NCB Nuveen California Municipal Value Fund 2

 

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Table of Contents

 

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Chair’s Letter to Shareholders

Dear Shareholders,

A year has passed since the World Health Organization declared COVID-19 a global pandemic in March 2020. A year of global economic recession, financial market turbulence and some immeasurable losses. A year later the health crisis persists but the widespread distribution of vaccines in the U.S. is enabling us to look forward to what our “new normal” might be. In the meantime, extraordinary economic interventions by governments and central banks, around the world, are helping to bridge the gap.

With vaccine progress and economic stimulus beginning to provide real benefits to the global economy, markets are anticipating a strong rebound in growth, especially in the U.S. To extend relief programs enacted earlier in the crisis, the U.S. government passed $900 billion in aid to individuals and businesses in late December 2020. Another $1.9 trillion relief package was signed into law in March 2021 providing extended unemployment benefits, direct payments to individuals and families, assistance to state and local municipalities, grants to education and public health, and other support. The U.S. Federal Reserve, along with other central banks around the world, has pledged to keep monetary conditions accommodative for as long as necessary, as they consider the recent increase in inflation risks as transitory.

While the markets’ longer-term outlook has brightened, we expect intermittent bouts of volatility to continue. COVID-19 cases are still elevated in some regions, as more virulent strains have spread and vaccination rollouts have been uneven around the world. The recovery hinges on controlling the virus, and estimates vary considerably on when economic activity might be fully restored. While achieving sufficient inoculation of the population depends on many variables, including logistics, public confidence, real-world efficacy and the emergence of variant virus strains, vaccination rates are gathering pace and three options (Pfizer/BioNTech, Moderna and Johnson & Johnson) were authorized for use in the U.S. By early April the U.S. was administering an average of 3 million doses per day, up from 1.3 million per day on average at the beginning of February, according to Bloomberg’s vaccine tracker. On the political front, the Biden administration’s full policy agenda and the potential for Congressional gridlock remain to be seen, either of which could cause investment outlooks to shift. Nevertheless, short-term market fluctuations can provide opportunities to invest in new ideas as well as upgrade existing positioning within our goal of providing long-term value for our shareholders. For more than 120 years, the careful consideration of risk and reward has guided Nuveen’s focus on delivering long-term results to our shareholders.

If you have concerns about what’s coming next, it can be an opportune time to assess your portfolio’s resilience and readiness. We encourage you to review your time horizon, risk tolerance and investment goals with your financial professional. On behalf of the other members of the Nuveen Fund Board, we look forward to continuing to earn your trust in the months and years ahead.

Terence J. Toth
Chair of the Board
April 23, 2021

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Portfolio Managers’ Comments

Nuveen California Municipal Value Fund 2 (NCB)

Nuveen New Jersey Municipal Value Fund (NJV)

Nuveen New York Municipal Value Fund 2 (NYV)

Nuveen Pennsylvania Municipal Value Fund (NPN)

These Funds feature portfolio management by Nuveen Asset Management, LLC (NAM), an affiliate of Nuveen Fund Advisors, LLC, the Funds’ investment adviser. Portfolio managers Paul L. Brennan, CFA, and Scott R. Romans, PhD, review U.S. economic and market conditions, key investment strategies and the twelve-month performance of the Nuveen California, New Jersey, New York and Pennsylvania Funds. Paul assumed portfolio management responsibility for the New Jersey and Pennsylvania Funds in 2011. Scott assumed portfolio management responsibility for the California Fund in 2003 and the New York Fund in 2011.

What factors affected the U.S. economy and the market during the twelve-month annual reporting period ended February 28, 2021?

The U.S. economy rebounded more quickly than expected from the deep downturn caused by the COVID-19 crisis and containment measures, but had not made a full recovery by the end of 2020. The economy fell into a deep recession in February 2020 due to the restrictions on business and social activity to mitigate the COVID-19 spread. In the first and second quarters of 2020, annualized gross domestic product (GDP) shrank 5% and 31.4%, respectively. Government relief programs provided significant aid to individuals and businesses as the economy began reopening in May 2020, which helped the economy bounce back strongly over the second half of the year. U.S. GDP grew 4.3% on an annualized basis in the fourth quarter of 2020 and 33.4% (annualized) in the third quarter, but remained down 3.5% in 2020 overall (from the 2019 annual level to the 2020 annual level) as measured by the Bureau of Economic Analysis “third” estimate. GDP measures the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes.

Although, consumer spending, the largest driver of the economy, remained resilient despite the disruption caused by the health and economic crisis, it declined significantly as unemployment rose sharply starting in March 2020. These measures rebounded markedly in the second half of 2020, although the momentum slowed toward the end of 2020 amid a resurgence of COVID-19 infections. As of February 2021, slightly more than half of the 22 million jobs lost in March and April 2020 have been recovered resulting in an unemployment rate of 6.2% in February 2021 as reported by the Bureau of Labor Statistics, up from 3.5% in February 2020. The average hourly earnings rate increased, growing at an annualized rate of 5.3% in February 2021, despite the spike in unemployment.

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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio manager as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Funds disclaim any obligation to update publicly or revise any forward-looking statements or views expressed herein.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group (S&P), Moody’s Investors Service, Inc. (Moody’s) or Fitch, Inc. (Fitch). This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings, while BB, B, CCC, CC, C and D are below investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

Bond insurance guarantees only the payment of principal and interest on the bond when due, and not the value of the bonds themselves, which will fluctuate with the bond market and the financial success of the issuer and the insurer. Insurance relates specifically to the bonds in the portfolio and not to the share prices of a Fund. No representation is made as to the insurers’ ability to meet their commitments.

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.

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Portfolio Managers’ Comments (continued)

Earnings data was skewed by the concentration of job losses in lower-wage work, which effectively eliminated most of the low-wage data, resulting in an average of mostly higher numbers. The overall trend of inflation remained muted, as decreases in apparel, transportation and pharmaceutical drug prices offset an increase in food, energy and used car prices. The Bureau of Labor Statistics said the Consumer Price Index (CPI) increased 1.7% over the twelve-month reporting period ended February 28, 2021, before seasonal adjustment.

With the onset of the COVID-19 crisis, the Federal Reserve (Fed) enacted an array of emergency measures in March 2020 to stabilize the financial system and support the markets, including cutting its main interest rate to near zero, offering lending programs to aid small and large companies and allowing unlimited bond purchases, known as quantitative easing. In August 2020, the Fed announced a change in its inflation targeting policy, moving from a program of absolute targeting to an average inflation targeting policy. Under this regime, the Fed will tolerate the inflation rate temporarily overshooting the target rate to offset periods of below-target inflation, so that inflation averages a 2% target rate over time. Fed officials remained cautious, acknowledging the economy’s significant improvement from the COVID-19 recession but also expressing concerns about near-term weakness, and left monetary policy unchanged over the remainder of their meetings in 2020 and early 2021.

The federal government also intervened with historic relief measures, starting with three aid packages in March and April 2020. These included $2 trillion allocated across direct payments to Americans, an expansion of unemployment insurance, loans to large and small businesses, funding to hospitals and health agencies and support to state and local governments, and more than $100 billion in funding to health agencies and employers offering paid leave. In December 2020, the government enacted a $900 billion relief package extending some of these programs, and followed in March 2021 with another $1.9 trillion deal providing support to individuals and families, small businesses, state and local governments, education and public health/vaccination.

The COVID-19 crisis rapidly dwarfed all other market concerns starting in late February 2020. Equity and commodity markets sold off and safe-haven assets rallied in March 2020 as countries initiated quarantines, restricted travel and shuttered factories and businesses. The potential economic shock was particularly difficult to assess at the time, which amplified market volatility. An ill-timed oil price war between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member Russia, which caused oil prices to plunge in March 2020, exacerbated the market sell-off. At year end, the announcement of high efficacy rates in several COVID-19 vaccine trials, followed by regulatory authorizations and public vaccination drives across Western countries, improved the outlook for 2021 and led to risk-on sentiment in the markets. Market volatility picked up in early 2021, however, as a stronger economic outlook and improving vaccination rates led to rising inflation concerns and an increase in long-term interest rates.

Geopolitical uncertainty remained elevated during 2020 in anticipation of the U.S. presidential election in November 2020 and the Brexit transition period set to expire in December 2020. However, political risks began to ease with the election of President Joe Biden and a final deal struck between the European Union and U.K. before the end of the transition period. Although China and the U.S. signed a “phase one” trade deal in January 2020, tensions continued to flare over other trade and technology/security issues, Hong Kong’s sovereignty and the management of the COVID-19 crisis.

Despite the severe sell-off in March 2020 and an abrupt increase in interest rates toward the end of the reporting period, the broad municipal bond market managed positive performance in the twelve-month reporting period overall. For most of the reporting period, a significant decline in interest rates drove municipal bond prices higher, with positive technical and fundamental conditions also supporting credit spread tightening. This contrasted sharply with the beginning of the reporting period when coronavirus risks drove U.S. Treasury yields to historic lows and rate volatility increased sharply during a six-week period from late February to the end of March 2020. As liquidity became stressed, investors began to liquidate any asset possible, including municipal bonds. Municipal bond prices declined rapidly (and yields spiked higher), amid rampant selling across both the high grade and high yield segments

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that was exacerbated in some cases by exchange-traded fund and closed-end fund selling. Municipal bond prices became severely dislocated from Treasury prices. Credit spreads widened significantly during the March 2020 sell-off, ending the month above their long-term average. Ongoing monetary and fiscal interventions from the Fed and U.S. government helped the market stabilize, then recover over the course of 2020.

The municipal yield curve steepened over this reporting period, initially driven by a pronounced drop in yields at the short end of the curve. Then a new steepening cycle began in early 2021 as markets priced in a stronger economic recovery and higher inflation, fueled by increasing vaccination rates and more federal stimulus, which drove longer-term interest rates higher.

Municipal bond gross issuance nationwide remained strong in the reporting period, with deals postponed rather than canceled during the COVID-driven sell-off. The overall low level of interest rates has encouraged issuers to continue to actively refund their outstanding debt. In these transactions the issuers are issuing new bonds and taking the bond proceeds and redeeming (calling) old bonds. These refunding transactions have ranged from 30% to 60% of total issuance over the past few years. Thus, the net issuance (all bonds issued less bonds redeemed) is actually much lower than the gross issuance. This lower net issuance was an overall positive technical factor on municipal bond investment performance in recent years. Notably, taxable municipal bond issuance has increased meaningfully since the advent of the Tax Cut and Jobs Act of 2017, which prohibits municipal issuers from issuing new tax-exempt bonds to pre-refund existing tax-exempt bonds. However, municipalities have taken advantage of the low interest rate environment and the strong demand for yield to issue taxable municipal debt, enabling them to save on net interest costs while adding to the scarcity value of tax-exempt issues.

While municipal bond funds suffered significant outflows in March 2020, particularly from high yield municipal bond funds, fund flows rebounded strongly over the remainder of 2020 and sustained a robust pace through early 2021. Demand has been resilient even though municipal defaults, as expected, have increased somewhat during the COVID-19 crisis. Notably, default activity has occurred mainly in sectors with greater COVID-19 risk exposure, such as senior living, corporate-backed and real estate-backed. Moreover, while there are some pockets of municipal credit ratings stress, a wave of downgrades has not materialized. With interest rates in the U.S. and globally still near all-time lows, even after the recent increase in long-term rates, the appetite for yield has continued to drive investors toward higher after-tax yielding assets, including U.S. municipal bonds. Additionally, as tax payers have adjusted to the 2017 tax law, which caps the state and local tax (SALT) deduction for individuals, there has been increased demand for tax-exempt municipal bonds, especially in states with high income taxes and/or property taxes.

How were the economic and market environments in California, New Jersey, New York and Pennsylvania during the twelvemonth reporting period ended February 28, 2021?

California’s $3.1 trillion economy is the largest in the United States and ranks fifth in the world, according to the International Monetary Fund. California job growth regained some of the lost jobs over the summer but lags the national average. California’s economy is driven by high technology, international trade and tourism but is also supplemented by better residential construction and real estate conditions. The state’s unemployment rate was 8.5% as of February 2021, down from its recent peak of 16.2% in April 2020 but still high compared to pre-COVID-19 crisis unemployment rate of 4.3% in February 2020 and higher than the nation’s 6.2% as of February 2021. According to the S&P CoreLogic Case-Shiller Index, home prices in San Diego, Los Angeles and San Francisco rose 14.2%, 10.8% and 9.5%, respectively, over the twelve months ended January 2021 (most recent data available at the time this report was prepared), compared with an average increase of 11.2% nationally. The enacted Fiscal Year 2021 general fund budget totals $133.9 billion, which is 8.9% lower than the revised Fiscal Year 2020 budget. The Fiscal Year 2021 Budget projected a $54.3 billion deficit due to the economic fallout from the COVID-19 crisis shutdowns. The state made various cuts to education, health and human services, and government operations, which include drawing down on reserves, borrowing from internal funds, deferred

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Portfolio Managers’ Comments (continued)

revenue to schools and making temporary tax law changes to fill the gap. Governor Newsom released his Budget Proposal for Fiscal Year 2021-2022 in January 2021 totaling $154.51 billion. This is up 5.5% over revised Fiscal Year 2021 Budget. Revenues are nearly back to pre-COVID-19 crisis levels and state costs have not risen as dramatically as anticipated, and as a result, the state experiences a significant windfall of $15 billion to be allocated toward the Fiscal Year 2022 Budget. The state plans to use those funds on one-time or temporary spending, making deposits to reserves, reducing taxes to low income taxpayers and repaying debts and liabilities made in Fiscal Year 2021 and additional payments to CalPERS (California Public Employees' Retirement System). The revised budget will come in May 2021. The Budget proposal does not factor in federal stimulus enacted in December 2020 nor the American Rescue Plan Act funding. California is estimated to receive $42 billion under the American Rescue Plan: $26 billion for the state and $16 billion for its local governments. For the state of California, its Fiscal Year end is June 30, 2021. Due to the COVID-19 crisis, the state’s budget will be impacted to a varying degree as tax receipts are reduced and the expense to fight the virus increases. As of February 2021, Standard & Poor’s affirmed its AA-/Stable rating and outlook on California general obligation (GO) debt and Moody’s Investors Service affirmed its state GO rating of Aa2 with a stable outlook. Moody’s upgraded the state’s GO on October 14, 2019 to Aa2, citing its “continued expansion of the state's massive, diverse and dynamic economy and corresponding growth in revenue. The action also recognizes the state government's disciplined approach to managing revenue growth indicated by its use of surplus funds to build reserves and pay down long-term liabilities.”

New Jersey’s economy is slowly recovering from the pandemic. Several characteristics that historically positioned the state to do quite well, such as its proximity to New York City’s extensive job market, a shoreline along the Atlantic coast that benefits from a strong tourism industry and two large transportation hubs in the Port of New York and New Jersey and Newark airport, exposed the state to the epicenter of the virus outbreak. New Jersey lost 341,700 jobs in 2020, led by declines in leisure and hospitality as well as education and health services sectors. After steep losses at the beginning of the pandemic, from April to December, the state regained 49% of jobs lost. This is lower than the 55.5% of jobs regained nationally. New Jersey’s unemployment rate peaked at 16.6% in April 2020 and has declined to 7.8% as of February 2021, well above the national rate of 6.2%. New Jersey continues to be challenged by a structural budget gap and low reserves. For Fiscal Year 2021, the state implemented a “millionaire’s tax,” cut expenses and issued $4.3 billion in bonds to finance the expected budget deficit. Revenue has declined less than originally projected, allowing Governor Murphy to propose funding 100% of the actuarially recommended pension contribution in the Fiscal Year 2022 budget, one year earlier than expected. The governor’s budget proposal does not raise taxes but spends down $4 billion in reserves. The budget that is ultimately enacted by the legislature could vary from this proposal, particularly since the state will be receiving federal stimulus funds from the American Rescue Plan that were not accounted for in the governor’s spending plan. For the state of New Jersey, its Fiscal Year end is June 30, 2021. The state carries a BBB+ rating and stable outlook by S&P and A- rating and negative outlook by Fitch. On April 9, 2021 (subsequent to the close of the reporting period), Moody’s affirmed its rating on New Jersey’s general obligation debt at A3 but changed the outlook to stable from negative.

New York State’s $1.7 trillion economy represents 8.0% of U.S. gross domestic product and, according to the International Monetary Fund, would be the eleventh largest economy in the world on a stand-alone basis. Prior to the COVID-19 crisis, New York State's financial profile had generally improved over the previous decade, and Fiscal Year 2020 saw New York State post a $355 million General Fund surplus, equal to 0.9% of General Fund revenues. New York State's economy has been severely impacted by the COVID-19 crisis. Unemployment for the state topped out at 16.2% in April 2020, well above the national peak of 14.8%. New York State’s unemployment stood at 8.9% in February 2021, exceeding the national average of 6.2% and second worst in the nation. New York State’s Fiscal Year 2021 budget contained appropriations for all state debt service, introduced no new taxes and held school funding basically level. In response to the uncertainty surrounding the impact of the COVID-19 crisis, the budget legislation authorized up to $11 billion of borrowing if necessary and also authorized the state budget director to make spending reductions should they be required. Fiscal Year 2021 revenues were not as dire as initially feared, and have come in ahead of earlier estimates.

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This, coupled with certain expenditure reductions, has allowed the state to project that Fiscal Year 2021 will end in balance. New York State is in line to receive $12.2 billion in federal assistance for the state government alone under the American Recovery Act. Total state-wide assistance to both the state and local governments is estimated at $50 billion. For the state of New York, its Fiscal Year end is March 31, 2021. New York is a high-income state, with per-capita income at 126% of the U.S. average, third highest among the 50 states. New York is also a heavily indebted state. According to Moody's, New York ranked fifth in the nation in debt per capita in 2019 (NY: $3,314; median: $1,071), eighth in debt per capita as a percentage of personal income (NY: 4.6%; median: 2.0%) and ninth in debt to gross state domestic product (NY: 3.7%; median: 1.9%). The state’s pensions have traditionally been well funded, with a combined funding ratio of 95.7% in Fiscal Year 2020. On March 12, 2021, Moody’s affirmed its “Aa2” stable rating on New York State. Moody’s had downgraded New York State from Aa1 to Aa2 on October 1, 2020, citing the challenges from the COVID-19 crisis. S&P confirmed its “AA+” rating for New York State on March 12, 2021. However, S&P’s outlook for New York State’s rating is negative, citing the impact of the COVID-19 crisis on the state’s economy. Municipal bond supply totaled $53.2 billion for the twelve-month period ended February 28, 2021, a 10.1% increase from the same period a year earlier. This ranked New York third among state issuers behind only California and Texas.

Pennsylvania has the sixth-largest economy among U.S. states, based on a 2019 real total GDP of $726.2 billion. The Commonwealth is home to 12.8 million residents, making it the fifth-largest state by population. Severe job losses associated with the fallout of the COVID-19 crisis caused employment in Pennsylvania to contract by 7.3% on a year-over-year basis, as of February 2021. The nation’s employment contracted by 6.2% over the same period. Pennsylvania’s economy is large and diverse, but it has lagged the U.S. for the better part of a decade in terms of job, GDP and income growth. Pennsylvania’s Independent Fiscal Office projects that it will take six years for the Commonwealth’s labor market to return to its pre-COVID-19 crisis level. Pennsylvania came into the current economic recession with a weaker financial position than most states. This is most evident in the state’s very slim budget reserve, which covers just 0.3 days of expenses. Through February 2021, General Fund collections totaled $23.9 billion, which is $901.3 million, or 3.9%, above estimate. Pennsylvania received $4.7 billion in federal aid under the CARES Act in 2020, with $2.2 billion of the funds allocated to eligible local governments. An estimated $7.3 billion of federal relief funding is expected to come to the Pennsylvania state government from the American Rescue Plan Act of 2021. Governor Wolf’s Fiscal Year 2022 proposed budget totals $37.8 billion and is a $3.8 billion (11.1%) increase over the prior year. The budget includes a $1.35 billion increase in K-12 spending as well as $3 billion over a ten-year period to workers and businesses to recover from the COVID-19 crisis. Funding for this spending increase comes from a proposal to raise income taxes from 3.07% to 4.49% on higher-income earners, legalizing and taxing marijuana, and a severance tax on the natural gas industry. The Commonwealth has an above-average debt burden relative to other states. Its net tax-supported debt totaled $19.4 billion in 2019, which is 2.6% of state personal income, compared to the Moody’s 50-state median of 2.0%. For the state of Pennsylvania, its Fiscal Year end is June 30, 2021. Pennsylvania’s adjusted net pension liability totaling $79 billion is also above average, ranking it the fifth highest among the states. As of March 2021, Pennsylvania’s general obligation (GO) debt was rated Aa3 by Moody’s and A+ by S&P.

What key strategies were used to manage these Funds during the twelve-month reporting period ended February 28, 2021?

The Nuveen California Municipal Value Fund 2 seeks to provide current income exempt from both regular federal and California state income taxes by investing primarily in a portfolio of municipal obligations issued by state and local government authorities within the state of California or certain U.S. territories. Under normal market conditions, the Fund invests at least 80% of the sum of its net assets and the amount of any borrowings for investment purposes in municipal bonds that pay interest that is exempt from regular federal personal income tax and California’s personal income tax. The Fund may invest up to 20% in municipal securities that are exempt from regular federal income tax, but not from California’s income tax if, in the Sub-Adviser’s judgement, such purchases are expected to enhance the Fund’s after-tax total return potential. To the extent that the Fund invests in bonds of municipal issuers

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Portfolio Managers’ Comments (continued)

located in other states, the Fund may have income that is not exempt from state personal income tax. NCB’s use of tender option bonds to more efficiently implement its investment strategy may create up to 10% effective leverage.

The Nuveen New Jersey Municipal Value Fund’s primary investment objective is to provide current income exempt from regular federal and New Jersey income taxes; secondary investment objective is to enhance portfolio value and total return. The Fund invests in municipal securities that are exempt from federal and New Jersey state income taxes. The Fund invests at least 80% of its managed assets in municipal securities rated investment grade at the time of investment, or, if they are unrated, are judged by the portfolio manager to be of comparable quality. The Fund may invest up to 20% of managed assets in municipal securities that are not exempt from New Jersey state income taxes if the portfolio manager believes doing so would enhance the Fund’s after-tax total returns. The Fund may invest up to 20% of its managed assets in municipal securities rated below investment quality or judged by the portfolio manager to be of comparable quality, of which up to 10% of its managed assets may be rated below B-/B3 or of comparable quality. The Fund may invest in inverse floating rate municipal securities, also known as tender option bonds. The Fund’s use of tender option bonds to more efficiently implement its investment strategy may create up to 10% effective leverage.

The Nuveen New York Municipal Value Fund 2’s investment objective is to provide current income exempt from both regular federal and New York state income taxes by investing primarily in a portfolio of municipal obligations issued by state and local government authorities within the state of New York or certain U.S. territories. Under normal market conditions, the Fund invests at least 80% of the sum of its net assets and the amount of any borrowings for investment purposes in municipal bonds that pay interest that is exempt from regular federal personal income tax and a single state’s personal income tax. The Fund may invest up to 20% in municipal securities that are exempt from regular federal income tax, but not from that single state’s income tax if, in the Sub-Adviser’s judgement, such purchases are expected to enhance the Fund’s after-tax total return potential. To the extent that the Fund invests in bonds of municipal issuers located in other states, the Fund may have income that is not exempt from state personal income tax. The Fund’s use of tender option bonds to more efficiently implement its investment strategy may create up to 10% effective leverage.

The Nuveen Pennsylvania Municipal Value Fund’s primary investment objective is to provide current income exempt from regular federal and Pennsylvania income taxes; secondary investment objective is to enhance portfolio value and total return. The Fund invests in state municipal securities that are exempt from federal, Pennsylvania state, and local income taxes. The Fund invests at least 80% of its managed assets in municipal securities rated investment grade at the time of investment, or, if they are unrated, are judged by the portfolio manager to be of comparable quality. The Fund may invest up to 20% of managed assets in municipal securities that are not exempt from Pennsylvania state income taxes if the portfolio manager believes doing so would enhance the Fund’s after-tax total returns. The Fund may invest up to 20% of its managed assets in municipal securities rated below investment quality or judged by the portfolio manager to be of comparable quality, of which up to 10% of its managed assets may be rated below B-/B3 or of comparable quality. The Fund may invest in inverse floating rate municipal securities, also known as tender option bonds. The Fund’s use of tender option bonds to more efficiently implement its investment strategy may create up to 10% effective leverage.

The twelve-month reporting period was bookended by challenging conditions in the municipal bond market, with the advent of the COVID-19 crisis at the beginning of the reporting period and a sudden increase in long-term interest rates at the end of the reporting period. The health and economic crisis and the anticipated recovery from the COVID-19 crisis recession contributed to elevated interest rate volatility and considerable swings in municipal market valuations during this reporting period. Despite these fluctuations, municipal yields ended the reporting period slightly higher than where they began and credit spreads largely recovered from the dramatic widening seen at the peak of the market sell-off in March-April 2020. The municipal yield curve steepened over the reporting period as a whole, with the market pricing in the prospects for a strengthening economic recovery aided by massive fiscal stimulus, accommodative monetary policy and vaccination progress. At the state level, both the New Jersey and Pennsylvania

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municipal markets outperformed the national market during the reporting period and the California and New York municipal markets underperformed the national market, as measured by their respective state S&P Municipal Bond Indexes.

The Funds’ trading activity continued to focus on pursuing each Fund’s investment objectives and continued to seek bonds in areas of the market that were expected to demonstrate resilience and perform well over the long term. Additionally, as closed ends funds do not need to manage cash to meet investor redemptions, the Funds weren’t forced to sell positions during periods of market turbulence.

For NJV and NPN, trading activity was somewhat lighter during this reporting period as the Funds were well positioned for the environment and the prevailing environment offered fewer opportunities to replace positions with more attractive names. Portfolio turnover was mainly driven by the proceeds from called and maturing bonds, bond coupon income and a small amount of strategic and tactical sales. In preparation for the NJV and NPN mergers after the close of the reporting period, we sold all of NJV’s and NPN’s alternative minimum tax (AMT) bonds because the acquiring Fund has an AMT-free mandate.

The state of New Jersey was an active issuer during this reporting period, with three deals coming to market in November 2020, December 2020 and January 2021 for COVID-19 GO Emergency Bonds, New Jersey Transportation Trust Fund Authority and New Jersey Economic Development Authority. NJV participated in all three new issues, which were well received by the marketplace. Additionally, the New Jersey Fund added issues for Atlantic City Electric, New Jersey Housing and Mortgage Finance Agency, New Jersey-American Water Company, New Jersey State Turnpike Authority and a number of county and local municipalities (including Mercer, Monmouth and Union counties). NJV also bought New Jersey Higher Education Assistance Authority bonds.

NPN bought bonds issued by two school districts (Philadelphia and Allentown), St. Luke’s Hospital Bethlehem, Pennsylvania Housing Finance Agency, Philadelphia Gas Works and Williamsport Sanitary Authority Sewer. Management continued to limit the New Jersey and Pennsylvania Funds’ exposure to each state’s government debt due to concerns about their fiscal health that predated the COVID-19 crisis.

Also during this reporting period, NPN acquired shares in Energy Harbor when its holdings of certain municipal bonds issued by FirstEnergy Solutions were converted into Energy Harbor equity as part of FirstEnergy Solution’s emergence from bankruptcy protection. Over time, NPN expects to sell these shares and reinvest the proceeds into municipal bonds.

For NCB and NYV, the prevailing market environment was favorable for the Funds to pursue both bond swapping and bond rotation strategies during the reporting period. The Funds’ employed a tax loss swapping strategy, which entails selling depreciated bonds with lower yields and buying similarly structured but higher yielding bonds. For example, the Funds’ sold and then bought the same name with a longer maturity structure, which in effect offered a higher yield for the same credit or sold a position to replace it with a similar name bond or structure as the prevailing yields moved higher. This approach was implemented to enhance each Fund’s income earning capability and seek to make the Funds more tax efficient. The Funds’ bond rotation strategy involved selling a higher quality, lower yielding bond to buy a lower rated, higher yielding bond, when the valuations looked relatively more favorable for the lower rated bond. For NCB, the trading activity during this reporting period resulted in net additions to airports and airport-related projects, multi-family housing, health care, charter schools and Puerto Rico (namely in COFINAs). For NYV, there were net additions to public transportation, airports, airline gates secured by airline leases, health care and Puerto Rico (primarily COFINAs).

During the twelve-month reporting period, NJV and NPN used inverse floating rate securities. The Funds' employ inverse floaters for a variety of reasons, including duration management, income enhancement and total return enhancement. As part of the Funds’ duration management strategies, the two Funds used U.S. Treasury futures as part of an overall portfolio construction strategy to manage portfolio duration and yield curve exposure. The hedging strategies performed as expected given the direction of interest rates during

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Portfolio Managers’ Comments (continued)

the reporting period, the Treasury futures had a positive impact to NJV and NPN, which enabled the Funds to invest in longer duration bonds that were contributors to performance and helped support the Funds’ dividends. The Treasury futures positions were eliminated from the two Funds prior to the end of the reporting period.

How did the Funds perform during the twelve-month reporting period ended February 28, 2021?

The tables in the Performance Overview and Holding Summaries section of this report provide total returns at net asset value (NAV) for the period ended February 28, 2021. Each Fund’s total returns at net asset value (NAV) are compared with the performance of corresponding market indexes.

For the twelve-month reporting period ended February 28, 2021, the total returns on common share NAV for all four Funds underperformed their respective state’s S&P Municipal Bond Index.

The Funds' were positioned with longer duration profiles than their respective state’s S&P Municipal Bond Index. NCB and NYV’s duration and yield curve positioning detracted from performance relative to their respective state indexes. Duration had a neutral impact on NJV and a small positive impact on NPN, with the steepening yield curve a slight headwind to both Funds.

In terms of credit quality and sector positioning, the Funds continued to emphasize lower rated, higher yielding bonds and sectors, which tended to outperform high grade, low yielding bonds and sectors. For NCB, credit ratings allocations had a relatively neutral impact on relative performance versus the California index because the Fund was less exposed to the strong outperformance of B rated credit, while NYV’s overweight allocations to BBB rated and below investment grade credits contributed positively to performance relative to the New York index. NJV’s credit ratings and sector allocations detracted from performance relative to the New Jersey index. The Fund holds less exposure than the state index to state appropriation debt, much of which is BBB rated, and the resulting underweight to both the sector and BBB rated credit cost NJV in terms of relative performance. Credit quality and sector positioning for NPN was unfavorable relative to the Pennsylvania index, as lower rated bonds severely underperformed during the pandemic sell-off and only partially recovered over the remainder of the reporting period.

The strongest performing sectors of the California municipal market included tobacco, other revenue, health care and pre-refunded bonds, while the education, transportation (airports), health care (primarily life care) and industrial development revenue (IDR) sectors were the weakest performers. For New Jersey, the better performing sectors included transportation, housing, tobacco and other revenue, and NJV held underweights in each of these sectors except housing. But New Jersey saw the most weakness in the education sector (where NJV was overweighted), while the tax-supported (slight overweight), health care (overweight) and pre-refunded sectors (neutral weight) trailed only marginally. The best performing areas of the New York municipal market were the utilities, tobacco and IDR sectors, and the bottom performing sectors were education, transportation (airports and public transportation) and health care (life care). Pennsylvania's municipal market was led by the tax supported, transportation and utility sectors (and NPN was overweighted in utility and underweight in tax supported and transportation), whereas the biggest laggards were the health care, IDR and housing sectors (and NPN held overweights in each sector).

Security selection in NJV added value relative to the New Jersey index. The Fund had more favorable yield curve/duration positioning in its state debt selections, including GOs, New Jersey Transportation Trust Fund Authority and New Jersey Economic Development Authority. However, some of the relative gain was offset by our selection in housing and education bonds. Holdings in housing bonds underperformed as the low interest rate environment accelerated mortgage refinancing activity, shortening the expected average life of the bonds. NJV’s education holdings included a number of smaller, lower rated private schools (such as

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Rider University, Stevens Institute of Technology and Seton Hall), student residence halls project and student loan debt, which hadn’t rebounded to the same extent as higher rated education credits.

Mixed performance from NPN’s security selection resulted in an overall neutral impact to relative performance versus the state index. Our selection was most beneficial in the utilities, transportation, IDR, housing and tax supported debt sectors. In the utilities sector, a position in Energy Harbor stock was the leading performer as the stock price recovered from negative headline risk earlier in the reporting period. The Fund owns Energy Harbor common stock after certain bonds held by the Fund were converted to equity as part of the company’s exit from bankruptcy in February 2020. However, selection in health care and education credits was disadvantageous.

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Fund Leverage

IMPACT OF THE FUNDS’ LEVERAGE STRATEGIES ON PERFORMANCE

One important factor impacting the returns of the Funds’ common shares relative to their comparative benchmarks was the Funds’ use of leverage through investments in inverse floating rate securities, which represent leveraged investments in underlying bonds. The Funds use leverage because our research has shown that, over time, leveraging provides opportunities for additional income. The opportunity arises when short-term rates that a Fund pays on its leveraging instruments are lower than the interest the Fund earns on its portfolio of long-term bonds that it has bought with the proceeds of that leverage. This has been particularly true in the recent market environment where short-term rates have been low by historical standards.

However, use of leverage can expose Fund common shares to additional price volatility. When a Fund uses leverage, the Fund’s common shares will experience a greater increase in their net asset value if the municipal bonds acquired through the use of leverage increase in value, but will also experience a correspondingly larger decline in their net asset value if the bonds acquired through leverage decline in value. All this will make the shares’ total return performance more variable over time.

In addition, common share income in levered funds will typically decrease in comparison to unlevered funds when short-term interest rates increase and increase when short-term interest rates decrease. In recent quarters, fund leverage expenses have generally tracked the overall movement of short-term tax-exempt interest rates. While fund leverage expenses are somewhat higher than their recent lows, leverage nevertheless continues to provide the opportunity for incremental common share income, particularly over longer-term periods.

The use of leverage through inverse floating rate securities had a negligible impact on the performance of NJV and NPN over the reporting period. NCB and NYV did not utilize leverage over the reporting period.

 

*          Effective Leverage is a Fund’s effective economic leverage, and includes both regulatory leverage and the leverage effects of certain derivative and other investments in a Fund’s portfolio that increase the Fund’s investment exposure. Currently, the leverage effects of Tender Option Bond (TOB) inverse floater holdings are included in effective leverage values, in addition to any regulatory leverage. Regulatory leverage consists of preferred shares issued or borrowings of a Fund. Both of these are part of a Fund’s capital structure. A Fund, however, may from time to time borrow on a typically transient basis in connection with its day-to-day operations, primarily in connection with the need to settle portfolio trades. Such incidental borrowings are excluded from the calculation of a Fund’s effective leverage ratio. Regulatory leverage is subject to asset coverage limits set forth in the Investment Company Act of 1940.

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*      Market Yield is based on the Fund’s current annualized monthly dividend divided by the Fund’s current market price as of the end of the reporting period. Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 54.1%, 51.6%, 49.6% and 43.9% for the California, New Jersey, New York and Pennsylvania Funds, respectively. Your actual combined federal and state income tax rate may differ from the assumed rate. The Taxable-Equivalent Yield also takes into account the percentage of the Fund’s income generated and paid by the Fund (based on payments made during the previous calendar year) that was either exempt from federal income tax but not from state income tax (e.g., income from an out-of-state municipal bond), or was exempt from neither federal nor state income tax. Separately, if the comparison were instead to investments that generate qualified dividend income, which is taxable at a rate lower than an individual’s ordinary graduated tax rate, the fund’s Taxable-Equivalent Yield would be lower.

Each Fund seeks to pay regular monthly dividends out of its net investment income at a rate that reflects its past and projected net income performance. To permit each Fund to maintain a more stable monthly dividend, the Fund may pay dividends at a rate that may be more or less than the amount of net income actually earned by the Fund during the period. Distributions to common shareholders are determined on a tax basis, which may differ from amounts recorded in the accounting records. In instances where the monthly dividend exceeds the earned net investment income, the Fund would report a negative undistributed net ordinary income. Refer to Note 6 – Income Tax Information for additional information regarding the amounts of undistributed net ordinary income and undistributed net long-term capital gains and the character of the actual distributions paid by the Fund during the period.

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Common Share Information (continued)

All monthly dividends paid by each Fund during the current reporting period were paid from net investment income. If a portion of the Fund’s monthly distributions is sourced or comprised of elements other than net investment income, including capital gains and/or a return of capital, shareholders will be notified of those sources. For financial reporting purposes, the per share amounts of each Fund’s distributions for the reporting period are presented in this report’s Financial Highlights. For income tax purposes, distribution information for each Fund as of its most recent tax year end is presented in Note 6 – Income Tax Information within the Notes to Financial Statements of this report.

NUVEEN CLOSED-END FUND DISTRIBUTION AMOUNTS

The Nuveen Closed-End Funds’ monthly and quarterly periodic distributions to shareholders are posted on www.nuveen.com and can be found on Nuveen’s enhanced closed-end fund resource page, which is at https://www.nuveen.com/resource-center-closed-end-funds, along with other Nuveen closed-end fund product updates. To ensure timely access to the latest information, shareholders may use a subscribe function, which can be activated at this web page (https://www.nuveen.com/subscriptions).

 

During the current reporting period, the following Fund repurchased and retired its common shares at a weighted average price per share and a weighted average discount per share as shown in the following table.

 

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

Common Share Price Performance — Weekly Closing Price

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This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

Common Share Price Performance — Weekly Closing Price

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This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

Common Share Price Performance — Weekly Closing Price

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This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

Common Share Price Performance — Weekly Closing Price

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This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

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