reviewed our research and investment procedures. We are convinced they remain fundamentally sound, and we are ready to evolve our systems as needed to meet future market and investment conditions. HOW WERE NIM'S DIVIDEND AND SHARE PRICE AFFECTED? During the year ended November 30, 2002, the need to reinvest the proceeds from called and maturing bonds in today's relatively lower interest rate environment, combined with the credit issues discussed above, resulted in two dividend cuts in NIM. Over the course of this twelve-month period, both the share price and the net asset value of NIM declined. The Fund moved from trading at a premium to its common share net asset value to trading at a discount as of November 30, 2002 (see charts on the Performance Overview page). 3 WHAT KEY STRATEGIES WERE USED TO MANAGE NIM DURING THE YEAR ENDED NOVEMBER 30, 2002? Over the twelve month 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 noted earlier. In September 2002, NIM marked its 10-year anniversary, a period often characterized by an increase in call exposure. 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 long-term value for our shareholders. Over the twelve months ended November 30, 2002, we worked through much of NIM's 2002 and 2003 call exposure. Among the bonds added to the Fund were a select number of BBB credits that were offered at very attractive prices and that also fit our call and dividend strategies. One of these additions was 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 and could continue to benefit as the federal government increases defense spending. In the current geopolitical and economic climate, we believe improving credit quality is a key requirement. As noted earlier, about one-quarter of the Fund's portfolio is rated BBB or lower. We are attempting to counterbalance this exposure with a significant holding of AAA and AA rated bonds. As of November 30, 2002, more than 50% 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? In general, our outlook for the fixed income markets remains positive. We believe the U.S. economy is headed for an eventual recovery, but one that may be less robust and slower to arrive than some are predicting. We expect inflation and interest rates to remain relatively low over the near term, while new municipal volume nationally should continue to be strong, though probably below the record levels seen in 2002, as issuers take advantage of the low rate environment for both new issues and refinancings. Demand for tax-exempt municipal bonds should remain solid, as investors continue to look for ways to rebalance their portfolios and reduce overall investment risk. We believe that NIM will generally offer good levels of call protection over the next two years, with call exposure of 18% in 2003 and just 5% in 2004. As mentioned, we've been working to mitigate the call risk and improve the overall positioning of this Fund. While the number of actual calls experienced by NIM will depend largely on market interest rates over this time, we believe the short-term call exposure of this Fund is manageable. In the months ahead, some of our specific areas of concentration will be to continue working through NIM's credit issues and emphasizing strategies that provide support for the Fund's long-term dividend-payment capabilities. We believe that the shorter maturity of this Fund, and its potential to benefit from spread contraction 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 November 30, 2002 NIM Pie Chart: CREDIT QUALITY AAA/U.S. GUARANTEED 38% AA 13% A 19% BBB 21% NR 6% BB OR LOWER 3% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $9.80 - -------------------------------------------------- Common Share Net Asset Value $10.32 - -------------------------------------------------- Market Yield 5.39% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 7.70% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $127,967 - -------------------------------------------------- Average Effective Maturity (Years) 12.22 - -------------------------------------------------- Average Duration 4.93 - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 9/92) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- 1-Year -7.28% -0.04% - -------------------------------------------------- 5-Year 3.13% 2.85% - -------------------------------------------------- 10-Year 4.51% 4.89% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Healthcare 22% - -------------------------------------------------- Utilities 16% - -------------------------------------------------- Long-Term Care 8% - -------------------------------------------------- U.S. Guaranteed 8% - -------------------------------------------------- Consumer Staples 7% - -------------------------------------------------- Bar Chart: 2001-2002 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 12/01 0.051 1/02 0.051 2/02 0.051 3/02 0.046 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 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 12/1/01 10.89 10.75 10.67 10.7 10.62 10.95 11 10.95 11.14 11.05 10.94 10.91 11.12 11 10.77 10.35 10.33 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 11/30/02 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 capital gains distribution in December 2001 of $0.0283 per share. 5 Shareholder MEETING REPORT The Shareholder Meeting was held July 31, 2002 in Chicago at Nuveen's headquarters. NIM - -------------------------------------------------------------------------------- APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS: Common Shares ================================================================================ Robert P. Bremner For 11,666,718 Withhold 92,375 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ Lawrence H. Brown For 11,670,518 Withhold 88,575 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ Anne E. Impellizzeri For 11,664,402 Withhold 94,691 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ Peter R. Sawers For 11,668,518 Withhold 90,575 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ Judith M. Stockdale For 11,668,218 Withhold 90,875 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ William J. Schneider For 11,668,918 Withhold 90,175 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ Timothy R. Schwertfeger For 11,668,918 Withhold 90,175 - -------------------------------------------------------------------------------- Total 11,759,093 ================================================================================ 6 Nuveen Select Maturities Municipal Fund (NIM) Portfolio of INVESTMENTS November 30, 2002 (Unaudited)
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 Aa1 $2,026,860 Bonds, Series 2001, 5.750%, 12/01/17 500 Marshall County Health Care Authority, Alabama, Revenue Bonds, 1/12 at 101.00 A- 521,045 Series 2002A, 6.250%, 1/01/22 - ------------------------------------------------------------------------------------------------------------------------------------ ARIZONA - 5.4% 2,470 Arizona Educational Loan Marketing Corporation, Educational Loan 3/03 at 101.00 Aa2 2,501,344 Revenue Bonds, 6.375%, 9/01/05 (Alternative Minimum Tax) 3,240 Industrial Development Authority of the City of Phoenix, Arizona, 4/08 at 101.50 AAA 3,544,301 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, Arizona, No Opt. Call N/R 806,914 Hospital Revenue Bonds (Winslow Memorial Hospital Project), Series 1998, 5.750%, 6/01/08 - ------------------------------------------------------------------------------------------------------------------------------------ ARKANSAS - 2.2% 770 Arkansas Student Loan Authority, Student Loan Revenue Bonds, 12/02 at 101.00 A 779,633 Series 1992A-2 (Subordinate), 6.750%, 6/01/06 (Alternative Minimum Tax) 1,000 City of Fort Smith, Arkansas, Water and Sewer Revenue Bonds, 10/11 at 100.00 AAA 1,059,000 Series 2002A, Refunding and Construction, 5.250%, 10/01/17 1,000 Jonesboro, Arkansas, Industrial Development Revenue Bonds, No Opt. Call A+ 1,008,420 Anheuser Busch, Inc. Project, Series 2002, 4.600%, 11/15/12 - ------------------------------------------------------------------------------------------------------------------------------------ COLORADO - 6.5% 1,500 Colorado Educational and Cultural Facilities Authority, Charter 7/12 at 100.00 BBB 1,461,930 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, Healthcare 12/11 at 100.00 BBB+ 1,007,320 Revenue Bonds, Series 2001A, 6.000%, 12/01/23 395 El Paso County, Colorado, Single Family Mortgage Revenue No Opt. Call Aaa 424,234 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 1,370,814 Revenue Bonds, Series 2001B, 0.000%, 6/15/27 1,000 Summit County, Colorado, Sports Facilities Refunding Revenue No Opt. Call AAA 1,173,200 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 2,846,110 Bonds, Series 2001A, 5.600%, 11/15/21 - ------------------------------------------------------------------------------------------------------------------------------------ CONNECTICUT - 1.5% Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue Bonds (Wheelabrator Lisbon Project), Series 1993A: 500 5.500%, 1/01/14 (Alternative Minimum Tax) 1/03 at 102.00 BBB 488,225 1,570 5.500%, 1/01/15 (Alternative Minimum Tax) 1/03 at 102.00 BBB 1,467,244 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRICT OF COLUMBIA - 4.4% District of Columbia, Washington, D.C., General Obligation Refunding Bonds, Series 1993A: 900 6.000%, 6/01/07 No Opt. Call AAA 1,022,661 4,105 6.000%, 6/01/07 No Opt. Call AAA 4,632,369 - ------------------------------------------------------------------------------------------------------------------------------------ FLORIDA - 0.7% 865 Escambia County, Florida, Pollution Control Revenue Bonds, 8/04 at 102.00 BBB 902,282 Champion International Corporation Project, Series 1994, 6.900%, 8/01/22 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ GEORGIA - 0.2% 280 Atlanta Urban Residential Finance Authority, Georgia, Revenue No Opt. Call N/R*** 294,129 Bonds (Landrum Arms Project), Series 1994, 6.750%, 7/01/04 7 Nuveen Select Maturities Municipal Fund (NIM) (continued) Portfolio of INVESTMENTS November 30, 2002 (Unaudited) PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ ILLINOIS - 14.0% $ 2,145 Chicago Metropolitan Housing Development Corporation, Illinois, 7/03 at 100.00 AAA $2,152,937 Housing Development Revenue Refunding Bonds (FHA-Insured Mortgage Loan - Section 8 Assisted Project), Series 1993B, 5.700%, 1/01/13 3,450 City of Chicago, Illinois, O'Hare International Airport, Special No Opt. Call Ca 655,500 Facility Revenue Bonds, United Air Lines, Inc. Project, Series 2001A, 6.375%, 11/01/35 (Alternative Minimum Tax) (Mandatory put 5/01/13)# 1,000 City of Chicago, Illinois, Tax Increment Allocation Bonds (Irving/ 1/09 at 100.00 N/R 991,950 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 169,556 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 2,108,820 Bonds, Series 1993D, Olin Corporation Project, 6.750%, 3/01/16 5,000 Illinois Development Finance Authority, Revenue Bonds (Greek 4/11 at 105.00 Aaa 5,929,050 American Nursing Home Project), Series 2000A, 7.600%, 4/20/40 1,325 Illinois Development Finance Authority, Child Care Facility Revenue 3/03 at 102.00 N/R 1,353,686 Bonds (Illinois Facilities Fund Project), Series 1992, 7.400%, 9/01/04 1,000 Illinois Health Facilities Authority, Revenue Refunding Bonds 2/04 at 102.00 A+ 1,018,700 (Edward Hospital Project), Series 1993A, 6.000%, 2/15/19 1,210 Illinois Health Facilities Authority, Revenue Refunding Bonds 8/09 at 101.00 A- 1,178,939 (Silver Cross Hospital and Medical Centers), Series 1999, 5.500%, 8/15/19 1,335 Illinois Housing Development Authority, Section 8 Elderly Housing 5/03 at 102.00 A 1,363,716 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 1,071,470 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 1,138,500 Series 1992D Bonds, 6.600%, 2/01/07 - ------------------------------------------------------------------------------------------------------------------------------------ IOWA - 1.2% 1,800 Tobacco Settlement Authority, Iowa, Tobacco Settlement 6/11 at 101.00 A1 1,564,596 Asset-Backed Revenue Bonds, Series 2001B, 5.300%, 6/01/25 - ------------------------------------------------------------------------------------------------------------------------------------ KANSAS - 2.7% 3,500 Wichita, Kansas, Hospital Revenue Refunding and Improvement 11/11 at 101.00 A+ 3,509,205 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- 2,050,240 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 1,106,314 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 973,600 Revenue Refunding Bonds, Ogden Haverhill Project, Series 1992A Remarketing, 4.850%, 12/01/05 - ------------------------------------------------------------------------------------------------------------------------------------ MICHIGAN - 3.5% 1,000 Cornell Township Economic Development Corporation, Michigan, 5/12 at 100.00 BBB 988,470 Environmental Improvement Revenue Refunding Bonds, MeadWestvaco Corporation - Escanaba Project, Series 2002, 5.875%, 5/01/18 2,332 Michigan State Hospital Finance Authority, Detroit Medical No Opt. Call Baa2 2,357,603 Center Collateralized Loan, Series 2001, 7.360%, 4/01/07 470 Michigan State Hospital Finance Authority, Revenue Bonds, No Opt. Call BBB- 470,677 Detroit Medical Center, Series 1988A Refunding, 8.125%, 8/15/12 600 Michigan State Hospital Finance Authority, Hospital Revenue 1/06 at 102.00 Baa3 602,514 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 $1,120,340 Bonds, Series 2000A, 7.000%, 12/01/11 - ------------------------------------------------------------------------------------------------------------------------------------ NEW YORK - 5.6% 5,000 Erie County, New York, Industrial Development Agency, Solid 12/10 at 103.00 N/R 1,050,000 Waste Disposal Facility Revenue Bonds (1998 CanFibre of Lackawanna Project), 8.875%, 12/01/13 (Alternative Minimum Tax)## 1,500 New York State Energy Research and Development Authority, No Opt. Call A+ 1,491,735 Facilities Revenue Bonds, Consolidated Edison Company, Inc. Project, Series 2001A, 4.700%, 6/01/36 (Alternative Minimum Tax) (Mandatory put 10/01/12) 1,745 New York State Medical Care Facilities Finance Agency, 2/06 at 102.00 AA+ 1,929,394 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 2,643,564 Plant (Serial) Bonds, Series 1994, 8.500%, 11/01/07 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ OHIO - 4.1% 2,000 Akron, Bath and Copley Joint Township Hospital District, Ohio, 5/03 at 102.00 Baa1 2,042,300 Hospital Facilities Revenue Bonds (Summa Health System Project), Series 1992, 6.250%, 11/15/07 3,000 County of Hamilton, Ohio, Hospital Facilities Revenue Refunding No Opt. Call A*** 3,243,090 Bonds (Bethesda Hospital, Inc.), Series 1992A, 6.250%, 1/01/06 - ------------------------------------------------------------------------------------------------------------------------------------ OKLAHOMA - 3.0% 1,000 Oklahoma Industries Authority, Health System Revenue 8/06 at 102.00 AAA 1,022,090 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 4,500 Trustees of the Tulsa Municipal Airport Trust, Oklahoma, Revenue 12/08 at 100.00 BB- 2,797,965 Bonds, Refunding Series 2000B, 6.000%, 6/01/35 (Alternative Minimum Tax) (Mandatory put 12/01/08) - ------------------------------------------------------------------------------------------------------------------------------------ PENNSYLVANIA - 5.8% 1,500 Pennsylvania Economic Development Financing Authority, 12/04 at 102.00 BBB- 1,558,635 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 3,923,348 Loan Revenue Bonds, 1988 Series D, 6.050%, 1/01/19 (Alternative Minimum Tax) 1,545 Pennsylvania Higher Educational Facilities Authority, College No Opt. Call Aaa 1,898,357 Revenue Bonds, Ninth Series, 7.625%, 7/01/15 - ------------------------------------------------------------------------------------------------------------------------------------ SOUTH CAROLINA - 1.4% 1,250 South Carolina Jobs-Economic Development Authority, Hospital No Opt. Call BBB 1,341,563 Revenue Bonds, Palmetto Health Alliance, Series 2000A, 7.000%, 12/15/10 500 Tobacco Settlement Revenue Management Authority, 5/11 at 101.00 A1 486,845 South Carolina, Tobacco Settlement Asset-Backed Bonds, Series 2001B, 6.000%, 5/15/22 - ------------------------------------------------------------------------------------------------------------------------------------ TENNESSEE - 1.6% 2,000 Health, Educational and Housing Facility Board of the County 9/12 at 100.00 BBB+ 2,054,460 of Shelby, Tennessee, Hospital Revenue Bonds, Methodist Healthcare, Series 2002, 6.000%, 9/01/17 - ------------------------------------------------------------------------------------------------------------------------------------ TEXAS - 5.6% 500 Austin-Travis County, Texas, MHMR Center Revenue Bonds 3/05 at 101.00 AAA 546,585 (Mental Health and Mental Retardation Center Facilities Acquisition Program), Series 1995-A, 6.500%, 3/01/15 500 Brazos River Harbor Navigation District, Brazoria County, Texas, 5/12 at 101.00 A 496,695 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) 375 City of Galveston, Texas, Property Finance Authority, Inc., 3/03 at 102.00 A3 383,483 Single Family Mortgage Revenue Bonds, Series 1991A, 8.500%, 9/01/11 870 Texas Community MHMR Centers, Revenue Bonds (Mental Health 3/05 at 101.00 AAA 951,058 and Mental Retardation Center Facilities Acquisition Program), Series 1995C, 6.500%, 3/01/15 2,750 Navigation District No. 1 of Matagorda County, Texas, Pollution No Opt. Call BBB+ 2,596,743 Control Revenue Bonds, Central Power & Light Company Refunding, Series 2001A, 4.550%, 11/01/29 (Mandatory put 11/01/06) 9 Nuveen Select Maturities Municipal Fund (NIM) (continued) Portfolio of INVESTMENTS November 30, 2002 (Unaudited) PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TEXAS (continued) $ 900 Tom Green County, Texas, Health Facilities Development No Opt. Call Baa3 $ 927,342 Corporation, Hospital Revenue Bonds, Shannon Health System Project, Series 2001, 5.600%, 5/15/06 500 Travis County Health Facilities Development Corporation, Texas, 11/03 at 102.00 Aaa 529,925 Hospital Revenue Bonds (Daughters of Charity National Health System - Daughters of Charity Health Services of Austin), Series 1993B, 5.900%, 11/15/07 680 Tri-County MHMR Services, Texas, Revenue Bonds (Mental 3/05 at 101.00 AAA 743,356 Health and Mental Retardation Center Facilities Acquisition Program), Series 1995-E, 6.500%, 3/01/15 - ------------------------------------------------------------------------------------------------------------------------------------ UTAH - 1.6% 2,055 City of Bountiful, Davis County, Utah, Hospital Revenue No Opt. Call N/R 2,033,669 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, 1/03 at 103.00 A-1+ 2,087,500 Multifamily Housing Revenue Refunding Bonds (Chase Hampton II Apartments), Series 1994, 7.000%, 7/01/24 (Mandatory put 7/01/04) - ------------------------------------------------------------------------------------------------------------------------------------ WASHINGTON - 9.1% Washington Public Power Supply System, Nuclear Project No. 1 Refunding Revenue Bonds, Series 1993A: 160 7.000%, 7/01/07 No Opt. Call Aa1 186,458 1,340 7.000%, 7/01/07 No Opt. Call Aa1*** 1,583,585 1,130 7.000%, 7/01/08 No Opt. Call Aa1*** 1,355,480 1,870 7.000%, 7/01/08 No Opt. Call Aa1 2,208,919 7,000 Washington Public Power Supply System, Nuclear Project No Opt. Call Aa1 6,301,680 No. 3 Refunding Revenue Bonds, Series 1990B, 0.000%, 7/01/06 - ------------------------------------------------------------------------------------------------------------------------------------ WEST VIRGINIA - 3.6% 2,000 County Commission of Harrison County, West Virginia, 8/04 at 102.00 AAA 2,158,320 Solid Waste Disposal Revenue Bonds, West Penn Power Company Project, Series 1994C, 6.750%, 8/01/24 (Alternative Minimum Tax) 2,450 South Charleston, West Virginia, Industrial Development Revenue No Opt. Call A 2,456,002 Bonds, Union Carbide Chemicals and Plastic, Series 1990A, 8.000%, 8/01/20 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ WISCONSIN - 5.5% 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 A1 959,650 1,480 6.375%, 6/01/32 6/12 at 100.00 A1 1,428,600 3,500 Wisconsin Health and Educational Facilities Authority, 2/03 at 102.00 AAA 3,597,750 Revenue Bonds (Sisters of the Sorrowful Mother- Ministry Corporation), Series 1993A, 6.125%, 8/15/13 1,000 Wisconsin Health and Educational Facilities Authority, Revenue 7/11 at 100.00 A- 1,031,730 Bonds, Agnesian Healthcare, Inc., Series 2001, 6.000%, 7/01/21 - ------------------------------------------------------------------------------------------------------------------------------------ $ 133,962 Total Long-Term Investments (cost $129,161,557) - 97.9% 125,262,294 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.1% 2,705,165 -------------------------------------------------------------------------------------------------------------------- Net Assets - 100% $127,967,459 ==================================================================================================================== * Optional Call Provisions: 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: 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. # On December 9, 2002, UALCorporation, the holding company of United Air Lines, Inc., filed for federal bankruptcy protection. The Adviser believes United will remain current on their interest payment obligations with respect to these bonds, which relate to essential operating facilities. ## Non-income producing security. In September of 2002, the Erie County Acquisition Corporation, Inc. (an entity formed by Nuveen for the benefit of the Nuveen Funds owning various interests in CanFibre of Lackawanna) took possession of the CanFibre of Lackawanna assets on behalf of the various Nuveen Funds. Erie County Acquisition Corporation, Inc. has determined that a sale of the facility is in the best interests of shareholders and is proceeding accordingly. N/R Investment is not rated. See accompanying notes to financial statements.
10 Statement of ASSETS AND LIABILITIES November 30, 2002 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investments in municipal securities, at market value $ 125,262,294 Receivables: Interest 2,467,464 Investments sold 2,839,847 Other assets 581 - -------------------------------------------------------------------------------- Total assets 130,570,186 - -------------------------------------------------------------------------------- LIABILITIES Cash overdraft 2,466,814 Accrued expenses: Management fees 52,773 Other 83,140 - -------------------------------------------------------------------------------- Total liabilities 2,602,727 - -------------------------------------------------------------------------------- Net assets $ 127,967,459 ================================================================================ Shares outstanding 12,394,977 ================================================================================ Net asset value per share outstanding (net assets divided by shares outstanding) $ 10.32 ================================================================================ 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 (109,917) Accumulated net realized gain (loss) from investments (6,463,879) Net unrealized appreciation (depreciation) of investments (3,899,263) - -------------------------------------------------------------------------------- Net assets $ 127,967,459 ================================================================================ See accompanying notes to financial statements. 11 Statement of OPERATIONS Six Months Ended November 30, 2002 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME $ 3,850,556 - -------------------------------------------------------------------------------- EXPENSES Management fees 326,257 Shareholders' servicing agent fees and expenses 11,081 Custodian's fees and expenses 31,675 Trustees' fees and expenses 877 Professional fees 13,383 Shareholders' reports - printing and mailing expenses 23,521 Stock exchange listing fees 8,489 Investor relations expense 9,433 Other expenses 3,480 - -------------------------------------------------------------------------------- Total expenses before custodian fee credit 428,196 Custodian fee credit (4,181) - -------------------------------------------------------------------------------- Net expenses 424,015 - -------------------------------------------------------------------------------- Net investment income 3,426,541 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS Net realized gain from investments 70,848 Change in net unrealized appreciation (depreciation) of investments (3,216,276) - -------------------------------------------------------------------------------- Net gain (loss) from investments (3,145,428) - -------------------------------------------------------------------------------- Net increase in net assets from operations $ 281,113 ================================================================================ See accompanying notes to financial statements. 12 Statement of CHANGES IN NET ASSETS (Unaudited)
SIX MONTHS ENDED YEAR ENDED 11/30/02 5/31/02 - ------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 3,426,541 $ 7,070,269 Net realized gain (loss) from investments 70,848 (6,247,761) Change in net unrealized appreciation (depreciation) of investments (3,216,276) (969,471) - ------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from operations 281,113 (146,963) - ------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS From and in excess of net investment income (3,272,274) (7,506,788) From accumulated net realized gains from investment transactions -- (350,621) - ------------------------------------------------------------------------------------------------------------------------ Decrease in net assets from distributions to shareholders (3,272,274) (7,857,409) - ------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Net proceeds from shares issued to shareholders due to reinvestment of distributions -- 158,873 - ------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets (2,991,161) (7,845,499) Net assets at the beginning of year 130,958,620 138,804,119 - ------------------------------------------------------------------------------------------------------------------------ Net assets at the end of year $ 127,967,459 $ 130,958,620 ======================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of period $ (109,917) $ (240,437) ======================================================================================================================== See accompanying notes to financial statements. 13
Notes to FINANCIAL STATEMENTS (Unaudited) 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 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 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. The Fund is registered under the Investment Company Act of 1940 as a closed-end, diversified management investment company. 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 in a separate account with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At November 30, 2002, the Fund had no such outstanding purchase commitments. 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. 14 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. 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 six months ended November 30, 2002. 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 six months ended November 30, 2002. During the fiscal year ended May 31, 2002, 14,191 shares were issued to shareholders due to reinvestment of distributions. 3. SECURITIES TRANSACTIONS Purchases and sales (including maturities) of investments in intermediate-term municipal securities for the six months ended November 30, 2002, aggregated $10,192,796 and $11,156,203, respectively. Purchases and sales (including maturities) of investments in short-term securities for the six months ended November 30, 2002, aggregated $2,500,000 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 November 30, 2002, the cost of investments owned was $129,100,355. The net unrealized depreciation of investments at November 30, 2002, aggregated $3,838,061 of which $5,390,082 related to appreciated securities and $9,228,143 related to depreciated securities. The tax components of undistributed net investment income and net realized gains at May 31, 2002, the Fund's last fiscal year end, were as follows: - -------------------------------------------------------------------------------- Undistributed tax-exempt income $137,678 Undistributed ordinary income * 4,729 Undistributed net long-term capital gains -- ================================================================================ The tax character of distributions paid during the fiscal year ended May 31, 2002, the Fund's last fiscal year end, were designated for purposes of the dividends paid deduction as follows: - -------------------------------------------------------------------------------- Distributions from tax-exempt income $7,506,788 Distributions from ordinary income * -- Distributions from net long-term capital gains 349,903 ================================================================================ * Ordinary income consists of taxable market discount income and net short-term capital gains, if any. At May 31, 2002, the Fund's last fiscal year end, the Fund had an unused capital loss carryforward of $14,922 available to be applied against future capital gains, if any. If not applied, the carryforward will expire in the year 2010. The Fund has elected to defer net realized losses from investments incurred from November 1, 2001 through May 31, 2002 ("post-October losses") in accordance with Federal income tax regulations. The Fund has $6,512,769 of post-October losses that are treated as having arisen in the following fiscal year. 15 Notes to FINANCIAL STATEMENTS (Unaudited) (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 November 30, 2002, the revenue sources by municipal purpose, expressed as a percent of intermediate-term investments, were as follows: - -------------------------------------------------------------------------------- Basic Materials 6% Consumer Staples 7 Education and Civic Organizations 7 Healthcare 22 Housing/Multifamily 6 Housing/Single Family 4 Long-Term Care 8 Tax Obligation/General 6 Tax Obligation/Limited 5 Transportation 4 U.S. Guaranteed 8 Utilities 16 Other 1 - -------------------------------------------------------------------------------- 100% ================================================================================ In addition, 29% of the intermediate-term 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 December 30, 2002, to shareholders of record on December 15, 2002. 16 Financial HIGHLIGHTS (Unaudited) 17 Financial HIGHLIGHTS (Unaudited) Selected data for a share outstanding throughout each period:
Investment Operations Less Distributions Total Returns ------------------------------ --------------------------- -------------------- From and Net in Excess Realized/ Beginning of Net Unrealized Net Ending Ending Based on Based on Net Asset Investment Investment Investment Capital Net Asset Market Market Net Asset Value Income Gain (Loss) Total Income Gains Total Value Value Value+ Value+ - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2003(a) $10.57 $.28 $(.27) $.01 $(.26) $ -- $(.26) $10.32 $ 9.8000 (3.72)% .12% 2002 11.21 .57 (.57) -- (.61) (.03) (.64) 10.57 10.4500 1.87 (.06) 2001 11.16 .62 .06 .68 (.63) -- (.63) 11.21 10.8700 13.15 6.19 2000 11.84 .63 (.59) .04 (.62) (.10) (.72) 11.16 10.1875 (5.48) .43 1999 11.95 .61 (.07) .54 (.61) (.04) (.65) 11.84 11.5625 6.87 4.64 1998 11.70 .61 .29 .90 (.61) (.04) (.65) 11.95 11.4375 12.60 7.85 ==================================================================================================================================== Ratios/Supplemental Data --------------------------------------------------------------------------------------- Before Credit After Credit** --------------------------- --------------------------- Ratio of Net Ratio of Net Ratio of Investment Ratio of Investment Ending Expenses to Income to Expenses to Income to Portfolio Net Assets Average Average Average Average Turnover (000) Net Assets Net Assets Net Assets Net Assets Rate - ---------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2003(a) $127,967 .66%* 5.24%* .65%* 5.25%* 8% 2002 130,959 .69 5.23 .68 5.23 48 2001 138,804 .64 5.50 .61 5.53 35 2000 138,149 .61 5.48 .61 5.49 6 1999 146,630 .63 5.14 .62 5.15 31 1998 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 six months ended November 30, 2002. See accompanying notes to financial statements. 18-19 SPREAD 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 distributions 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. 20 Fund INFORMATION BOARD OF DIRECTORS 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 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 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. - ---------- The 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 six-month period ended November 30, 2002. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 21 Serving Investors FOR GENERATIONS PHOTO OF: John Nuveen, Sr. For over a century, generations of Americans have relied on Nuveen Investments to help them grow and keep the money they've earned. Financial advisors, investors and their families have associated Nuveen Investments with quality, expertise and dependability since 1898. That is why financial advisors have entrusted the assets of more than 1.3 million investors to Nuveen. With the know-how that comes from a century of experience, Nuveen continues to build upon its reputation for quality. Now, financial advisors and investors can count on Nuveen Investments to help them design customized solutions that meet the far-reaching financial goals unique to family wealth strategies - solutions that can translate into legacies. To find out more about how Nuveen Investments' products and services can help you preserve your financial security, talk with your financial advisor, or call us at (800) 257-8787 for more information, including a prospectus where applicable. Please read that information carefully before you invest. Logo: NUVEEN Investments Nuveen Investments o 333 West Wacker Drive Chicago, IL 60606 o www.nuveen.com ESA-A-1102D -----END PRIVACY-ENHANCED MESSAGE-----