<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Pennsylvania
[Photo Appears Here]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Pennsylvania Overview
9 Financial Section
31 Shareholder Meeting Report
32 Shareholder Information
33 Fund Information
<PAGE>
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Dear Shareholder
It's a pleasure to report to you on the performance of the Nuveen Flagship
Pennsylvania Municipal Bond Fund. Over the past year, the fund posted sizable
gains. For the fiscal year ended May 31, 1997, the value of your investment rose
8.37% for Class A shares, if you chose to reinvest your tax-free income
dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) outpaced the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds, which
provide excellent income for investors. As of May 31, 1997, shareholders were
receiving tax-free yields on net asset value of 5.19% for Class A shares. To
match this yield, investors in the 33% combined federal and state income tax
bracket would have had to earn at least 7.75% on taxable alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising short-term interest rates by 0.25%,
but then maintained the status quo at its May and July meetings. Overall market
returns continue to be good, but fear of inflation has hampered the performance
of municipals and led to
1
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"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
increased volatility in both the equity and bond markets. During this time,
bonds have often been the bellwether for the direction of stocks. Whenever
inflation talk is at its most rampant, the stock market has kept an eye on the
bond market for its response before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation -- as well as attractive yields -- have sparked increased interest in
tax-free investments. The current level of the stock market reminds investors to
re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
Answering Your Questions
What are the investment objectives of the fund?
The fund aims to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the fund's after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
What is your strategy for meeting these objectives?
To meet this fund's objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
What key economic factors affected the fund's performance during the year?
The U.S. economy continued to grow, exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels. The fund had the added advantage of operating in a
healthy supply environment, where securities were available as needed.
3
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"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates."
Given this market environment, how did the fund perform?
The Pennsylvania Municipal Bond Fund performed well over the past year,
rewarding investors with a total return on net asset value for the year of 8.37%
for Class A shares, including price changes and reinvested dividends. The fund
was ranked ninth among 61 Pennsylvania municipal bond funds for the one-year
period by Lipper Analytical Services, a nationally recognized performance
measurement service.
What strategies did you employ to add value?
As the spread between yields on higher and lower quality bonds continued to
narrow during the year, we were able to enhance the credit quality of the fund
without sacrificing yield. We also focused on purchasing bonds with strong call
protection, which resulted in healthy appreciation for the fund as interest
rates generally fell over the period.
What is the current status of Pennsylvania's
municipal market?
Pennsylvania's economy is expected to continue to lag national economic trends
in the near future. The sluggish economy is, in part, the result of continued
mergers and acquisitions, expenditure reductions, and layoffs in the industries
most important to the commonwealth's economy: healthcare, defense and
telecommunications. Nevertheless, credit ratings and the market overall have
remained fairly stable. As the result of healthy retail demand, the $4.6 billion
in municipal bonds issued during the first half of the year have been absorbed
and credit spreads have tightened slightly. If the commonwealth's Supreme Court
rules unconstitutional a personal property tax on investments in out-of-state
companies, 32 counties may be required to refund $231 million in prior personal
property tax receipts. It is not yet clear
4
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how the counties would fund the paybacks, but some may issue bonds.
What is the current outlook for the municipal market as a whole?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Although structural changes in the
economy appear to have suspended the relationship between faster growth and
higher inflation, the risk remains that inflation may reassert itself if
capacity constraints are reached and resources are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market should continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation, and many
are rebalancing their portfolios by shifting some assets into bonds.
5
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Pennsylvania
Overview
Credit Quality
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 46%
BBB/NR 23%
A 22%
AA 9%
Diversification
[PIE CHART APPEARS HERE]
Hospitals 23%
Resource Recovery 5%
Tax Revenue 9%
Housing Facilities 12%
General Obligations 11%
Escrowed Bonds 7%
Pollution Control 14%
Education 4%
Other 10%
Health Care 5%
Morningstar Rating/3/
****
<TABLE>
<CAPTION>
Fund Highlights
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share Class A B C R
Inception Date 10/86 2/97 2/94 2/97
Net Asset Value (NAV) $10.25 $10.27 $10.25 $10.25
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Total Net Assets ($000) $119,599
Average Weighted Maturity (years) 21.13
Duration (years) 8.24
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
1-Year 8.37% 3.81% 7.91% 7.88% 8.44%
5-Year 6.78% 5.87% 6.22% 6.20% 6.80%
10-Year 8.11% 7.65% 7.64% 7.53% 8.12%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.46% 5.23% 4.70% 4.91% 5.65%
SEC 30-Day Yld 5.19% 4.97% 4.44% 4.64% 5.40%
Taxable Equiv Yld/2/ 7.75% 7.42% 6.63% 6.93% 8.06%
- ----------------------------------------------------------------------------------
</TABLE>
1 Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class C
shares have a 1% CDSC for redemptions within one year. Returns do not reflect
imposition of the CDSC. Giving effect to the CDSC applicable to Class B
shares, the 1-year, 5-year, and 10-year total returns above would be 3.91%,
6.07%, and 7.64%, respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 33%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 Overall rating for Class A shares for the period ended May 31, 1997, among
1,299 municipal bond funds for the three-year period, 631 funds for the five-
year period, and 290 funds for the 10-year period.
6
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Nuveen Flagship Pennsylvania Municipal Bond Fund
May 31, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A Shares (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
Lehman Brothers Nuveen Flagship Nuveen Flagship
Municipal Bond Pennsylvania Municipal Pennsylvania Municipal
Index Bond Fund (NAV) Bond Fund (Offer)
1987 10,000.0 10,000.0 9,580.0
1988 10,898.1 10,995.3 10,533.5
1989 12,150.6 12,354.0 11,835.2
1990 13,039.7 13,077.8 12,528.6
1991 14,353.9 14,321.0 13,719.5
1992 15,764.1 15,720.7 15,060.5
1993 17,650.0 17,480.7 16,746.5
1994 18,085.8 17,867.6 17,117.1
1995 19,732.8 19,294.8 18,484.4
1996 20,634.7 19,986.6 19,147.2
1997 22,534.8 21,462.1 20,560.7
. Lehman Brothers Municipal Bond Index $22,535
. Nuveen Flagship Pennsylvania Municipal Bond Fund (NAV) $21,818
. Nuveen Flagship Pennsylvania Municipal Bond Fund (Offer) $20,902
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
June 1996 0.0473
July 0.04887
August 0.04887
September 0.04648
October 0.04767
November 0.04582
December 0.04735
January 1997 0.04904
February 0.0466
March 0.0466
April 0.0466
May 0.0466
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
18 Statement of Net Assets
19 Statement of Operations
20 Statement of Changes in Net Assets
21 Notes to Financial Statements
28 Financial Highlights
30 Independent Auditors' Report
9
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Portfolio of Investments
Nuveen Flagship Pennsylvania
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education -- 4.3%
$ 3,000,000 Allegheny County, Pennsylvania, Higher Education 2/06 at 102 Baa2 $ 2,885,700
Building Authority Revenue, Robert Morris College,
Series A, 6.250%, 2/15/26
750,000 Northeastern Pennsylvania, Hospital and Education 2/05 at 100 AAA 813,375
Authority, College Revenue, Guaranteed, Luzerne
County Community College, 6.625%, 8/15/15
865,000 Union County, Pennsylvania, Higher Educational 4/06 at 101 AAA 855,433
Facilities, Financing Authority, University
Revenue, Bucknell University, 5.500%, 4/01/16
600,000 Wilkes-Barre, Pennsylvania, General Municipal 12/00 at 100 N/R 642,528
Authority, College Revenue, Misericordia College,
Series A, 7.750%, 12/01/12
- --------------------------------------------------------------------------------------------------------------------
Escrowed to Maturity -- 0.6%
650,000 Philadelphia, Pennsylvania, Gas Works Revenue, No Opt. Call AAA 758,719
Twelfth Series, Issue B, 7.000%, 5/15/20
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Health Care -- 5.1%
3,000,000 Allegheny County, Pennsylvania, Residential 10/05 at 100 AAA 3,108,570
Finance Authority, Mortgage Revenue, Ladies
Grand Army Republic Health Facility Project,
Series G, 6.350%, 10/01/36
1,000,000 Butler County, Pennsylvania, Industrial Development 6/03 at 102 A- 988,050
Authority, Health Center Revenue, Crossover
Refunding, Sherwood Oaks Project, 5.750%, 6/01/16
2,000,000 Montgomery County, Pennsylvania, Higher Education 1/06 at 101 BBB 2,015,780
and Health Authority, Mortgage Revenue, Waverly
Heights Project, 6.375%, 1/01/26
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- 22.8%
1,525,000 Allegheny County, Pennsylvania, Hospital No Opt. Call A- 1,720,383
Development Authority Revenue, Allegheny Valley
Hospital, Series Q, 7.000%, 8/01/15
2,000,000 Armstrong County, Pennsylvania, Hospital Authority, 12/01 at 100 AAA 2,107,700
Health Center, Revenue Refunding, Canterbury
Place Project, 6.500%, 12/01/21
500,000 Clarion County, Pennsylvania, Hospital Authority, 7/99 at 102 BBB- 528,415
Hospital, Revenue Refunding, Clarion Hospital
Project, 8.100%, 7/01/12
</TABLE>
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------
Hospitals-- continued
<S> <C> <C> <C> <C>
$ 500,000 Dauphin County, Pennsylvania, Hospital Authority, 7/97 at 102 AAA $ 511,845
Revenue Refunding, Harrisburg Hospital,
8.250%, 7/01/14
1,320,000 Delaware County, Pennsylvania, Authority 12/06 at 102 BBB+ 1,297,190
Health Facilities Revenue, Mercy Health
Corporation Project, 6.000%, 12/15/26
1,300,000 Doylestown, Pennsylvania, Hospital Authority, 7/04 at 102 AAA 1,161,771
Hospital Revenue Refunding, Series A,
5.000%, 7/01/23
1,585,000 Jeannette, Pennsylvania, Health Service Authority, 11/06 at 102 BBB+ 1,590,500
Hospital Revenue Refunding, Jeannette District
Memorial Hospital, Series A, 6.000%, 11/01/18
2,000,000 Monroeville, Pennsylvania, Hospital Authority, 10/05 at 102 A3 2,042,540
Hospital Revenue Refunding, Forbes Health System,
6.250%, 10/01/15
500,000 Montgomery County, Pennsylvania, Higher Education 2/00 at 100 AAA 532,560
and Health Authority, Holy Redeemer Hospital,
Series A, 7.625%, 2/01/20
2,000,000 Philadelphia, Pennsylvania, Authority For Industrial 7/03 at 102 AA 1,891,920
Development, Revenue Refunding, PGH
Development Corporation, 5.250%, 7/01/17
1,985,000 Philadelphia, Pennsylvania, Hospitals and Higher 11/02 at 102 A- 2,046,912
Education Facilities Authority, Hospital Revenue
Refunding, Chestnut Hill Hospital, 6.500%, 11/15/22
4,000,000 Philadelphia, Pennsylvania, Hospitals and Higher 11/03 at 102 A- 4,194,880
Education Facilities Authority, Hospital Revenue
Refunding, Temple University Hospital, Series A,
6.625%, 11/15/23
2,000,000 Philadelphia, Pennsylvania, Hospitals and Higher No Opt. Call BBB+ 2,088,580
Education Facilities Authority, Hospital Revenue
Refunding, Pennsylvania Hospital,
6.250%, 7/01/06
2,500,000 Philadelphia, Pennsylvania, Hospitals and Higher 7/07 at 102 BBB 2,455,075
Education Facilities Authority, Hospital Revenue
Refunding, Jeanes Hospital, 5.875%, 7/01/17
500,000 Saint Mary Hospital Authority, Bucks County, 7/02 at 102 AAA 539,545
Pennsylvania, Revenue, Franciscan Health,
St. Mary, Series A, 6.500%, 7/01/12
</TABLE>
11
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Portfolio of Investments
Nuveen Flagship Pennsylvania -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Hospitals -- continued
$ 230,000 Sayre, Pennsylvania, Health Care Facilities 3/01 at 102 AAA $ 249,437
Authority Revenue, Guthrie Healthcare System,
Series A, 7.100%, 3/01/17
350,000 Washington County, Pennsylvania, Hospital 4/02 at 102 A3 371,417
Authority, Revenue, Monogahela Valley Hospital
Project, 6.750%, 12/01/08
1,750,000 Westmoreland County, Pennsylvania, Industrial, 7/97 at 102 Baa2 1,788,255
Development Authority, Revenue Refunding,
Citizen's General Hospital Project, Series A,
8.250%, 7/01/13
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Housing/Multi Family -- 0.4%
500,000 Bucks County, Pennsylvania, Redevelopment Authority, 2/02 at 100 AAA 516,505
Mortgage Revenue Refunding, Warminster Heights,
Series A, 6.875%, 8/01/23
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Housing/Single Family -- 11.7%
1,770,000 Allegheny County, Pennsylvania, Residential Finance No Opt. Call Aaa 224,613
Authority, Mortgage Revenue, Single Family,
Series Z, 0.000%, 5/01/27
300,000 Pennsylvania, Housing Finance Agency, Single Family 10/99 at 102 AA+ 319,290
Mortgage, Series S, 7.600%, 4/01/16
150,000 Pennsylvania, Housing Finance Agency, Single Family 4/01 at 102 AA+ 158,969
Mortgage, Series 30, 7.300%, 10/01/17
520,000 Pennsylvania, Housing Finance Agency, Refunding, 10/01 at 102 AA+ 550,524
Series 1991 - 32, 7.150%, 4/01/15
2,500,000 Pennsylvania, Housing Finance Agency, Refunding, 10/06 at 102 AA+ 2,549,650
Single Family Mortgage, Series 50A,
6.000%, 10/01/13
2,000,000 Pennsylvania, Housing Finance Agency, Single Family 4/06 at 102 AA+ 2,050,900
Mortgage, Series 51, 6.375%, 4/01/28
1,000,000 Pennsylvania, Housing Finance Agency, Single Family 10/06 at 102 AA+ 1,008,060
Mortgage, Series 53A, 6.050%, 4/01/18
3,000,000 Pittsburgh, Pennsylvania, Urban Redevelopment 8/05 at 102 A 3,050,160
Authority, Home Improvement Loan,
Series A, 6.375%, 8/01/18
1,000,000 Pittsburgh, Pennsylvania, Urban Redevelopment 4/06 at 102 AAA 993,890
Authority, Mortgage Revenue, Series A,
6.000%, 4/01/19
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family -- continued
$1,000,000 Pittsburgh, Pennsylvania, Urban Redevelopment 4/06 at 102 AAA $1,026,820
Authority, Mortgage Revenue, Series D,
6.250%, 10/01/17
1,000,000 Pittsburgh, Pennsylvania, Urban Redevelopment 10/07 at 102 AAA 1,012,450
Authority, Mortgage Revenue Refunding, Series A,
6.200%, 10/01/21
1,060,000 Pittsburgh, Pennsylvania, Urban Redevelopment 4/04 at 102 AAA 1,093,814
Authority, Mortgage Revenue, Series A,
6.625%, 4/01/22
- -------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 13.5%
153,000 Allegheny County, Pennsylvania, Industrial No Opt. Call N/R 157,405
Development Authority, Solid Waste Disposal
Revenue, Conversion System Inc. Project,
8.000%, 3/01/98
2,000,000 Cambria County, Pennsylvania, Industrial 11/05 at 102 AAA 2,014,660
Development Authority, Pollution Control, Revenue
Refunding, Pennsylvania Electric Company Project,
Series A, 5.800%, 11/01/20
1,500,000 Lawrence County, Pennsylvania, Industrial 9/01 at 102 Baa2 1,582,695
Development Authority, Pollution Control, Revenue
Refunding, Pennsylvania Power Company
New Castle Project, Series A, 7.150%, 3/01/17
Lehigh County, Pennsylvania, Industrial Development
Authority, Pollution Control, Revenue Refunding,
Pennsylvania Power & Light Company Project,
Series A:
1,610,000 6.400%, 11/01/21 11/02 at 102 AAA 1,704,749
550,000 6.150%, 8/01/29 8/05 at 102 AAA 573,381
950,000 Luzerne County, Pennsylvania, Industrial Development 12/02 at 102 A3 1,008,805
Authority, Exempt Facilities Revenue, Pennsylvania
Gas and Water Company Project, Series B,
7.125%, 12/01/22
1,500,000 Luzerne County, Pennsylvania, Industrial Development 12/04 at 102 AAA 1,663,125
Authority, Exempt Facilities, Revenue Refunding,
Pennsylvania Gas and Water Project,
Series A, 7.000%, 12/01/17
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Pennsylvania -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Development Revenue and
Pollution Control -- continued
$ 1,000,000 Northampton County, Pennsylvania, Industrial 7/05 at 102 AAA $ 1,039,340
Development Authority, Revenue Refunding,
Pollution Control, Metropolitan Edison, Series A,
6.100%, 7/15/21
2,000,000 Pennsylvania, Economic Development Financing 12/05 at 102 Baa2 2,240,160
Authority, Exempt Facilities Revenue, MacMillan
Limited Partnership Project, 7.600%, 12/01/20
3,500,000 Pennsylvania, Economic Development Financing 12/04 at 102 BBB 3,914,225
Authority, Wastewater Treatment Revenue,
Sun Company Inc., R and M Project, Series A,
7.600%, 12/01/24
250,000 Philadelphia, Pennsylvania, Authority For Industrial 5/02 at 102 A+ 271,013
Development Revenues, National Board of
Medical Examiners Project, 6.750%, 5/01/12
- ---------------------------------------------------------------------------------------------------------------------------
Medical Revenue/Other -- 2.6%
1,500,000 Allegheny County, Pennsylvania, Hospital 6/02 at 102 BBB 1,573,230
Development Authority Revenue, Health and
Education, Rehabilitation Institute of Pittsburgh,
7.000%, 6/01/22
1,500,000 Harrisburg, Pennsylvania, Authority Revenue, Pooled 4/06 at 102 AAA 1,492,410
Bond Program, Series I, 5.625%, 4/01/19
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Transportation -- 1.9%
2,300,000 Pennsylvania, State Turnpike Commission, Turnpike 12/02 at 102 AAA 2,248,871
Revenue Refunding, Series O, 5.500%, 12/01/17
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 1.2%
1,400,000 Philadelphia, Pennsylvania, Gas Works, Revenue 7/03 at 102 Baa1 1,433,600
Refunding, Fourteenth Series A, 6.375%, 7/01/26
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer -- 1.8%
1,185,000 Pittsburgh, Pennsylvania, Water and Sewer Authority, 9/05 at 100 AAA 1,187,583
Water and Sewer System, Revenue, Series B,
5.750%, 9/01/25
890,000 South Wayne County, Water and Sewer Authority, 4/02 at 102 N/R 946,052
Pennsylvania, Sewer Revenue Refunding,
8.200%, 4/15/13
</TABLE>
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Natural Gas/Pipeline -- 1.8%
$ 2,000,000 Philadelphia, Pennsylvania, Gas Works Revenue 7/03 at 102 AAA $ 2,132,360
Refunding, Fourteenth Series A, FSA, CRS,
6.375%, 7/01/14
- ---------------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 6.6%
2,850,000 Deer Lakes School District, Pennsylvania, 1/04 at 100 AAA 2,988,396
6.350%, 1/15/14
2,000,000 McKeesport, Pennsylvania, Area School District, 10/06 at 100 AAA 2,058,100
Series A, 6.000%, 10/01/25
2,195,000 Montour, Pennsylvania, School District, Series B, No Opt. Call AAA 869,747
New School, 0.000%, 1/01/14
2,000,000 Philadelphia, Pennsylvania, Refunding, No Opt. Call AAA 2,030,700
Series A, 5.125%, 5/15/03
- ---------------------------------------------------------------------------------------------------------------------------
Pre-refunded -- 6.3%***
200,000 Allegheny County, Pennsylvania, Hospital 10/01 at 100 BBB+ 219,178
Development Authority Revenue, St. Margaret
Memorial Hospital, 7.125%, 10/01/21
1,000,000 Bucks County, Pennsylvania, Community College 6/02 at 100 AA 1,070,450
Authority, College Building, Revenue Refunding,
6.250%, 6/15/14
200,000 Butler County, Pennsylvania, Hospital Authority, 6/01 at 102 AAA 220,816
Hospital Revenue, North Hills Passavant Hospital,
Series A, 7.000%, 6/01/22
1,500,000 Pennsylvania, Intergovernmental Coop Authority, 6/05 at 100 AAA 1,714,215
Special Tax Revenue, Philadelphia Funding Program,
7.000%, 6/15/14
500,000 Pennsylvania, State Higher Educational Facilities 10/98 at 102 N/R 536,270
Authority, College and University Revenues,
Lycoming College, 8.375%, 10/01/18
700,000 Pennsylvania, State Higher Educational Facilities 1/98 at 102 AAA 730,800
Authority, Hospital Revenue, Thomas Jefferson
University, 8.000%, 1/01/18
Philadelphia, Pennsylvania, Municipal Authority,
Revenue Refunding:
150,000 7.800%, 4/01/18 4/98 at 102 AAA 157,827
1,450,000 7.800%, 4/01/18 4/00 at 100 AAA 1,578,804
935,000 West View, Pennsylvania, Municipal Authority, No Opt. Call AAA 1,317,172
Special Obligation, Refunding, Series A,
9.500%, 11/15/14
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship Pennsylvania -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resource Recovery -- 5.0%
$ 1,650,000 Cambria County, Pennsylvania, Industrial Development 9/98 at 100 A1 $ 1,693,280
Authority, Resource Recovery, Cambria Cogen
Project, Series F-2, 7.750%, 9/01/19
3,000,000 Delaware County, Pennsylvania, Industrial 1/08 at 102 A 3,053,340
Development Authority, Revenue Refunding,
Resource Recovery Facility, Series A,
6.200%, 7/01/19
800,000 Greater Lebanon Refuse Authority, Pennsylvania, 11/02 at 100 A- 854,344
Solid Waste, Revenue Refunding,
7.000%, 11/15/04
400,000 York County, Pennsylvania, Solid Waste and Refuse 12/97 at 103 AA- 417,548
Authority, Industrial Development, Revenue,
Resource Recovery Project, Series C,
8.200%, 12/01/14
- -------------------------------------------------------------------------------------------------------------
Special Tax Revenue -- 8.6%
4,000,000 Pennsylvania, Intergovernmental Coop Authority, 6/03 at 100 AAA 3,798,760
Special Tax, Revenue Refunding, Series A,
5.000%, 6/15/13
1,390,000 Pennsylvania, Intergovernmental Coop Authority, No Opt. Call AAA 1,588,503
Special Tax, Revenue, Philadelphia Funding
Program, 7.000%, 6/15/05
Puerto Rico Commonwealth, Highway and
Transportation Authority, Highway Revenue, Series Y:
1,000,000 5.500%, 7/01/26 7/06 at 101 1/2 A 966,880
1,000,000 5.500%, 7/01/36 7/16 at 100 A 972,570
3,000,000 Southeastern Pennsylvania, Transportation 3/07 at 102 AAA 2,919,690
Authority, Pennsylvania, Special Revenue,
5.375%, 3/01/22
- -------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 4.6%
2,000,000 Pennsylvania, Third Series, 5.000%, 9/01/12 9/03 at 102 AA- 1,899,460
1,000,000 Pennsylvania, First Series, 5.375%, 5/15/16 5/06 at 101 1/2 AAA 982,480
1,250,000 Puerto Rico Commonwealth, 5.400%, 7/01/25 7/06 at 101 1/2 A 1,191,838
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State/Territorial General Obligations -- continued
$ 1,500,000 Puerto Rico Commonwealth, Public Improvement, 7/07 at 101 1/2 A $ 1,431,030
5.375%, 7/01/25
- -------------------------------------------------------------------------------------------------------------
$117,668,000 Total Investments -- (cost $112,893,652) -- 98.8% 118,188,587
============-------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.2% 1,409,963
-----------------------------------------------------------------------------------------------
Net Assets -- 100% $119,598,550
===============================================================================================
</TABLE>
* Ratings (not covered by the report of independent
auditors): Using the higher of Standard & Poor's or
Moody's rating.
** Optional Call Provisions (not covered by the report of
independent auditors): Dates (month and year) and prices
of the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
*** Pre-refunded 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. Pre-refunded securities are
normally considered to be equivalent to AAA rated
securities.
N/R -- Investment is not rated.
See accompanying notes to financial statements.
17
<PAGE>
Statement of Net Assets
May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship
Pennsylvania
- --------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at
market value (note 1) $118,188,587
Cash 112,752
Receivables:
Interest 2,072,126
Shares sold 101,061
Other assets 16,780
- -------------------------------------------------------------------------------
Total assets 120,491,306
- -------------------------------------------------------------------------------
Liabilities
Payable for Shares redeemed 202,731
Accrued expenses:
Management fees (note 6) 34,478
12b-1 distribution and service fees
(notes 1 and 6) 13,290
Other 95,495
Dividends payable 546,762
- -------------------------------------------------------------------------------
Total liabilities 892,756
- -------------------------------------------------------------------------------
Net assets (note 7) $119,598,550
===============================================================================
Class A Shares (note 1)
Net assets $ 55,667,073
Shares outstanding 5,428,988
Net asset value and redemption price per share $ 10.25
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.70
===============================================================================
Class B Shares (note 1)
Net assets $ 228,509
Shares outstanding 22,246
Net asset value, offering and redemption price per share $ 10.27
===============================================================================
Class C Shares (note 1)
Net assets $ 6,320,336
Shares outstanding 616,643
Net asset value, offering and redemption price per share $ 10.25
===============================================================================
Class R Shares (note 1)
Net assets $ 57,382,632
Shares outstanding 5,596,368
Net asset value, offering and redemption price per share $ 10.25
===============================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Statement of Operations Nuveen Flagship Municipal Bond Fund
Year ended May 31, 1997 May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Nuveen Flagship
Pennsylvania*
- -------------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $ 4,514,882
- -------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 378,251
12b-1 service fees -- Class A (notes 1 and 6) 149,056
12b-1 distribution and service fees -- Class B (notes 1 and 6) 418
12b-1 distribution and service fees -- Class C (notes 1 and 6) 45,521
Shareholders' servicing agent fees and expenses 77,143
Custodian's fees and expenses 52,401
Trustees' fees and expenses (note 6) 1,159
Professional fees 14,260
Shareholders' reports -- printing and mailing expenses 17,176
Federal and state registration fees 3,456
Other expenses 11,932
- -------------------------------------------------------------------------------------
Total expenses before reimbursement 750,773
Expense reimbursement (note 6) (277,221)
- -------------------------------------------------------------------------------------
Net expenses 473,552
- -------------------------------------------------------------------------------------
Net investment income 4,041,330
- -------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 46,769
Net change in unrealized appreciation or depreciation of investments 1,490,845
- -------------------------------------------------------------------------------------
Net gain from investments 1,537,614
- -------------------------------------------------------------------------------------
Net increase in net assets from operations $ 5,578,944
- -------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Pennsylvania and
four months of Nuveen Flagship Pennsylvania (see note 1 of the
Notes to Financial Statements).
See accompanying notes to financial statements.
19
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Pennsylvania* Pennsylvania
------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 4,041,330 $ 2,669,292
Net realized gain from investment transactions
(notes 1 and 4) 46,769 714,271
Net change in unrealized appreciation or depreciation
of investments 1,490,845 (1,775,459)
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 5,578,944 1,608,104
- -------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (2,665,076) (2,497,316)
Class B (1,816) N/A
Class C (264,780) (199,438)
Class R (1,082,438) N/A
- -------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (4,014,110) (2,696,754)
- -------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in the reorganization of
Nuveen Pennsylvania (note 1) 68,634,295 -
Net proceeds from shares issued as a capital contribution 33,360 -
Net proceeds from sale of shares 7,311,629 8,804,404
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 1,622,041 1,323,945
- -------------------------------------------------------------------------------------------------------------------
77,601,325 10,128,349
- -------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (8,401,239) (5,923,636)
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 69,200,086 4,204,713
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets 70,764,920 3,116,063
Net assets at the beginning of year 48,833,630 45,717,567
- -------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $119,598,550 $48,833,630
===================================================================================================================
Balance of undistributed net investment income at end of year $ 27,220 $ -
===================================================================================================================
</TABLE>
* Information represents eight months of Flagship Pennsylvania and four
months of Nuveen Flagship Pennsylvania (see note 1 of the Notes to
Financial Statements).
N/A -- Flagship Pennsylvania was not authorized to issue Class B or Class R
Shares.
See accompanying notes to financial statements.
20
<PAGE>
Notes to Financial Statements
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Pennsylvania Municipal Bond Fund (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Fund, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Flagship Pennsylvania Triple
Tax Exempt Fund ("Flagship Pennsylvania") and Nuveen Pennsylvania Tax-Free Value
Fund ("Nuveen Pennsylvania") reorganized into Nuveen Flagship Pennsylvania
Municipal Bond Fund ("Nuveen Flagship Pennsylvania"). Prior to the
reorganization, Flagship Pennsylvania was a sub-trust of the Flagship Tax Exempt
Funds Trust, while Nuveen Pennsylvania was a series of the Nuveen Multistate Tax
Free Trust. Nuveen Pennsylvania had a fiscal year end of January 31 prior to
being reorganized into Nuveen Flagship Pennsylvania which has retained the
fiscal year end of Flagship Pennsylvania.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Fund had no such purchase commitments.
21
<PAGE>
Notes to Financial Statements -- continued
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship Pennsylvania was
declared as a dividend daily and payment was made on the last business day of
each month.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Pennsylvania state income taxes, to
retain such tax-exempt status when distributed to the shareholders of the Fund.
All income dividends paid during the fiscal year ended May 31, 1997, have been
designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Effective February 1, 1997, the Fund offers Class A, B, C and R Shares. Class A
Shares are sold with a sales charge and an by the investor annual 12b-1 service
fee. Class B Shares are sold without a sales charge but incur annual 12b-1
distribution and service fees. An investor purchasing Class B Shares agrees to
pay a contingent deferred sales charge ("CDSC") of up to 5% depending upon the
length of time the shares are held by the investor (CDSC is reduced to 0% at the
end of six years). Class C Shares are sold without a sales charge but incur
annual 12b-1 distribution and service fees. An investor purchasing Class C
Shares agrees to pay a CDSC of 1% if Class C Shares are redeemed within 18
months of purchase. Class R Shares are not subject to any sales charge or 12b-1
distribution or service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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 fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
include 12b-1 distribution and service fees, are recorded to the specific class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
23
<PAGE>
Notes to Financial Statements -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Pennsylvania* Pennsylvania
-------------------------------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
-------------------------------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in the reorganization
of Nuveen Pennsylvania:
Class A 1,011,604 $10,326,580 - $ -
Class B - - N/A N/A
Class C 101,246 1,033,183 - -
Class R 5,610,682 57,274,532 N/A N/A
Shares issued as a
capital contribution:
Class A 817 8,340 - -
Class B 817 8,340 N/A N/A
Class C 817 8,340 - -
Class R 817 8,340 N/A N/A
Shares sold:
Class A 390,922 3,976,377 715,960 7,326,760
Class B 21,356 217,925 N/A N/A
Class C 168,084 1,709,951 144,791 1,477,644
Class R 137,689 1,407,376 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 96,590 980,201 117,434 1,199,201
Class B 73 740 N/A N/A
Class C 13,846 140,564 12,212 124,744
Class R 49,269 500,536 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
7,604,629 77,601,325 990,397 10,128,349
- ----------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (512,221) (5,199,195) (562,674) (5,744,061)
Class B - - N/A N/A
Class C (111,867) (1,144,394) (17,822) (179,575)
Class R (202,089) (2,057,650) N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
(826,177) (8,401,239) (580,496) (5,923,636)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 6,778,452 $69,200,086 409,901 $ 4,204,713
======================================================================================================================
</TABLE>
* Information represents eight months of Flagship Pennsylvania and four
months of Nuveen Flagship Pennsylvania (see note 1).
N/A-Flagship Pennsylvania was not authorized to issue Class B or Class R Shares.
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-
exempt net investment income which was paid on July 1, 1997, to shareholders
of record on June 9, 1997, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
Pennsylvania
- -----------------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $ .0465
Class B .0400
Class C .0420
Class R .0485
- -----------------------------------------------------------------------------------------
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities for the fiscal year ended May 31, 1997, were as follows:.
<TABLE>
<CAPTION>
Nuveen Flagship
Pennsylvania*
- -----------------------------------------------------------------------------------------
<S> <C>
Purchases
Investments in municipal securities $33,567,039
Investments in municipal securities in the reorganization
of Nuveen Pennsylvania 64,549,638
Sales
Investments in municipal securities 32,469,028
- -----------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Pennsylvania and four
months of Nuveen Flagship Pennsylvania (see note 1).
N/A --Flagship Pennsylvania was not authorized to issue Class B or Class R
Shares.
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes may differ from the cost used for financial reporting purposes.
At May 31, 1997, the Fund had unused capital loss carryforwards of $142,820
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $46,943 of the carryover will expire in the year
2003 and $95,877 will expire in the year 2004.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, net unrealized appreciation aggregated $5,294,935, of which
$5,334,150 related to appreciated securities and $39,215 related to depreciation
securities.
25
<PAGE>
Notes to Financial Statements -- continued
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund as follows:
Average daily net asset value Management fee
- --------------------------------------------------------------------------------
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
Prior to the reorganization (see note 1) Flagship Pennsylvania paid a management
fee of .5 of 1%. The management fee compensates the Adviser for overall
investment advisory and administrative services, and general office facilities.
The Trust pays no compensation directly to its Trustees who are affiliated with
the Adviser or to its officers, all of whom receive remuneration for their
services to the Trust from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship Resources Inc.)
collected sales charges on purchases of Class A Shares of approximately $110,200
of which approximately $96,400 were paid out as concessions to authorized
dealers. The Distributor and its predecessor also received 12b-1 service fees on
Class A Shares, approximately one-half of which was paid to compensate
authorized dealers for providing services to shareholders relating to their
investments.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $25,900 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees on Class B
Shares, and all 12b-1 service and distribution fees on Class C Shares during the
first year following a purchase are retained by the Distributor. The remaining
12b-1 fees charged to the Fund were paid to compensate authorized dealers for
providing services to shareholders relating to their investments. The
Distributor and its predecessor also collected and retained approximately $1,000
of CDSC on share redemptions during the fiscal year ended May 31, 1997.
26
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
7. Composition of Net Assets
At May 31, 1997, the Fund had an unlimited number of $.01 per value shares
authorized net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Flagship
Pennsylvania
- -------------------------------------------------------------------------------------
<S> <C>
Capital paid-in $114,425,115
Balance of undistributed net investment income 27,220
Accumulated net realized gain (loss) from investment transactions (148,720)
Net unrealized appreciation of investments 5,294,935
- -------------------------------------------------------------------------------------
Net assets $119,598,550
=====================================================================================
</TABLE>
27
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------- ------------------
NUVEEN FLAGSHIP PENNSYLVANIA++ Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income(b) investments income gains period value(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (10/86)
1997 $10.00 $.57 $ .25 $(.57) $ - $10.25 8.37%
1996 10.21 .59 (.20) (.60) - 10.00 3.83
1995 10.06 .60 .16 (.61) - 10.21 7.90
1994 10.38 .61 (.32) (.61) - 10.06 2.70
1993 9.90 .62 .47 (.61) - 10.38 11.34
1992 9.60 .63 .30 (.63) - 9.90 9.98
1991 9.39 .62 .22 (.63) - 9.60 9.26
1990 9.49 .63 (.10) (.63) - 9.39 5.70
1989 9.01 .64 .48 (.64) - 9.49 12.79
1988 8.83 .65 .18 (.65) - 9.01 9.70
Class B (2/97)
1997(c) 10.21 .16 .06 (.16) - 10.27 2.18
Class C (2/94)
1997 9.99 .51 .26 (.51) - 10.25 7.88
1996 10.21 .53 (.21) (.54) - 9.99 3.16
1995 10.06 .54 .16 (.55) - 10.21 7.31
1994(c) 10.71 .16 (.64) (.17) - 10.06 (13.46)
Class R (2/97)
1997(c) 10.21 .20 .03 (.19) - 10.25 2.31
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Pennsylvania.
(a) Total returns are calculated on net asset value without any sales
charge.
(b) After the waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- --------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$55,667 1.09% 5.22% .70% 5.61% 46%
44,392 1.13 5.42 .79 5.76 65
42,600 1.29 5.68 .89 6.08 50
42,226 1.17 5.55 .91 5.80 21
40,705 1.32 5.67 .92 6.07 23
36,917 1.31 5.99 .83 6.47 41
35,408 1.29 6.25 .91 6.63 23
35,632 1.29 6.28 .92 6.65 30
33,476 1.35 6.47 .98 6.84 23
33,838 1.22 6.78 .72 7.28 52
229 1.72+ 4.47+ 1.35+ 4.84+ 46
6,320 1.63 4.68 1.25 5.06 46
4,442 1.34 5.19 1.68 4.85 65
3,118 1.39 5.50 1.84 5.05 50
1,697 1.41+ 4.91+ 1.68+ 4.64+ 21
57,383 .77+ 5.45+ .39+ 5.83+ 46
- --------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship Pennsylvania Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Flagship
Pennsylvania Municipal Bond Fund, including the portfolio of investments, as of
May 31, 1997, the related statement of operations for the period then ended and
the statement of changes in net assets, and the financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the Fund's custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Flagship
Pennsylvania Municipal Bond Fund at May 31, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
30
<PAGE>
Shareholder Meeting Report
Flagship Pennsylvania
<TABLE>
<CAPTION>
A Shares C Shares
<S> <C> <C> <C>
- -------------------------------------------------------------------
Advisory Agreement For 3,676,004 432,465
Against 50,191 9,824
Abstain 28,166 --
-------------------------------------------
Total 3,754,361 442,289
- -------------------------------------------------------------------
Broker Non Votes 118,524 23,814
- -------------------------------------------------------------------
12b-1 Plan For 3,494,530 419,485
Against 122,457 18,501
Abstain 137,375 4,303
-------------------------------------------
Total 3,754,362 442,289
- -------------------------------------------------------------------
Broker Non Votes 118,523 23,814
- -------------------------------------------------------------------
Reorganization For 2,679,921 179,592
Against 43,337 9,960
Abstain 46,396 --
-------------------------------------------
Total 2,769,654 189,552
- -------------------------------------------------------------------
Broker Non Votes 1,103,231 276,551
- -------------------------------------------------------------------
Directors
- -------------------------------------------------------------------
(A) Bremner For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(B) Brown For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(C) Dean For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(D) Impellizzeri For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(E) Rosenheim For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(F) Sawers For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(G) Schneider For 3,837,394 451,778
Withhold 35,491 14,325
-------------------------------------------
Total 3,872,885 466,103
- -------------------------------------------------------------------
(H) Schwertfeger For 3,837,394 451,778
Withhold 35,491 14,325
- -------------------------------------------------------------------
Total 3,872,885 466,103
-------------------------------------------
</TABLE>
31
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
32
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
33
<PAGE>
Serving Investors
for Generations
[Photo of John Nuveen, Sr. Appears Here]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
MUNICIPAL
BONDS FUNDS
MAY 31, 1997
- -----------------------------------
ANNUAL REPORT
- -----------------------------------
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
VIRGINIA
[PHOTO APPEARS HERE]
<PAGE>
CONTENTS
1 Dear Shareholder
3 Answering Your Questions
6 Virginia Overview
9 Financial Section
33 Shareholder Meeting Report
35 Shareholder Information
36 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
TIMOTHY R. SCHWERTFEGER
DEAR SHAREHOLDER
It's a pleasure to report to you on the performance of the Nuveen Flagship
Virginia Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 8.20%
for Class A shares, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) kept close pace with the 8.28% increase produced by the
Lehman Brothers Municipal Bond Index, which is used to represent the broad
municipal bond market on an unmanaged basis.
In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds, which
provide excellent income for investors. As of May 31, 1997, shareholders were
receiving tax-free yields on net asset value of 5.18% for Class A shares. To
match this yield, investors in the 35% combined federal and state income tax
bracket would have had to earn at least 7.97% on taxable alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising short-term interest rates by 0.25%,
but then maintained the status quo at its May and July meetings. Overall market
returns continue to be good, but fear of inflation has hampered the performance
of municipals and led to
____
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
increased volatility in both the equity and bond markets. During this time,
bonds have often been the bellwether for the direction of stocks. Whenever
inflation talk is at its most rampant, the stock market has kept an eye on the
bond market for its response before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation-as well as attractive yields-have sparked increased interest in
tax-free investments. The current level of the stock market reminds investors to
re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
- ---------------------------
TIMOTHY R. RCHWERTFEGER
Chairman of the Board
July 15, 1997
____
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
TED NEILD, HEAD OF NUVEEN'S DAYTON-BASED PORTFOLIO MANAGEMENT TEAM, TALKS ABOUT
THE MUNICIPAL BOND MARKET AND OFFERS INSIGHT INTO FACTORS THAT AFFECTED FUND
PERFORMANCE OVER THE PAST YEAR.
ANSWERING YOUR QUESTIONS
WHAT ARE THE INVESTMENT OBJECTIVES OF THE FUND?
The fund aims to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the fund's after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
WHAT IS YOUR STRATEGY FOR MEETING THESE OBJECTIVES?
To meet this fund's objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
WHAT KEY ECONOMIC FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE YEAR?
The U.S. economy continued to grow, exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels. The fund had the added advantage of operating in a
healthy supply environment, where securities were available as needed.
____
3
<PAGE>
"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer best balance of high potential return with low risk regardless of the
direction of interest rates."
GIVEN THIS MARKET ENVIRONMENT, HOW DID THE FUND PERFORM?
The Virginia Municipal Bond Fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 8.20% for Class
A shares, including price changes and reinvested dividends. The fund was ranked
among the top third of 31 Virginia municipal bond funds for the one-year period
by Lipper Analytical Services, a nationally recognized performance measurement
service.
WHAT STRATEGIES DID YOU EMPLOY TO ADD VALUE?
As the spread between yields on higher and lower quality bonds continued to
narrow during the year, we were able to enhance the credit quality of the fund
without sacrificing yield. We also focused on purchasing bonds with strong call
protection, which resulted in healthy appreciation for the fund as interest
rates generally fell over the period.
WHAT IS THE CURRENT STATUS OF VIRGINIA'S MUNICIPAL MARKET?
Virginia's municipal market continues to perform well. In most sectors, credit
quality has remained fairly stable, reflecting good economic growth and solid
financial positions. Ample supply-more than $1.8 billion of municipal debt has
been issued in the commonwealth during the first half of 1997-and consistent
demand have held bond prices at comfortable levels.
Recent economic growth can be attributed in part to Virginia's competitive
business advantages, which include a favorable tax structure, highly educated
workforce, and diverse economy. The commonwealth and its municipalities have
also contributed to the recent growth by proactively pursuing economic
development opportunities. For the most part, their economic development efforts
have been rewarded. Modest tax base growth has enabled most Virginia
municipalities to improve or at least maintain their solid financial positions.
____
4
<PAGE>
WHAT IS THE CURRENT OUTLOOK FOR THE MUNICIPAL MARKET AS A WHOLE?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Although structural changes in the
economy appear to have suspended the relationship between faster growth and
higher inflation, the risk remains that inflation may reassert itself if
capacity constraints are reached and resources are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market will continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation, and many
are rebalancing their portfolios by shifting some assets into bonds.
____
5
<PAGE>
VIRGINIA
OVERVIEW
Credit Quality
[PIE CHART APPEARS HERE]
BBB/NR 15%
A 29%
AA 31%
AAA/Pre-refunded 25%
Diversification
[PIE CHART APPEARS HERE]
Escrowed Bonds 3%
Hospitals 20%
Housing Facilities 12%
Education 12%
Pollution Control 12%
Transportation 5%
Municipal Appropriations 12%
Other 6%
Water & Sewer 11%
General Obligations 7%
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
=================================================================================
SHARE CLASS A B C R
<S> <C> <C> <C> <C>
Inception Date 3/86 2/97 10/93 2/97
- ---------------------------------------------------------------------------------
Net Asset Value (NAV) $10.66 $10.66 $10.65 $ 10.66
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Net Assets ($000) $191,336
- ---------------------------------------------------------------------------------
Average Weighted Maturity (years) 21.27
- ---------------------------------------------------------------------------------
Duration (years) 7.47
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN/1/
==================================================================================
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
1-Year 8.20% 3.66% 7.54% 7.61% 8.28%
- ----------------------------------------------------------------------------------
5-Year 6.99% 6.08% 6.39% 6.38% 7.01%
- ----------------------------------------------------------------------------------
10-Year 8.19% 7.72% 7.71% 7.59% 8.19%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE YIELDS
==================================================================================
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.36% 5.13% 4.62% 4.81% 5.56%
- ----------------------------------------------------------------------------------
SEC 30-Day Yld 5.18% 4.96% 4.44% 4.64% 5.39%
- ----------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.97% 7.63% 6.83% 7.14% 8.29%
- ----------------------------------------------------------------------------------
</TABLE>
1 Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class C
shares have a 1% CDSC for redemptions within one year. Returns do not reflect
imposition of the CDSC. Giving effect to the CDSC applicable to Class B
shares, the 1-year, 5-year, and 10-year total returns above would be 3.54%,
6.24%, and 7.71%, respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 35%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship Virginia Municipal Bond Fund
May 31, 1997 Annual Report
*The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A Shares (4.20%) and all ongoing
fund expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lehman
Brothers Nuveen Flagship Nuveen Flagship
Municipal Virginia Municipal Virginia Municipal
Date Bond Index Bond Fund (NAV) Bond Fund (offer)
- ---- ---------- ------------------ ------------------
<S> <C> <C> <C>
May-87 $10,000.00 $10,000.00 $ 9,580.00
May-88 $10,898.10 $10,958.31 $10,498.06
May-89 $12,150.65 $12,300.61 $11,783.98
May-90 $13,039.68 $13,055.98 $12,507.63
May-91 $14,353.88 $14,324.95 $13,723.30
May-92 $15,764.07 $15,667.46 $15,009.43
May-93 $17,650.01 $17,608.87 $16,869.30
May-94 $18,085.83 $18,070.09 $17,311.15
May-95 $19,732.83 $19,513.71 $18,694.13
May-96 $20,634.74 $20,300.68 $19,448.06
May-97 $22,534.82 $21,966.24 $21,043.66
</TABLE>
Lehman Brothers Municipal Bond Index $22,535
Nuveen Flagship Virginia Municipal Bond Fund (NAV) $21,966
Nuveen Flagship Virginia Municipal Bond Fund (Offer) $21,044
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C> <C>
JUNE 0.0468 JANUARY 0.05005
JULY 0.04836 FEBRUARY 0.0476
AUGUST 0.04836 MARCH 0.0476
SEPTEMBER 0.0468 APRIL 0.0476
OCTOBER 0.04836 MAY 0.0476
NOVEMBER 0.0468
DECEMBER 0.04836
</TABLE>
7
<PAGE>
FINANCIAL SECTION
CONTENTS
10 Portfolio of Investments
19 Statement of Net Assets
20 Statement of Operations
21 Statement of Changes in Net Assets
22 Notes to Financial Statements
29 Financial Highlights
32 Independent Auditors' Report
____
9
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP VIRGINIA
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 11.3%
$500,000 Hampton Roads, Virginia, Medical College, General 11/01 at 102 A- $ 534,385
Revenue Refunding, Series A, 6.875%, 11/15/16
Loudoun County, Virginia, Industrial Development
Authority, University Facilities, Revenue Refunding,
George Washington University:
500,000 6.250%, 5/15/12 5/02 at 102 A1 515,455
2,225,000 6.250%, 5/15/22 5/02 at 102 A1 2,286,072
1,250,000 Rockingham County, Virginia, Industrial Development 10/03 at 102 Baa3 1,234,400
Authority, Revenue Refunding, Bridgewater
College, 6.000%, 10/01/23
Staunton, Virginia, Industrial Development Authority,
Educational Facilities, Revenue Refunding, Mary
Baldwin College:
350,000 5.900%, 11/01/03 No Opt. Call N/R 350,536
370,000 6.000%, 11/01/04 No Opt. Call N/R 370,636
2,000,000 University of Virginia, University General Revenues, 6/03 at 102 AA+ 1,935,920
Series B, 5.375%, 6/01/20
Virginia College, Building Authority, Educational
Facilities, Revenue Refunding, Washington and Lee
University Project:
750,000 6.400%, 1/01/12 1/02 at 102 AA 795,428
1,000,000 5.750%, 1/01/14 1/04 at 102 AA 1,002,960
1,000,000 5.800%, 1/01/24 1/04 at 102 AA 1,004,970
800,000 Virginia College, Building Authority, Educational 5/02 at 102 A- 853,216
Facilities, Revenue, Randolph-Macon College
Project, 6.625%, 5/01/13
Virginia College, Building Authority, Educational
Facilities, Revenue, Marymount University Project:
1,000,000 7.000%, 7/01/12 7/02 at 102 BBB- 1,060,810
1,400,000 7.000%, 7/01/22 7/02 at 102 BBB- 1,477,686
2,000,000 Virginia College, Building Authority, Educational 10/02 at 102 BBB+ 2,069,220
Facilities, Revenue Refunding, Roanoke College
Project, 6.625%, 10/15/12
3,250,000 Virginia College, Building Authority, Educational 4/03 at 102 A+ 3,256,825
Facilities, Revenue Refunding, Hampton
University Project, 5.750%, 4/01/14
</TABLE>
____
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION- CONTINUED
Winchester, Virginia, Industrial Development Authority,
Educational Facilities, Revenue Refunding, 1st
Mortgage, Shenandoah University Project:
$ 1,800,000 6.700%, 10/01/14 10/04 at 102 AA $ 1,972,998
775,000 6.750%, 10/01/19 10/04 at 102 AA 846,858
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 4.2%
715,000 Albemarle County, Virginia, Industrial Development 1/01 at 103 N/R 791,848
Authority, First Mortgage, Revenue Refunding,
Series A (H.C.M.F XV), 8.900%, 7/15/26
1,000,000 Chesterfield County, Virginia, Health Center 12/06 at 102 AAA 1,006,650
Commission, Mortgage Revenue, Lucy Corr
Nursing Home Project, 5.875%, 12/01/21
500,000 Fairfax County, Virginia, Redevelopment and Housing 12/06 at 103 AAA 502,620
Authority, Multi Family Housing, Revenue Refunding,
Paul Spring Center, Series A, 6.000%, 12/15/28
500,000 Front Royal and Warren County, Virginia, Industrial 1/06 at 100 A 545,200
Development Authority, Mortgage Revenue
Refunding, Heritage Hall XIII, 9.450%, 7/15/24
1,190,000 Henrico County, Virginia, Industrial Development 7/03 at 102 AAA 1,196,010
Authority, Revenue Refunding, Nursing Facility,
Insured, Mortgage, Cambridge Manor,
5.875%, 7/01/19
3,500,000 Norfolk, Virginia, Industrial Development Authority, 10/99 at 100 N/R 3,593,695
Industrial Development, Revenue, James Barry,
Robinson Institute Project, 7.700%, 10/01/06
400,000 Richmond, Virginia, Industrial Development Authority, 2/98 at 102 AA- 413,648
Revenue, Medical Facility, Richmond Metropolitan
Blood Service, 7.125%, 2/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
HOSPITALS - 15.8%
1,125,000 Albemarle County, Virginia, Industrial Development 10/02 at 102 A+ 1,175,839
Authority, Health Services, Revenue, University
Virginia Health Services Foundation,
6.500%, 10/01/22
2,060,000 Albemarle County, Virginia Industrial Development 10/03 at 102 A2 2,078,705
Authority, Hospital Revenue Refunding, Martha
Jefferson Hospital, 5.875%, 10/01/13
1,165,000 Buena Vista, Virginia, Industrial Development Authority, 11/97 at 102 N/R 1,199,344
Hospital Facility, Revenue Refunding, Stonewall
Jackson, 8.375%, 11/01/14
</TABLE>
____
11
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP VIRGINIA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - CONTINUED
$ 2,000,000 Fairfax County, Virginia, Industrial Development 8/06 at 102 AA $ 2,041,520
Authority, Revenue, Health Care, Inova Health
System Project, 6.000%, 8/15/26
2,000,000 Fredericksburg, Virginia, Industrial Development 6/07 at 102 AAA 1,895,440
Authority, Hospital Facilities, Revenue Refunding,
Medicorp Health System Obligation,
5.250%, 6/15/23
500,000 Hampton, Virginia, Industrial Development Authority, 11/04 at 102 Aa2 533,885
Hospital Revenue, Sentara General Hospital,
Series A, 6.500%, 11/01/12
2,000,000 Hanover County, Virginia, Industrial Development No Opt. Call AAA 2,202,660
Authority, Hospital Revenue, Memorial Regional
Medical Center Project, 6.375%, 8/15/18
2,000,000 Hanover County, Virginia, Industrial Development 8/05 at 102 AAA 1,926,380
Authority, Hospital Revenue, Bon Secours Health
System Projects, 5.500%, 8/15/25
1,250,000 Henry County, Virginia, Industrial Development 1/07 at 101 A+ 1,265,225
Authority, Hospital Revenue Refunding, Memorial
Hospital Martinsville and Henry, 6.000%, 1/01/27
1,700,000 Loudoun County, Virginia, Industrial Development 6/05 at 102 AAA 1,704,471
Authority, Hospital Revenue, Loudoun Hospital
Center, 5.800%, 6/01/20
2,000,000 Peninsula Ports Authority, Virginia, Health Care 8/04 at 102 BBB+ 2,155,680
Facilities, Revenue Refunding, Mary Immaculate
Project, 7.000%, 8/01/17
2,080,000 Peninsula Ports Authority, Virginia, Health System, 7/02 at 102 Aa2 2,205,029
Revenue Refunding, Riverside Health System Project,
Series A, 6.250%, 7/01/18
5,250,000 Prince William County, Virginia, Industrial Development 10/05 at 102 A2 5,612,408
Authority, Hospital Revenue Refunding, Potomac
Hospital Corporation, 6.850%, 10/01/25
2,000,000 Roanoke, Virginia, Industrial Development Authority, 7/03 at 102 AAA 1,786,420
Hospital Revenue Refunding, Roanoke Memorial
Hospitals Project, Series A, 5.000%, 7/01/24
2,260,000 Virginia Beach, Virginia, Development Authority, 11/01 at 102 AA 2,360,886
Hospital Facility, Revenue, Sentara Bayside
Hospital, 6.300%, 11/01/21
</TABLE>
____
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROOVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/MULTI FAMILY - 5.1%
$ 1,200,000 Fairfax County, Virginia, Redevelopment and Housing 9/06 at 102 AAA $ 1,214,484
Authority, Mortgage Revenue Refunding, Housing
For the Elderly, Little River Glen, Series A,
6.100%, 9/01/26
Harrisonburg, Virginia, Redevelopment & Housing
Authority Multi Family Housing Revenue Refunding,
United Dominion Projects:
1,415,000 7.000%, 12/01/08 12/02 at 102 BBB+ 1,492,500
2,040,000 7.100%, 12/01/15 12/02 at 102 BBB+ 2,131,433
2,000,000 Newport News, Virginia, Redevelopment and Housing 1/02 at 102 AAA 2,058,100
Authority, Mortgage Revenue Refunding, West
Apartments, Series A, 6.550%, 7/01/24
1,500,000 Richmond, Virginia, Redevelopment and Housing 3/05 at 102 AAA 1,597,710
Authority, Project Revenue, Old Manchester
Project, 6.800%, 3/01/15
480,000 Suffolk, Virginia, Redevelopment and Housing 7/02 at 104 N/R 516,221
Authority, Multi Family Housing, Revenue Refunding,
Chase Heritage Dulles, 7.000%, 7/01/24
700,000 Virginia, State Housing Development Authority, Multi 5/01 at 102 AA+ 747,075
Family, Series F, 7.000%, 5/01/04
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 6.5%
425,000 Puerto Rico, Housing Finance Corporation, Single 9/00 at 102 AAA 446,297
Family, Mortgage Revenue, Portfolio 1, Series B,
Remarketed 9/27/90, 7.650%, 10/15/22
650,000 Virginia, State Housing Development Authority, 1/00 at 102 AA+ 673,134
Commonwealth Mortgage, Series B, Subseries B-4,
6.850%, 7/01/17
Virginia, State Housing Development Authority,
Commonwealth Mortgage, Series A:
3,000,000 7.100%, 1/01/17 1/02 at 102 AA+ 3,125,220
1,000,000 7.100%, 1/01/22 1/02 at 102 AA+ 1,040,870
4,000,000 7.150%, 1/01/33 1/02 at 102 AA+ 4,157,560
1,000,000 Virginia State Housing Development Authority, 7/05 at 102 AA+ 1,017,400
Commonwealth Mortgage, Series C, Subseries C-1,
6.300%, 7/01/25
2,000,000 Virginia State Housing Development Authority, 7/05 at 102 AA+ 2,018,580
Commonwealth Mortgage, Series C, Subseries C-3,
6.125%, 7/01/22
</TABLE>
____
13
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP VIRGINIA -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL -- 12.1%
$ 2,000,000 Covington-Alleghany County, Virginia, Industrial 9/04 at 102 A1 $ 2,172,200
Development Authority, Pollution Control, Revenue
Refunding, Westvaco Corporation Project,
6.650%, 9/01/18
1,110,000 Giles County, Virginia, Industrial Development 12/05 at 102 A+ 1,120,090
Authority, Revenue, Exempt Facility, Hoechst
Celanese Project, 5.950%, 12/01/25
2,000,000 Henrico County, Virginia, Industrial Development No Opt. Call A 1,958,660
Authority, Revenue, Solid Waste, Browning Ferris,
Series A, 5.450%, 1/01/14
3,545,000 Isle Wight County, Virginia, Industrial Development 4/04 at 102 A1 3,750,787
Authority, Solid Waste Disposal Facilities, Revenue,
Union Camp Corporation Project, 6.550%, 4/01/24
3,000,000 Isle Wight County, Virginia, Industrial Development 5/07 at 102 A- 3,036,570
Authority, Solid Waste Disposal Facilities, Revenue,
Union Camp Corporation Project, 6.100%, 5/01/27
1,500,000 James City County, Virginia, Industrial Development 4/07 at 101 A+ 1,523,145
Authority, Sewer and Solid Waste Disposal Facilities,
Revenue, Anheuser Busch Project, 6.000%, 4/01/32
Loudoun County, Virginia, Industrial Development
Authority, Air Cargo Facility, Revenue, Washington
Dulles Air Cargo:
300,000 6.625%, 1/01/00 No Opt. Call N/R 306,897
3,000,000 7.000%, 1/01/09 1/01 at 102 N/R 3,086,160
600,000 6.500%, 1/01/09 1/06 at 102 N/R 605,022
2,500,000 Mecklenburg County, Virginia, Industrial Development 5/01 at 102 A1 2,653,200
Authority, Revenue, Exempt Facility, Mecklenburg
Cogen, Series A, 7.350%, 5/01/08
1,900,000 Puerto Rico, Ports Authority, Revenue, Special Facilities, 6/06 at 102 BBB- 1,940,926
American Airlines, Series A, 6.250%, 6/01/26
1,000,000 Russell County, Virginia, Industrial Development 11/00 at 102 Baa1 1,089,670
Authority, Pollution Control, Revenue, Appalachian
Power Company Project, Series G, 7.700%, 11/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL APPROPRIATION OBLIGATIONS -- 11.7%
2,300,000 Big Stone Gap, Virginia, Redevelopment and Housing 9/05 at 102 AA 2,295,837
Authority, Correctional Facility, Lease Revenue,
Wallens Ridge Development Project, 5.500%, 9/01/15
</TABLE>
____
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL APPROPRIATION OBLIGATIONS - CONTINUED
$ 3,000,000 Brunswick County, Virginia, Industrial Development 7/06 at 102 AAA $ 2,962,140
Authority, Correctional Facility, Lease Revenue,
5.500%, 7/01/17
1,410,000 Fairfax County, Virginia, Redevelopment and Housing 6/02 at 102 N/R 1,477,017
Authority, Revenue, FCRHA Office Building, Series A,
7.500%, 6/15/18
5,000,000 Hampton Roads, Virginia, Regional Jail Authority, 7/06 at 102 AAA 4,892,950
Regional Jail Facility, Revenue, Series A,
5.500%, 7/01/24
2,000,000 Henrico County, Virginia, Industrial Development 8/05 at 102 AA 2,252,540
Authority, Public Facility, Lease Revenue, Henrico
County Regional Jail Project, 7.000%, 8/01/13
750,000 Loudoun County, Virginia, Certificates of Participation, No Opt. Call AAA 882,975
Series E, 7.200%, 10/01/10
2,500,000 Prince William County, Virginia, Industrial Development
Authority, Lease Revenue, ATCC Project:
2,000,000 6.000%, 2/01/14 2/06 at 102 A2 2,038,000
1,000,000 6.000%, 2/01/18 2/06 at 102 A2 1,018,840
2,500,000 Prince William County, Virginia, Park Authority, 10/04 at 102 A- 2,702,175
Revenue, 6.875%, 10/15/16
2,000,000 Virginia, State Transportation Board, Transportation 5/03 at 102 AA 1,966,980
Contract, Revenue, U.S. Route 58 Corridor
Development, 5.500%, 5/15/18
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/OTHER - 1.7%
1,000,000 Virginia, State Public School Authority, Series A, 8/04 at 102 AA 1,055,910
6.200%, 8/01/13
Virginia State Public School Authority, Series B:
1,000,000 5.750%, 8/01/15 8/05 at 102 AA 1,019,580
1,210,000 5.625%, 8/01/16 8/05 at 102 AA 1,219,220
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/TRANSPORTATION - 4.6%
2,250,000 Capital Region Airport Commission, Virginia, Airport 7/05 at 102 AAA 2,227,928
Revenue, Richmond International Airport Projects,
Series A, 5.625%, 7/01/25
750,000 Charlottesville-Albemarle, Virginia, Airport Authority, 12/05 at 102 BBB 737,783
Airport Revenue Refunding, 6.125%, 12/01/13
</TABLE>
____
15
<PAGE>
PORTFOLIO OF INVESTMENT
NUVEEN FLAGSHIP VIRGINIA -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION OPTIONAL CALL RATINGS** MARKET
AMOUNT PROVISIONS* VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL REVENUE/TRANSPORTATION -- CONTINUED
Metropolitan Washington, D.C. Apartments Authority
Virginia General Airport Revenue, Series A:
$1,500,000 6.625%, 10/01/19 10/02 at 102 AAA $1,589,010
1,000,000 5.750%, 10/01/20 10/04 at 102 AAA 999,270
1,500,000 6.250%, 10/01/21 10/02 at 102 AAA 1,547,400
1,500,000 Peninsula Airport Commission, Virginia, Revenue, 7/01 at 102 Aa 1,636,530
Airport Improvement, 7.300%, 7/15/21
- ------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/UTILITY -- 1.7%
2,110,000 Halifax County, Virginia, Industrial Development 12/02 at 102 A+ 2,230,987
Authority, Exempt Facility, Revenue, Old Dominion
Electric Coop Project, 6.500%, 12/01/12
1,000,000 Puerto Rico, Electric Power Authority, Power Revenue 7/02 at 101 1/2 BBB+ 1,044,360
(Formerly Puerto Rico Commonwealth Water
Resource Authority Power), Series R,
6.250%, 7/01/17
- ------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/WATER AND SEWER -- 11.3%
1,000,000 Blacksburg, Virginia, Polytechnic Institute, Sanitation 11/02 at 102 A 1,027,070
Authority, Sewer System Revenue, 6.250%, 11/01/12
Fairfax County, Virginia, Water Authority, Water
Revenue Refunding:
1,000,000 6.000%, 4/01/22 4/07 at 102 Aa 1,035,500
3,250,000 5.750%, 4/01/29 4/02 at 100 Aa 3,268,070
1,000,000 Frederick-Winchester Service Authority, Virginia, 10/03 at 102 AAA 1,013,450
Regional Sewer System, Revenue Refunding,
5.750%, 10/01/15
2,500,000 Henrico County, Virginia, Water and Sewer, Revenue 5/02 at 100 AA- 2,603,500
Refunding, 6.250%, 5/01/13
1,000,000 Loudoun County, Virginia, Sanitation Authority, Water 1/03 at 102 AAA 1,050,060
and Sewer, Revenue Refunding, 6.250%, 1/01/16
1,000,000 Prince William County, Virginia, Service Authority, 7/01 at 100 AAA 1,014,920
Water and Sewer System, Revenue, 6.000%, 7/01/29
4,000,000 Upper Occoquan Sewer Authority, Virginia, Regional 1/04 at 102 AAA 3,628,160
Sewer, Revenue Refunding, 5.000%, 7/01/21
2,215,000 Upper Occoquan Sewer Authority, Virginia, Regional 7/16 at 100 AAA 2,090,739
Sewer, Revenue, Series A, 5.150%, 7/01/20
1,000,000 Virginia, State Resource Authority, Sewer System, 10/05 at 102 AA 1,015,680
Revenue, Hopewell Regional Wastewater Facility,
Series A, 6.000%, 10/01/25
</TABLE>
_____
16
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION OPTIONAL CALL RATINGS** MARKET
AMOUNT PROVISIONS* VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL REVENUE/WATER AND SEWER - CONTINUED
$1,000,000 Virginia, State Resource Authority, Water and Sewer 10/05 at 102 AA $ 975,650
System, Revenue, Series A, 5.600%, 10/01/25
500,000 Virginia, State Resource Authority, Water and Sewer 10/98 at 103 AA 529,815
System, Revenue, Lot 7, Rapidan Service Authority,
7.125%, 10/01/16
Virginia, State Resource Authority, Water System,
Revenue Refunding, Series A:
800,000 6.450%, 4/01/13 4/02 at 102 AA 838,800
1,500,000 6.125%, 4/01/19 4/02 at 100 AA 1,511,685
- ------------------------------------------------------------------------------------------------------------------------------
NON-STATE GENERAL OBLIGATIONS - 3.3%
1,000,000 Abingdon, Virginia, Capital Improvement, 8/02 at 102 A 1,048,980
6.250%, 8/01/12
730,000 Danville, Virginia, 6.500%, 5/01/12 5/02 at 102 A3 770,771
1,500,000 Portsmouth, Virginia, Refunding, Public Utility, 8/03 at 102 AA- 1,478,145
5.500%, 8/01/19
3,005,000 Richmond, Virginia, Public Improvement, Series B, 7/03 at 102 AA 2,921,641
5.500%, 7/15/23
- ------------------------------------------------------------------------------------------------------------------------------
PRE-REFUNDED - 3.3%***
750,000 Chesapeake Bay, Bridge and Tunnel Commission, 7/01 at 102 AAA 813,398
Virginia District, Revenue Refunding, General
Resolution, 6.375%, 7/01/22
1,000,000 Covington-Alleghany County, Virginia, Industrial 4/02 at 102 A- 1,097,620
Development Authority, Hospital Facility, Revenue,
Alleghany Regional Hospital, 6.625%, 4/01/12
500,000 Fairfax County, Virginia, Redevelopment and Housing 11/99 at 102 N/R 544,000
Authority, Revenue, Vinson Pavilion, Series A,
7.500%, 11/01/19
250,000 Martinsville, Virginia, Industrial Development Authority, 1/01 at 100 A2 269,573
Hospital Facility, Revenue, Martinsville & Henry
Memorial Hospital, 7.000%, 1/01/11
800,000 Puerto Rico Commonwealth, Highway and 7/02 at 101 1/2 AAA 885,856
Transportation Authority, Highway Revenue,
Series T, 6.625%, 7/01/18
1,000,000 Virginia College Building Authority, Educational 4/99 at 102 N/R 1,078,050
Facilities, Revenue, Hampton University Project,
Series A, 7.750%, 4/01/14
</TABLE>
____
17
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP VIRGINIA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRE-REFUNDED - CONTINUED
Virginia, State Resource Authority, Water and Sewer
System, Revenue, Pooled Loan Program, Series A:
$ 105,000 8.125%, 11/01/16 11/97 at 102 AA $ 108,974
110,000 8.125%, 11/01/16 11/98 at 101 AA 117,047
120,000 8.125%, 11/01/16 11/99 at 100 AA 130,356
130,000 8.125%, 11/01/16 11/00 at 100 AA 144,830
140,000 8.125%, 11/01/16 11/01 at 100 AA 159,537
305,000 7.600%, 11/01/16 5/98 at 102 AA 321,223
275,000 7.600%, 11/01/16 6/98 at 102 AA 289,627
410,000 7.650%, 11/01/16 11/98 at 101 1/2 AA 446,720
- ------------------------------------------------------------------------------------------------------------------------------
RESOURCE RECOVERY - 2.4%
1,500,000 Southeastern Public Service Authority, Virginia, 7/03 at 102 A- 1,511,835
Senior Revenue, Regional Solid Waste System,
6.000%, 7/01/13
1,000,000 Virginia, State Resource Authority, Solid Waste 4/05 at 102 AA 1,075,910
Disposal System, Revenue, Series B,
6.750%, 11/01/12
1,960,000 Virginia, State Resource Authority, Solid Waste 4/05 at 102 AA 1,923,818
Disposal System, Revenue Refunding, Series A,
5.500%, 4/01/15
- ------------------------------------------------------------------------------------------------------------------------------
STATE/TERRITORIAL GENERAL OBLIGATIONS - 3.8%
1,500,000 Puerto Rico Commonwealth, Public Improvement, 7/07 at 101 1/2 A 1,431,030
5.375%, 7/01/25
Puerto Rico Commonwealth:
2,575,000 6.450%, 7/01/17 7/04 at 102 A 2,747,010
2,500,000 6.500%, 7/01/23 7/04 at 101 1/2 A 2,663,625
500,000 5.400%, 7/01/25 7/06 at 101 1/2 A 476,735
- ------------------------------------------------------------------------------------------------------------------------------
$ 184,240,000 Total Investments - (cost $179,998,986) - 98.8% 189,098,691
- ------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.2% 2,237,190
---------------------------------------------------------------------------------------------------------
Net Assets - 100% $191,335,881
=========================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent auditors): Dates (month and year) and prices of
the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent
auditors): Using the higher of Standard & Poor's or Moody's
rating.
*** Pre-refunded 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. Pre-refunded securities are
normally considered to be equivalent to AAA rated
securities.
N/R - Investment is not rated.
____
18
<PAGE>
STATEMENT OF NET ASSETS Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
VIRGINIA
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $189,098,691
Receivables:
Interest 3,363,404
Shares sold 339,075
Other assets 6,009
- --------------------------------------------------------------------------------
Total assets 192,807,179
- --------------------------------------------------------------------------------
LIABILITIES
Cash overdraft 172,227
Payable for Shares redeemed 205,981
Accrued expenses:
Management fees (note 6) 33,667
12b-1 distribution and service fees (notes 1 and 6) 54,989
Other 148,163
Dividends payable 856,271
- --------------------------------------------------------------------------------
Total liabilities 1,471,298
- --------------------------------------------------------------------------------
Net assets (note 7) $191,335,881
================================================================================
CLASS A SHARES (NOTE 1)
Net assets $122,252,479
Shares outstanding 11,471,371
Net asset value and redemption price per share $ 10.66
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.13
================================================================================
CLASS B SHARES (NOTE 1)
Net assets $ 381,310
Shares outstanding 35,779
Net asset value, offering and redemption price per share $ 10.66
================================================================================
CLASS C SHARES (NOTE 1)
Net assets $ 11,700,038
Shares outstanding 1,098,486
Net asset value, offering and redemption price per share $ 10.65
================================================================================
Class R Shares (note 1)
Net assets $ 57,002,054
Shares outstanding 5,348,758
Net asset value, offering and redemption price per share $ 10.66
================================================================================
</TABLE>
See accompanying notes to financial statements.
____
19
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED May 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
VIRGINIA*
- --------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $ 9,291,914
- --------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 779,330
12b-1 service fees - Class A (notes 1 and 6) 397,031
12b-1 distribution and service fees - Class B (notes 1 and 6) 576
12b-1 distribution and service fees - Class C (notes 1 and 6) 106,304
Shareholders' servicing agent fees and expenses 115,841
Custodian's fees and expenses 54,203
Trustees' fees and expenses (note 6) 3,787
Professional fees 15,303
Shareholders' reports - printing and mailing expenses 25,382
Federal and state registration fees 6,006
Other expenses 5,801
- --------------------------------------------------------------------------------------
Total expenses before reimbursement 1,509,564
Expense reimbursement (note 6) (374,624)
- --------------------------------------------------------------------------------------
Net expenses 1,134,940
- --------------------------------------------------------------------------------------
Net investment income 8,156,974
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 772,114
Net change in unrealized appreciation or depreciation of investment 2,690,836
- --------------------------------------------------------------------------------------
Net gain from investments 3,462,950
- --------------------------------------------------------------------------------------
Net increase in net assets from operations $ 11,619,924
======================================================================================
</TABLE>
* Information represents eight months of Flagship Virginia and four months of
Nuveen Flagship Virginia (see note 1 of the Notes to Financial Statements).
See accompanying notes to financial statements.
____
20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
VIRGINIA* VIRGINIA
---------------------------------------------
YEAR ENDED 1/31/97 YEAR ENDED 1/31/97
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 8,156,974 $ 6,709,724
Net realized gain from investment transactions
(notes 1 and 4) 772,114 1,352,908
Net change in unrealized appreciation or depreciation
of investments 2,690,836 (3,368,259)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 11,619,924 4,694,373
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (6,499,935) (6,371,930)
Class B (2,778) N/A
Class C (588,320) (393,250)
Class R (1,059,930) N/A
- --------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (8,150,963) (6,765,180)
- --------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from shares issued in the reorganization 67,765,255 --
of Nuveen Virginia (note 1)
Net proceeds from shares issued as a capital contribution 33,360 --
Net proceeds from sale of shares 14,267,420 19,415,807
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 3,941,869 3,681,025
- --------------------------------------------------------------------------------------------------------
86,007,904 23,096,832
- --------------------------------------------------------------------------------------------------------
Cost of shares redeemed (26,796,317) (11,550,452)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 59,211,587 11,546,380
- --------------------------------------------------------------------------------------------------------
Net increase in net assets 62,680,548 9,475,573
Net assets at the beginning of year 128,655,333 119,179,760
- --------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 191,335,881 $ 128,655,333
========================================================================================================
Balance of undistributed net investment income at end of year $ 6,011 $ --
========================================================================================================
</TABLE>
* Information represents eight months of Flagship Virginia and four months of
Nuveen Flagship Virginia (see note 1 of the Notes to Financial Statements).
N/A - Flagship Virginia was not authorized to issue Class B or Class R Shares.
See accompanying notes to financial statements.
____
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Virginia Municipal Bond Fund (the "Fund"), among
others. The Trust was organized as a Massachusetts business trust on July 1,
1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Fund, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Flagship Virginia Double Tax
Exempt Fund ("Flagship Virginia") and Nuveen Virginia Tax-Free Value Fund
("Nuveen Virginia") reorganized into Nuveen Flagship Virginia Municipal Bond
Fund ("Nuveen Flagship Virginia"). Prior to the reorganization, Flagship
Virginia was a sub-trust of the Flagship Tax Exempt Funds Trust while Nuveen
Virginia was a series of the Nuveen Multistate Tax Free Trust. Nuveen Virginia
had a fiscal year end of January 31 prior to being reorganized into Nuveen
Flagship Virginia which has retained the fiscal year end of Flagship Virginia.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Fund had no such purchase commitments.
____
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship Virginia was
declared as a dividend daily and payment was made on the last business day of
each month.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Virginia state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Fund. All
income dividends paid during the fiscal year ended May 31, 1997, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Effective February 1, 1997, the Fund offers Class A, B, C and R Shares. Class A
Shares are sold with a sales charge and incur an annual 12b-1 service fee. Class
B Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class B Shares agrees to pay a contingent
deferred sales charge ("CDSC") of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class C Shares are sold without a sales charge but incur annual 12b-1
distribution and service fees. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% if Class C Shares are redeemed within 18 months of purchase.
Class R Shares are not subject to any sales charge or
____
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
12b-1 distribution or service fees. Class R Shares are available for purchases
of over $1 million and in other limited circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, 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 fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
____
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
VIRGINIA* VIRGINIA
---------------------------------------------------------
YEAR ENDED 5/31/97 YEAR ENDED 5/31/96
--------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in the reorganization
on Nuveen Virginia:
Class A 873,399 $ 9,273,783 -- $ --
Class B -- -- N/A N/A
Class C 109,201 1,158,978 -- --
Class R 5,399,536 57,332,494 N/A N/A
Shares issued as a capital
contribution:
Class A 785 8,340 -- --
Class B 785 8,340 N/A N/A
Class C 786 8,340 -- --
Class R 785 8,340 N/A N/A
Shares sold:
Class A 938,620 9,896,915 1,315,390 13,890,308
Class B 36,862 391,987 N/A N/A
Class C 307,161 3,231,156 521,385 5,525,499
Class R 70,304 747,362 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 304,589 3,213,145 328,665 3,474,566
Class B 9 98 N/A N/A
Class C 23,878 251,837 19,541 206,459
Class R 45,124 476,789 N/A N/A
- -----------------------------------------------------------------------------------------------
8,111,824 86,007,904 2,184,981 23,096,832
- -----------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,966,406) (20,767,054) (989,759) (10,468,801)
Class B (1,877) (19,915) N/A N/A
Class C (399,175) (4,241,028) (103,572) (1,081,651)
Class R (166,991) (1,768,320) N/A N/A
- -----------------------------------------------------------------------------------------------
(2,534,449) (26,796,317) (1,093,331) (11,550,452)
- -----------------------------------------------------------------------------------------------
Net increase 5,577,375 $ 59,211,587 1,091,650 $ 11,546,380
===============================================================================================
</TABLE>
* Information represents eight months of Flagship Virginia and four months of
Nuveen Flagship Virginia (see note 1).
N/A - Flagship Virginia was not authorized to issue Class B or Class R Shares.
____
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. DISTRIBUTIONS TO SHAREHOLDERS
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
VIRGINIA
- --------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0475
Class B .0410
Class C .0425
Class R .0495
- --------------------------------------------------------------------------------
</TABLE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
VIRGINIA*
- --------------------------------------------------------------------------------
<S> <C>
PURCHASES
Investments in municipal securities $33,217,400
Investments in municipal securities in the reorganization
of Nuveen Virginia 63,784,516
Temporary municipal investments 900,000
SALES
Investments in municipal securities 41,255,047
Temporary municipal investments 900,000
================================================================================
</TABLE>
* Information represents eight months of Flagship Virginia and four months of
Nuveen Flagship Virginia (see note 1).
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes may differ from the cost used for financial reporting purposes.
At May 31, 1997, the Fund had unused capital loss carryfowards of $409,795
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $257,096 of the carryover will expire in the year
2002 and $152,699 will expire in the year 2004.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At May 31, 1997, net unrealized appreciation aggregated $9,099,705 of which
$9,178,732 related to appreciated securities and $79,027 related to depreciated
securities.
____
26
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
Prior to the reorganization (see note 1) Flagship Virginia paid a management fee
of .5 of 1%. The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office facilities. The Trust
pays no compensation directly to its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship Resources Inc.)
collected gross sales charges on purchases of Class A Shares of approximately
$279,300 of which approximately $241,500 were paid out as concessions to
authorized dealers. The Distributor and its predecessor also received 12b-1
service fees on Class A Shares, approximately one-half of which was paid to
compensate authorized dealers for providing services relating to their
investments.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $44,200 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, and all 12b-1 service and distribution fees on Class C Shares
during the first year following a purchase are retained by the Distributor. The
remaining 12b-1 fee charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor and its predecessor also collected and retained approximately
$8,200 of CDSC on share redemptions during the fiscal year ended May 31, 1997.
____
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. COMPOSITION OF NET ASSETS
At May 31, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
VIRGINIA
- --------------------------------------------------------------------------------
<S> <C>
Capital paid-in $ 182,662,390
Balance of undistributed net investment income 6,011
Accumulated net realized gain (loss) from investment transactions (432,225)
Net unrealized appreciation of investments 9,099,705
- --------------------------------------------------------------------------------
Net assets $ 191,335,881
================================================================================
</TABLE>
____
28
<PAGE>
FINANCIAL HIGHLIGHTS
____
29
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------ ----------------------
NET
NUVEEN FLAGSHIP VIRGINIA++ NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS PERIOD VALUE(A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (3/86)
1997 $10.40 $.58 $ .25 $(.57) $ -- $10.66 8.20%
1996 10.56 .57 (.15) (.58) -- 10.40 4.03
1995 10.36 .59 .20 (.59) -- 10.56 7.99
1994 10.82 .60 (.31) (.60) (.15) 10.36 2.62
1993 10.24 .62 .62 (.62) (.04) 10.82 12.41
1992 9.97 .63 .27 (.63) -- 10.24 9.37
1991 9.70 .63 .28 (.64) -- 9.97 9.72
1990 9.76 .64 (.06) (.64) -- 9.70 6.14
1989 9.29 .64 .46 (.63) -- 9.76 12.25
1988 9.09 .64 .19 (.63) -- 9.29 9.73
CLASS B (2/97)
1997(C) 10.62 .16 .04 (.16) -- 10.66 1.94
CLASS C (10/93)
1997 10.39 .52 .26 (.52) -- 10.65 7.61
1996 10.56 .51 (.16) (.52) -- 10.39 3.37
1995 10.36 .53 .20 (.53) -- 10.56 7.40
1994(C) 11.24 .34 (.78) (.34) (.10) 10.36 (7.13)+
CLASS R (2/97)
1997(C) 10.62 .20 .04 (.20) -- 10.66 2.26
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Virginia.
(a) Total returns are calculated on net asset value without any
sales charge.
(b) After waiver of certain management fees a reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
____
30
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
RATIO RATIO
OF NET OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME TO EXPENSES INCOME TO
TO AVERAGE AVERAGE TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT(B) MENT(B) RATE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$122,252 1.00% 5.19% .74% 5.45% 23%
117,677 1.06 5.18 .83 5.41 17
112,643 1.10 5.50 .79 5.81 50
107,502 1.06 5.11 .64 5.53 17
96,105 1.07 5.43 .68 5.82 30
64,628 1.14 5.89 .75 6.28 27
48,062 1.18 6.21 .91 6.48 22
41,596 1.18 6.27 .91 6.54 35
37,151 1.25 6.41 .97 6.69 18
31,748 1.18 6.65 .88 6.95 75
381 1.66+ 4.49+ 1.47+ 4.68+ 23
11,700 1.55 4.63 1.29 4.89 23
10,978 1.60 4.62 1.38 4.84 17
6,537 1.65 4.93 1.34 5.24 50
4,759 1.79+ 4.20+ 1.14+ 4.85+ 17
57,002 .71+ 5.50+ .52+ 5.69+ 23
- ---------------------------------------------------------------------------------------------
</TABLE>
____
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
NUVEEN FLAGSHIP VIRGINIA MUNICIPAL BOND FUND:
We have audited the accompanying statement of net assets of Nuveen Flagship
Virginia Municipal Bond Fund, including the portfolio of investments, as of May
31, 1997, the related statement of operations for the period then ended and the
statement of changes in net assets, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the Fund's custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Flagship
Virginia Municipal Bond Fund at May 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
____
32
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP VIRGINIA
<TABLE>
<CAPTION>
A SHARES C SHARES
- -------------------------------------------------------------------------------
DIRECTORS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bremner For 9,508,843 1,081,603
Withhold 163,653 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Brown For 9,509,171 1,081,603
Withhold 163,325 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Dean For 9,502,423 1,081,603
Withhold 170,073 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Impellizzeri For 9,495,806 1,081,603
Withhold 176,690 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Rosenheim For 9,509,171 1,081,603
Withhold 163,325 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Sawers For 9,509,171 1,081,603
Withhold 163,325 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Schneider For 9,509,171 1,081,603
Withhold 163,325 2,213
------------------------------------------------------
Total 9,672,496 1,083,816
- -------------------------------------------------------------------------------
Schwertfeger For 9,502,751 1,081,603
Withhold 169,745 2,213
- -------------------------------------------------------------------------------
Total 9,672,496 1,083,816
------------------------------------------------------
</TABLE>
____
33
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP VIRGINIA -
CONTINUED
<TABLE>
<CAPTION>
A SHARES C SHARES
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVISORY AGREEMENT For 8,703,496 955,492
Against 343,747 20,099
Abstain 170,228 4,700
-----------------------------------------------------
Total 9,217,471 980,291
- ------------------------------------------------------------------------------
Broker Non Votes 455,025 103,525
- ------------------------------------------------------------------------------
12B-1 FEES For 8,443,492 952,983
Against 440,975 22,607
Abstain 333,005 4,700
-----------------------------------------------------
Total 9,217,472 980,290
- ------------------------------------------------------------------------------
Broker Non Votes 455,024 103,526
- ------------------------------------------------------------------------------
REORGANIZATION For 5,855,643 566,105
Against 269,610 8,954
Abstain 138,703 1,960
-----------------------------------------------------
Total 6,263,956 577,019
- ------------------------------------------------------------------------------
Broker Non Votes 3,408,540 506,797
-----------------------------------------------------
</TABLE>
____
34
<PAGE>
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your financial
goals.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
NATIONAL FUNDS
Long-Term
Insured
Intermediate-Term
Limited-Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
SHAREHOLDER INFORMATION
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
____
35
<PAGE>
FUND INFORMATION
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND
DIVIDEND DISBURSING AGENT
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Dayton, Ohio
____
36
<PAGE>
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
[LETTERHEAD OF NUVEEN APPEARS HERE]
SERVING INVESTORS
FOR GENERATIONS
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach - purchasing securities of strong companies and
communities that represent good long-term value - is the cornerstone of Nuveen's
investment philosophy. It is a careful, long-term strategy that offers the
potential for attractive returns with moderated risk. Successful value investing
begins with in-depth research and a discerning eye for marketplace opportunity.
Nuveen's team of investment professionals is backed by the discipline, resources
and expertise of almost a century of investment experience, including one of the
most recognized research departments in the industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Maryland
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Maryland Overview
9 Financial Section
27 Shareholder Information
28 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
It's a pleasure to report to you on the performance of the Nuveen Maryland
Municipal Bond Fund. Over the past year, the fund posted sizable gains. For the
12 months ended May 31, 1997, the value of your investment rose 6.66% for Class
A shares, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) trailed the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis. Although the fund trailed the index, shareholders have
enjoyed low volatility and superior credit quality, since 61% of the fund's
portfolio is comprised of AAA rated securities.
Shareholders have continued to enjoy steady dividends and attractive current
yields generated by a portfolio of quality bonds, which provide tax-exempt
income for investors. As of May 31, 1997, shareholders were receiving tax-free
yields on net asset value of 4.53% for Class A shares. To match this yield,
investors in the 34.5% combined federal and state income tax bracket would have
had to earn at least 6.92% on taxable alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising short-term interest rates by 0.25%,
but then maintained the status quo at its May and July meetings. Overall market
returns continue to be good, but fear of inflation has
1
<PAGE>
"Shareholders have continued to enjoy steady dividends and attractive current
yields generated by a portfolio of quality bonds."
hampered the performance of municipals and led to increased volatility in both
the equity and bond markets. During this time, bonds have often been the
bellwether for the direction of stocks. Whenever inflation talk is at its most
rampant, the stock market has kept an eye on the bond market for its response
before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation--as well as attractive yields--have sparked increased interest in
tax-free investments. The current level of the stock market reminds investors to
re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
Answering Your Questions
What are the investment objectives of the fund?
The fund aims to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the fund's after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
What is your strategy for meeting these objectives?
To meet this fund's objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
What key economic factors affected the fund's performance during the year?
The U.S. economy continued to grow, exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels. The fund had the added advantage of operating in a
healthy supply environment, where securities were available as needed.
3
<PAGE>
"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates."
Given this market environment, how did the fund perform?
The Maryland Municipal Bond Fund rewarded investors with a total return on net
asset value for the year of 6.66% for Class A shares, including price changes
and reinvested dividends. The fund lagged the market index, but is managed
conservatively to protect investors in down markets. With an average duration of
6.21 years, the fund is less volatile than many more aggressively managed funds.
In addition, the fund invests in high-quality bonds, which helps sustain its
dividend during periods of fluctuating interest rates.
What strategies did you employ to add value?
We focused on purchasing higher-quality bonds as the difference between yields
on lower-rated bonds and higher-quality bonds continued to narrow. This allowed
us to increase the credit quality of the portfolio without sacrificing yield. We
also looked for bonds with attractive structural features, most specifically
call protection, and we sold bonds with shorter call protection. Finally, we
found value in a variety of sectors, including housing, general obligation, and
transportation issues.
What is the current status of Maryland's municipal market?
In most sectors, the Maryland municipal market remains relatively stable.
Somewhat limited supply has been matched by limited demand, keeping prices
stable. The recently approved 10% personal income tax reduction will impact
state and county finances, likely leading to tighter budgets. Also, Maryland's
recent program to enroll Medicaid recipients in managed care plans should reduce
the state's healthcare expenditures, but reduced reimbursement may have a
negative impact on the state's healthcare providers. Nevertheless, the state's
economy has experienced moderate growth and the financial condition of most
Maryland municipalities remains solid.
4
<PAGE>
What is the current outlook for the municipal market as a whole?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Although structural changes in the
economy appear to have suspended the relationship between faster growth and
higher inflation, the risk remains that inflation may reassert itself if
capacity constraints are reached and resources are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market should continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation, and many
are rebalancing their portfolios by shifting some assets into bonds.
5
<PAGE>
Maryland
Overview
Credit Quality
[PIE CHART APPEARS HERE]
BBB/NR 9%
A 10%
AA 20%
AAA/Prerefunded 61%
Diversification
[PIE CHART APPEARS HERE]
Educational Facilities 4%
Hospitals 14%
General Obligations 19%
Other 7%
Escrowed Bonds 12%
Pollution Control 5%
Housing Facilities 22%
Transportation 12%
Municipal Appropriations 5%
Morningstar Rating/3/
****
<TABLE>
<CAPTION>
Fund Highlights
===============================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 9/94 12/91
- -------------------------------------------------------------------------------
Net Asset Value (NAV) $10.25 $10.25 $10.24 $10.26
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total Net Assets ($000) $58,536
- -------------------------------------------------------------------------------
Average Weighted Maturity (years) 19.23
- -------------------------------------------------------------------------------
Duration (years) 6.21
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
===============================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 6.66% 2.18% 5.99% 5.92% 6.88%
- -------------------------------------------------------------------------------
5-Year 6.43% 5.52% 5.71% 5.68% 6.70%
- -------------------------------------------------------------------------------
Since Inception 6.44% 5.57% 5.72% 5.69% 6.71%
- -------------------------------------------------------------------------------
Tax-Free Yields
===============================================================================
Share Class A(NAV) A(Offer) B C R
Dist Rate 4.86% 4.65% 4.10% 4.28% 5.03%
- -------------------------------------------------------------------------------
SEC 30-Day Yld 4.53% 4.34% 3.78% 3.98% 4.73%
- -------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 6.92% 6.63% 5.77% 6.08% 7.22%
- -------------------------------------------------------------------------------
</TABLE>
/1/ Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class
C shares have a 1% CDSC for redemptions within one year. Returns do not
reflect imposition of the CDSC. Giving effect to the CDSC applicable to
Class B shares, the 1-year, 5-year and since inception total returns above
would be 1.99%, 5.55%, and 5.57%, respectively.
/2/ Based on SEC yield and a combined federal and state income tax rate of
34.5%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ Overall rating for Class A shares for the period ended May 31, 1997, among
1,299 municipal bond funds for the three-year period, 631 funds for the
five-year period, and 290 funds for the 10-year period.
6
<PAGE>
Nuveen Maryland Municipal Bond Fund
May 31, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A Shares (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
Lehman Brothers Nuveen Maryland Nuveen Maryland
Municipal Bond Municipal Bond Municipal Bond
Index Fund (NAV) Fund (Offer)
February 1992 10000 10000 9580
May 1992 10211.5 10165 9738.1
May 1993 11433.2 11373.6 10895.9
May 1994 11715.5 11505.6 11022.4
May 1995 12782.4 12540.5 12013.8
May 1996 13366.6 13013 12466.5
May 1997 14597.4 13879.7 13296.8
. Lehman Brothers Municipal Bond Index $14,597
. Nuveen Maryland Municipal Bond Fund (NAV) $13,880
. Nuveen Maryland Municipal Bond Fund (Offer) $13,297
Past performance is not predictive of future performance.
Dividends History (A Shares)
[BAR CHART APPEARS HERE]
1996
June 0.0405
July 0.0405
August 0.0405
September 0.0405
October 0.0405
November 0.0405
December 0.0405
1997
January 0.0405
February 0.041
March 0.041
April 0.0415
May 0.0415
7
<PAGE>
Financial Section
<TABLE>
<CAPTION>
<S> <C>
Contents
10 Portfolio of Investments
15 Statement of Net Assets
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Notes to Financial Statements
24 Financial Highlights
26 Independent Auditors' Report
</TABLE>
9
<PAGE>
Portfolio of Investments
Maryland
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,500,000 Washington Metropolitan Area Transit Authority 1/04 at 102 Aaa $2,432,550
(District of Columbia), Gross Revenue Transit
Refunding Bonds, Series 1993, 5.250%, 7/01/14
500,000 Community Development Administration, Department 4/00 at 100 Aa 515,420
of Economic and Community Development, State
of Maryland, Single Family Program Bonds,
1987 First Series, 7.000%, 4/01/14
1,390,000 Community Development Administration, Department 4/01 at 102 Aa 1,457,915
of Housing and Community Development, State of
Maryland, Single Family Program Bonds,
1991 Fourth Series, 7.450%, 4/01/32
Community Development Administration, Department
of Housing and Community Development, State of
Maryland, Multi-Family Housing Revenue Bonds
(Insured Mortgage Loans), 1992 Series D:
700,000 6.700%, 5/15/27 5/02 at 102 Aa 723,898
500,000 6.750%, 5/15/33 5/02 at 102 Aa 518,475
1,845,000 Maryland Economic Development Corporation (Health 4/11 at 102 N/R 1,794,650
and Mental Hygiene Providers Facilities Acquisition
Program), Revenue Bonds, Series 1996A,
7.625%, 4/01/21
500,000 Maryland Health and Higher Educational Facilities 7/00 at 102 Aaa 545,625
Authority, Revenue Bonds, Sinai Hospital of
Baltimore Issue, Series 1990, 7.000%, 7/01/19
(Pre-refunded to 7/01/00)
500,000 Maryland Health and Higher Educational Facilities 7/00 at 102 Aaa 542,055
Authority, Revenue Bonds, Francis Scott Key
Medical Center Issue, Series 1990,
6.750%, 7/01/23 (Pre-refunded to 7/01/00)
1,005,000 Maryland Health and Higher Educational Facilities 7/00 at 102 Aaa 1,145,821
Authority, Doctors' Community Hospital Issue,
Series 1990, 8.750%, 7/01/22
(Pre-refunded to 7/01/00)
1,000,000 Maryland Health and Higher Educational Facilities 7/03 at 102 Aaa 953,700
Authority, Refunding Revenue Bonds,
Francis Scott Key Medical Center Issue,
Series 1993, 5.000%, 7/01/13
1,000,000 Maryland Health and Higher Educational Facilities 7/03 at 102 Baa2 971,360
Authority, Project and Refunding Revenue Bonds,
Doctors Community Hospital Issue,
Series 1993, 5.750%, 7/01/13
</TABLE>
10
<PAGE>
<TABLE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,760,000 Maryland Stadium Authority, Convention Center 12/04 at 102 Aaa $1,822,973
Expansion Lease Revenue Bonds, Series 1994,
5.875%, 12/15/12
Maryland Stadium Authority, Sports Facilities
Lease Revenue Bonds, Series 1989D:
500,000 7.375%, 12/15/04 (Alternative Minimum Tax) 12/99 at 102 Aa 543,835
500,000 7.500%, 12/15/10 (Alternative Minimum Tax) 12/99 at 102 Aa 543,365
3,010,000 Maryland Transportation Authority, Special 7/04 at102 Aaa 3,110,654
Obligation Revenue Bonds, Baltimore/
Washington International Airport Projects,
Series 1994-A (Qualified Airport Bonds),
6.400%, 7/01/15
1,000,000 Maryland Transportation Authority, Transportation 7/02 at 100 A1 1,005,840
Facilities Projects, Revenue Bonds,
Series 1992, 5.750%, 7/01/15
2,000,000 State of Maryland, General Obligation Bonds, 7/03 at 101 Aaa 1,952,580
State and Local Facilities Loan of 1993, Third
Series (Capital Improvement and Refunding
Bonds), 4.600%, 7/15/06
700,000 The Maryland National Capital Park and Planning 7/02 at 102 AA 757,505
Commission, Maryland (Prince George's County,
Maryland), General Obligation Bonds, Prince
George's County Park Acquisition and Development
Bonds, Series L--2, 6.125%, 7/01/10
(Pre-refunded to 7/01/02)***
2,000,000 Baltimore County, Maryland, General Obligation 7/98 at 102 Aaa 2,091,020
Bonds, Baltimore County Pension Funding Bonds,
1991 Refunding Series, 6.700%, 7/01/11
600,000 City of Baltimore, Maryland (Mayor and City Council 10/02 at 100 Aaa 653,256
of Baltimore), General Obligation Consolidated
Public Improvement Bonds of 1992, Series A,
6.500%, 10/15/12 (Pre-refunded to 10/15/02)
2,295,000 Mayor and City Council of Baltimore (City of Baltimore, No Opt. Call Aaa 2,614,189
Maryland), General Obligation Consolidated Public
Improvement Refunding Bonds of 1995, Series A,
7.375%, 10/15/03
1,000,000 Baltimore City, Maryland, Mortgage Revenue Refunding 12/02 at 102 AAA 1,043,830
Bonds, Series 1992 (GNMA Collateralized-Tindeco
Wharf Apartments Project), 6.700%, 12/20/28
</TABLE>
11
<PAGE>
<TABLE>
Portfolio of Investments
Maryland -- continued
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500,000 Mayor and City Council of Baltimore, Maryland, Port 4/02 at 103 AA- $1,616,880
Facilities Revenue Bonds (Consolidation Coal Sales
Company Project), Series 1984B, 6.500%, 10/01/11
1,500,000 City of Baltimore, Maryland, Mayor and City 7/06 at 101 Aaa 1,475,340
Council of Baltimore, Project and Refunding
Revenue Bonds (Water Projects), Series 1996-A,
5.500%, 7/01/26
625,000 Mayor and City Council of Baltimore, Maryland, Project 7/00 at 100 Aaa 662,181
and Refunding Revenue Bonds (Water Projects),
1990-A, 6.500%, 7/01/20 (Pre-refunded to 7/01/00)
2,165,000 City of Gaithersburg, Maryland, Nursing Home Revenue No Opt. Call Aaa 2,416,118
Refunding Bonds (Shady Grove Adventist Nursing
and Rehabilitation Center Project), Series 1992A,
6.500%, 9/01/12
1,000,000 Howard County, Maryland, Mortgage Revenue Refunding 7/02 at 102 Aaa 1,038,270
Bonds, Series 1992 (Howard Hills Townhouses
Project-FHA Insured Mortgage Loan), 6.400%, 7/01/24
2,000,000 Howard County, Maryland Multifamily Housing 7/02 at 104 Baa2 2,167,880
Revenue Refunding Bonds, Series 1994 (Chase
Glen Project), 7.000%, 7/01/24
1,000,000 Housing Opportunities Commission of Montgomery 7/05 at 102 Aa 1,012,000
County (Montgomery County, Maryland),
Multifamily Housing Revenue Bonds, 1995
Series A, 6.000%, 7/01/20
450,000 Housing Opportunities Commission of Montgomery 7/99 at 100 Aa 464,234
County (Montgomery County, Maryland), Single
Family Mortgage Revenue Bonds, 1986 Series C,
7.250%, 7/01/13
1,615,000 Housing Opportunities Commission of Montgomery 7/04 at 102 Aa2 1,685,446
County (Montgomery County, Maryland), Single
Family Mortgage Revenue Bonds, 1994 Series A,
6.600%, 7/01/14
1,000,000 Montgomery County, Maryland, Solid Waste System 6/03 at 102 Aaa 1,024,990
Revenue Bonds (1993 Series A), 5.875%, 6/01/13
(Alternative Minimum Tax)
1,500,000 Morgan State University, Maryland, Academic Fees No Opt. Call Aaa 1,624,005
and Auxiliary Facilities Fees, Revenue Refunding
Bonds, 1993 Series, 6.100%, 7/01/20
-----
12
</TABLE>
<PAGE>
<TABLE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000,000 Northeast Maryland Waste Disposal Authority, No Opt. Call Aaa $1,056,020
Resource Recovery Revenue Refunding Bonds
(Southwest Resource Recovery Facility),
Series 1993, 6.900%, 1/01/00
600,000 Prince George's County, Maryland, Hospital No Opt. Call A 601,422
Revenue Bonds, Dimensions Health
Corporation, Series 1992, 6.700%, 7/01/97
1,550,000 Housing Authority of Prince George's County, 1/02 at 102 Aaa 1,613,984
Maryland, Mortgage Revenue Refunding Bonds,
Series 1992A (New Keystone Apartments
Project-FHA Insured Mortgage Loan),
6.800%, 7/01/25
1,500,000 Prince George's County, Maryland, Pollution 1/03 at 102 A1 1,569,810
Control Revenue Bonds (Potomac Electric
Project), 1993 Series, 6.375%, 1/15/23
1,000,000 University of Maryland System, Auxiliary Facility 10/03 at 101 AA+ 972,510
and Tuition Revenue Bonds, 1993 Refunding
Series C, 5.000%, 10/01/11
1,170,000 Washington Suburban Sanitary District, Maryland, No Opt. Call Aa1 1,329,366
(Montgomery and Prince George's Counties,
Maryland), General Construction Bonds of 1991
(Second Series), 8.000%, 1/01/02
2,500,000 Commonwealth of Puerto Rico, Public Improvement 7/07 at 101 1/2 A 2,561,425
Bonds of 1997, 6.000%, 7/01/26
500,000 Commonwealth of Puerto Rico, Public Improvement 7/02 at 101 1/2 Aaa 553,095
Bonds of 1992 (General Obligation Bonds),
6.600%, 7/01/13 (Pre-refunded to 7/01/02)
1,750,000 Puerto Rico Aqueduct and Sewer Authority, Revenue 7/98 at 102 AAA 1,859,270
Bonds, Series 1988A, 7.875%, 7/01/17
(Pre-refunded to 7/01/98)
185,000 Puerto Rico Electric Power Authority, Power 7/99 at 101 1/2 Baa1 197,870
Revenue Refunding Bonds, Series 1989-N,
7.125%, 7/01/14
315,000 Puerto Rico Electric Power Authority, Power 7/99 at 101 1/2 AAA 337,831
Revenue Refunding Bonds, Series 1989-O,
7.125%, 7/01/14 (Pre-refunded to 7/01/99)
-----
13
</TABLE>
<PAGE>
<TABLE>
Portfolio of Investments
Maryland--continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Puerto Rico Industrial, Tourist, Educational, 1/05 at 102 Aaa $ 1,057,911
Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue Bonds,
1995 Series A, (Hospital Auxilio Mutuo
Obligated Group Project), 6.250%, 7/01/16
- --------------------------------------------------------------------------------------------------------------------
$54,230,000 Total Investments -- (cost $54,463,107) -- 96.8% 56,638,374
=====================-----------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal
Securities -- 1.2%
200,000 Baltimore County (Spring Hill Apartments) GNMA A-1 200,000
Collateralized Housing Variable Rate
Demand Bonds, 3.850%, 9/20/28+
500,000 Maryland Health and Higher Educational VMIG-1 500,000
Facilities Authority, Kaiser Permanente Revenue
Bonds, 1995 Series A, Variable Rate Demand
Bonds, 3.850%, 7/01/15+
- --------------------------------------------------------------------------------------------------------------------
$ 700,000 Total Temporary Investments -- 1.2% 700,000
=====================-----------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 2.0% 1,197,924
-------------------------------------------------------------------------------------------
Net Assets -- 100% $58,536,198
===========================================================================================
</TABLE>
* Optional Call Provisions (not covered by the
report of independent auditors): Dates (month and
year) and prices of the earliest optional call or
redemption. There may be other call provisions at
varying prices at later dates.
** Ratings (not covered by the report of independent
auditors): Using the higher of Standard & Poor's
or Moody's rating.
*** Pre-refunded 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.
Pre-refunded securities are normally considered
to be equivalent to AAA rated securities.
N/R-- Investment is not rated.
+ The security has a maturity of more than one
year, but has variable rate and demand features
which qualify it as a short-term security. The
rate disclosed is that currently in effect. This
rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
14
<PAGE>
Statement of Net Assets Nuveen Municipal Bond Fund
May 31, 1997 May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Maryland
- ---------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $56,638,374
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 700,000
Cash 205,862
Receivables:
Interest 1,235,959
Shares sold 7,554
Other assets 4,007
- ----------------------------------------------------------------------------------------
Total assets 58,791,756
- ----------------------------------------------------------------------------------------
Liabilities
Payable for shares redeemed 37,270
Accrued Expenses:
Management fees (note 6) 27,210
12b-1 distribution and service fees (notes 1 and 6) 3,450
Other 31,714
Dividends payable 155,914
- ----------------------------------------------------------------------------------------
Total liabilities 255,558
- ----------------------------------------------------------------------------------------
Net assets (note 7) $58,536,198
========================================================================================
Class A Shares (note 1)
Net assets $12,977,091
Shares outstanding 1,266,556
Net asset value and redemption price per share $10.25
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $10.70
========================================================================================
Class B Shares (note 1)
Net assets $ 49,924
Shares outstanding 14,633
Net asset value, offering and redemption price per share $10.25
========================================================================================
Class C Shares (note 1)
Net assets $ 2,103,007
Shares outstanding 205,383
Net asset value, offering and redemption price per share $10.24
========================================================================================
Class R Shares (note 1)
Net assets $43,306,176
Shares outstanding 4,221,685
Net asset value, offering and redemption price per share $ 10.26
========================================================================================
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Maryland
-------------------------------------------
4 months ended 5/31/97 Year ended 1/31/97
- --------------------------------------------------------------------------------------------------------------
Investment Income
<S> <C> <C>
Tax-exempt interest income (note 1) $1,118,308 $ 3,259,374
- --------------------------------------------------------------------------------------------------------------
Expenses:
Management fees (note 6) 105,154 308,754
12b-1 service fees -- Class A (notes 1 and 6) 8,278 23,402
12b-1 distribution and service fees -- Class B (notes 1 and 6) 185 N/A
12b-1 distribution and service fees -- Class C (notes 1 and 6) 4,984 17,826
Shareholders' servicing agent fees and expenses 20,561 63,195
Custodian's fees and expenses 13,087 54,862
Trustees' fees and expenses (note 6) 395 881
Professional fees 4,939 15,074
Shareholders' reports -- printing and mailing expenses 9,498 26,663
Federal and state registration fees 1,895 8,086
Amortization of deferred organization cost -- 7,828
Other expenses 1,513 3,472
- --------------------------------------------------------------------------------------------------------------
Total expenses before reimbursement 170,489 530,043
Expense reimbursement (note 6) (13,650) (67,787)
- --------------------------------------------------------------------------------------------------------------
Net expenses 156,839 462,256
- --------------------------------------------------------------------------------------------------------------
Net investment income 961,469 2,797,118
- --------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) From Investments
Net realized gain (loss) from investment transactions
(notes 1 and 2) (122,456) 68,885
Net change in unrealized appreciation or depreciation
of investments 116,827 (1,067,755)
- --------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (5,629) (998,870)
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 955,840 $ 1,798,248
- --------------------------------------------------------------------------------------------------------------
</TABLE>
N/A -- The Fund was not authorized to issue Class B Shares prior to February 1,
1997 (see note 1 of Notes to Financial Statements).
16 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Maryland
------------------------------------------
4 months ended Year ended Year ended
5/31/97 1/31/97 1/31/96
- ---------------------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C> <C>
Net investment income $ 961,469 $ 2,797,118 $ 2,553,861
Net realized gain (loss) from investment transactions
(notes 1 and 4) (122,456) 68,885 138,640
Net change in unrealized appreciation
or depreciation of investments 116,827 (1,067,755) 3,998,568
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 955,840 1,798,248 6,691,069
- ---------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (202,348) (444,620) (198,145)
Class B (690) N/A N/A
Class C (28,646) (71,252) (47,180)
Class R (726,336) (2,248,162) (2,335,847)
- ---------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to
shareholders (958,020) (2,764,034) (2,581,172)
- ---------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 3,009,545 9,011,948 9,951,670
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 626,481 1,781,550 1,613,664
- ---------------------------------------------------------------------------------------------------------------------
3,636,026 10,793,498 11,565,334
- ---------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,607,528) (8,005,106) (5,193,733)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund
share transactions 1,028,498 2,788,392 6,371,601
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets 1,026,318 1,822,606 10,481,498
Net assets at the beginning of period 57,509,880 55,687,274 45,205,776
- ---------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $58,536,198 $57,509,880 $55,687,274
=====================================================================================================================
Balance of undistributed net investment income
at end of period $ 37,469 $ 34,020 $ 936
=====================================================================================================================
</TABLE>
N/A - The Fund was not authorized to issue Class B Shares, prior to February 1,
1997
(see note 1 of Notes to Financial Statements).
17 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Maryland Municipal Bond Fund (the "Fund"), among others.
The Trust was organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Fund, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Nuveen Maryland Tax-Free Value
Fund was reorganized into the Trust and renamed Nuveen Maryland Municipal Bond
Fund. Nuveen Maryland Tax-Free Value Fund had a January 31 fiscal year end prior
to being reorganized into the Trust and now has a May 31 fiscal year end.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Fund had no such purchase commitments.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
18
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Maryland state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Fund. All
income dividends paid during the four months ended May 31, 1997, have been
designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class B shares were first offered
for sale on February 1, 1997. Class A Shares are sold with a sales charge and
incur an annual 12b-1 service fee. Class B Shares are sold without a sales
charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). Class C Shares are
sold without a sales charge but incur annual 12b-1 distribution and service
fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1% if Class
C Shares are redeemed within 18 months of purchase. Class R Shares are not
subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available for purchases of over $1 million and in other limited
circumstances.
19
<PAGE>
Notes to Financial Statements
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 four months ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
include 12b-1 distribution and service fees, are recorded to the specific class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Maryland
---------------------------------------------------------------------------------
4 months ended 5/31/97 Year ended 1/31/97 Year ended 1/31/96
---------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C> <C> <C>
Class A 173,922 $ 1,782,262 599,512 $ 6,107,242 514,083 $ 5,206,011
Class B 14,619 149,109 N/A N/A N/A N/A
Class C 19,110 194,556 82,446 841,446 63,846 645,990
Class R 86,096 883,618 201,418 2,063,260 406,673 4,099,669
Shares issued to shareholders due to
reinvestment of distributions:
Class A 14,385 146,945 30,226 308,915 11,066 112,734
Class B 14 147 N/A N/A N/A N/A
Class C 2,157 22,020 5,415 55,286 3,894 39,318
Class R 44,709 457,369 138,494 1,417,349 144,632 1,461,612
- -----------------------------------------------------------------------------------------------------------------------
355,012 3,636,026 1,057,511 10,793,498 1,144,194 11,565,334
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (72,253) (733,516) (137,185) (1,394,119) (34,362) (350,679)
Class B -- -- N/A N/A N/A N/A
Class C (9,738) (99,104) (32,039) (327,651) (19,328) (195,323)
Class R (173,454) (1,774,908) (615,881) (6,283,336) (459,618) (4,647,731)
- -----------------------------------------------------------------------------------------------------------------------
(255,445) (2,607,528) (785,105) (8,005,106) (513,308) (5,193,733)
- -----------------------------------------------------------------------------------------------------------------------
Net increase 99,567 $ 1,028,498 272,406 $ 2,788,392 630,886 $ 6,371,601
=======================================================================================================================
</TABLE>
N/A -- The Fund was not authorized to issue Class B Shares prior to February
1, 1997.
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
Maryland
- --------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0415
Class B .0350
Class C .0365
Class R .0430
================================================================================
</TABLE>
21
<PAGE>
Notes to Financial Statements
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the four months ended May 31,
1997, were as follows:
<TABLE>
<CAPTION>
Maryland
- --------------------------------------------------------------------------------
Purchases
<S> <C>
Investments in municipal securities $3,140,925
Temporary municipal investments 2,950,000
Sales:
Investments in municipal securities 1,855,220
Temporary municipal investments 3,850,000
================================================================================
</TABLE>
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes was the same as the cost for financial reporting purposes for the Fund.
At May 31, 1997, the Fund had unused capital loss carryforwards of $634,930
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $135,110 of the carryover will expire in the year
2002, $377,963 in the year 2003 and $121,857 in the year 2005.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, unrealized appreciation aggregated $2,175,267 of which
$2,185,636 related to appreciated securities and $10,369 related to depreciated
securities.
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund as follows:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
The Adviser waived part of its management fees or reimbursed certain expenses of
the Fund in order to limit total expenses to .75 of 1% of the average daily net
assets, excluding any applicable 12b-1 fees. In addition, the Adviser may also
voluntarily reimburse additional expenses from time to time, which may be
terminated at any time at its discretion.
During the four months ended May 31, 1997, the Distributor collected gross sales
charges on purchases of Class A Shares of approximately $11,600, of which
$11,200 were paid out as concessions to authorized dealers. The Distributor also
received 12b-1
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
service fees on Class A Shares, all of which were paid to compensate dealers for
providing services to shareholders relating to their investments.
During the four months ended May 31, 1997, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase. To
compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase, all
12b-1 distribution fees on Class B Shares, and all 12b-1 service and
distribution fees on Class C Shares during the first year following a purchase
are retained by the Distributor. The Distributor and its predecessor also
collected and retained CDSC on share redemptions during the fiscal year ended
May 31, 1997.
7. Composition of Net Assets
At May 31, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Maryland
- --------------------------------------------------------------------------------
<S> <C>
Capital paid-in $56,958,392
Balance of undistributed net investment income 37,469
Accumulated net realized gain (loss) from investment transactions (634,930)
Net unrealized appreciation of investments 2,175,267
- --------------------------------------------------------------------------------
Net assets $58,536,198
- --------------------------------------------------------------------------------
</TABLE>
8. Investment Composition
Each Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At May 31, 1997, the revenue sources by municipal
purpose for these investments, expressed as a percent of total investments, were
as follows:
<TABLE>
<CAPTION>
Maryland
- -------------------------------------------------------------------------------
Revenue Bonds:
<S> <C>
Housing Facilities 22%
Health Care Facilities 14
Transportation 12
Pollution Control 5
Lease Rental Facilities 5
Educational Facilities 4
Water/Sewer Facilities 2
Electric Utilities 1
Other 4
General Obligation Bonds 19
Escrowed Bonds 12
- -------------------------------------------------------------------------------
100%
===============================================================================
</TABLE>
23
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
-------------------------- ----------------------------
Net
MARYLAND Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income(b) investments income gains period value(a)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1997(f) $10.25 $.16 $ .01 $(.17) $ -- $10.25 1.63%
1997(e) 10.43 .46 (.15) (.49) -- 10.25 3.06
1996(e) 9.60 .48 .85 (.50) -- 10.43 14.07
1995(c) 9.84 .20 (.23) (.21) -- 9.60 (.26)
Class B (3/97)
1997(d) 10.29 .10 (.04) (.10) -- 10.25 .83
Class C (9/94)
1997(f) 10.24 .15 -- (.15) -- 10.24 1.43
1997(e) 10.42 .39 (.16) (.41) -- 10.24 2.28
1996(e) 9.59 .41 .84 (.42) -- 10.42 13.24
1995(c) 9.75 .16 (.15) (.17) -- 9.59 .12
Class R (12/91)
1997(f) 10.26 .17 -- (.17) -- 10.26 1.68
1997(e) 10.44 .47 (.14) (.51) -- 10.26 3.29
1996(e) 9.61 .51 .84 (.52) -- 10.44 14.33
1995(e) 10.62 .51 (1.01) (.51) -- 9.61 (4.58)
1994(e) 9.91 .51 .72 (.50) (.02) 10.62 12.71
1993(e) 9.53 .44 .39 (.44) (.01) 9.91 8.96
1992(c) 9.53 -- -- -- -- 9.53 --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Total returns are calculated on net asset value without any sales
charge.
(b) After the waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(c) From commencement of class operations as noted through January 31.
(d) From commencement of class operations as noted through May 31.
(e) For year ending January 31.
(f) Four months ending May 31.
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
Ratios/Supplemental data
- -------------------------------------------------------------------------------------------
<CAPTION>
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12,977 1.02%+ 4.83%+ .95%+ 4.90%+ 3%
11,788 1.12 4.67 1.00 4.79 4
6,860 1.33 4.41 1.00 4.74 17
1,605 1.59+ 4.67+ 1.00+ 5.26+ 35
150 1.76+ 3.94+ 1.70+ 4.00+ 3
2,103 1.57+ 4.28+ 1.50+ 4.35+ 3
1,985 1.87 3.93 1.75 4.05 4
1,438 2.06 3.73 1.75 4.04 17
860 1.86+ 4.44+ 1.75+ 4.55+ 35
43,306 .82+ 5.03+ .75+ 5.10+ 3
43,738 .87 4.94 .75 5.06 4
47,389 1.04 4.78 .75 5.07 17
42,741 .89 5.14 .75 5.28 35
47,822 .86 4.74 .75 4.85 4
28,283 1.02+ 4.69+ .75+ 4.96+ 20
15 -- -- -- -- --
- --------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Maryland Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Maryland
Municipal Bond Fund, including the portfolio of investments, as of May 31, 1997,
the related statement of operations, the statement of changes in net assets, and
the financial highlights for the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of operations, statement
of changes in net assets and financial highlights for the other years presented
were audited by other auditors whose report, dated March 7, 1997, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of May 31, 1997, by
correspondence with the Fund's custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Maryland
Municipal Bond Fund at May 31, 1997, the results of its operations, the changes
in its net assets and the financial highlights for the period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
26
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
27
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Shareholder Services, Inc.
Nuveen Investor Services
P.O.Box 5330
Denver, Co 80217-5330
(800) 621-7227
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
28
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Florida
Florida Intermediate
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Florida Overview
8 Florida Intermediate
Overview
11 Financial Section
52 Shareholder Information
53 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF
Timothy R. Schwertfeger
appears here]
Timothy R. Schwertfeger
It's a pleasure to report to you on the performance of the Nuveen Flagship
Florida and Florida Intermediate Municipal Bond Funds. Over the past year, the
funds posted sizable gains. For the fiscal year ended May 31, 1997, the value of
Class A shares rose 7.59% for the Florida Fund and 7.16% for the Florida
Intermediate Fund, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the Florida Fund
(with income reinvested) kept close pace with the 8.28% increase produced by the
Lehman Brothers Municipal Bond Index, which is used to represent the broad
municipal bond market on an unmanaged basis. The Florida Intermediate Fund also
kept close pace with the 8.17% increase generated by its comparable market
measure, the Lehman Brothers 10-Year Municipal Bond Index.
In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds, which
provide excellent income for investors. As of May 31, 1997, Class A shareholders
were receiving tax-free yields on net asset value of 4.84% for the Florida Fund
and 4.34% for the Florida Intermediate Fund. To match this yield, investors in
the 31% federal income tax bracket would have had to earn at least 7.01% for the
Florida Fund and 6.29% for the Florida Intermediate Fund on taxable
alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
short-term interest rates by 0.25%, but then maintained the status quo at its
May and July meetings. Overall market returns continue to be good, but fear of
inflation has hampered the performance of municipals and led to increased
volatility in both the equity and bond markets.
During this time, bonds have often been the bellwether for the direction of
stocks. Whenever inflation talk is at its most rampant, the stock market has
kept an eye on the bond market for its response before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation -- as well as attractive yields -- have sparked increased interest in
tax-free investments. The current level of the stock market reminds investors to
re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
Answering Your Questions
[PHOTO OF TED NEILD
APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
What are the investment objectives of the funds?
The funds aim to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the funds' after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
What is your strategy for meeting these objectives?
To meet the funds' objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
What key economic factors affected the funds' performance during the year?
The U.S. economy continued to grow exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels. The funds had the added advantage of
3
<PAGE>
"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates."
operating in a healthy supply environment, where securities were available as
needed.
Given this market environment, how did
the funds perform?
The Florida and Florida Intermediate Municipal Bond Funds performed well over
the past year, rewarding Class A shareholders with total returns on net asset
value for the year of 7.59% and 7.16%, respectively, including price changes and
reinvested dividends. Both funds performed well compared with their peer groups.
In fact, the Florida Intermediate Fund was ranked number one among 18 Florida
intermediate municipal bond funds for the one-year period by Lipper Analytical
Services, a nationally recognized performance measurement service.
What strategies did you employ to add value?
We focused on strengthening the funds' long-term income level by purchasing
higher-yielding bonds and maintaining long-term call protection. We also took
advantage of the market's recent volatility to purchase attractively priced
bonds. In particular, purchases in housing, healthcare and transportation
sectors added to the overall strength of the funds.
What is the current status of Florida's municipal market?
Employment and personal income growth in Florida have outpaced the nation since
1991 and recent economic reports note that the state continues to experience job
growth, albeit at a more moderate pace. Economists are also predicting another
record tourism year for the state. Healthy demand has absorbed Florida's $4.9
billion in municipal issuance through the first half of 1997 and caused a slight
tightening in credit spreads.
Florida is facing ongoing challenges relating to financing growth, particularly
in its schools. In addition, deregulation of the electric utility industry could
adversely affect the Southeast unless certain provisions are included in federal
legislation. On the positive side, Miami's financial position has stabilized and
its recent five-year recovery plan projects balanced operations for the 1997
fiscal year.
4
<PAGE>
What is the current outlook for the municipal market as a whole?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Although structural changes in the
economy appear to have suspended the relationship between faster growth and
higher inflation, the risk remains that inflation may reassert itself if
capacity constraints are reached and resources are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market should continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation and many are
rebalancing their portfolios by shifting some assets into bonds.
5
<PAGE>
Florida
Overview
- ------------------------------
Credit Quality
- ------------------------------
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 65%
BBB/NR 15%
A 10%
AA 10%
- ------------------------------
- ------------------------------
Diversification
- ------------------------------
[PIE CHART APPEARS HERE]
Escrowed Bonds 10%
Municipal
Appropriations 4%
Other 14%
Utility 4%
Hospitals 23%
General Obligations 9%
Water & Sewer 7%
Pollution
Control 11%
Housing
Facilities 15%
Transportation 3%
- ------------------------------
<TABLE>
<CAPTION>
Fund Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 6/90 2/97 9/95 2/97
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) $10.60 $10.61 $10.60 $ 10.60
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Assets ($000) $357,132
- -----------------------------------------------------------------------------------------------------------------------------------
Average Weighted Maturity (years) 21.22
- -----------------------------------------------------------------------------------------------------------------------------------
Duration (years) 8.17
- -----------------------------------------------------------------------------------------------------------------------------------
Annualized Total Return/1/
- -----------------------------------------------------------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -----------------------------------------------------------------------------------------------------------------------------------
1-Year 7.59% 3.07% 7.02% 7.00% 7.66%
- -----------------------------------------------------------------------------------------------------------------------------------
5-Year 6.66% 5.75% 6.08% 6.08% 6.67%
- -----------------------------------------------------------------------------------------------------------------------------------
Since Inception 7.63% 6.97% 7.04% 7.04% 7.64%
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Free Yields
- -----------------------------------------------------------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.22% 5.00% 4.47% 4.68% 5.42%
- -----------------------------------------------------------------------------------------------------------------------------------
SEC 30-Day Yld 4.84% 4.64% 4.09% 4.29% 5.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.01% 6.72% 5.93% 6.22% 7.30%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class C
shares have a 1% CDSC for redemptions within one year. Returns do not reflect
imposition of the CDSC. Giving effect to the CDSC applicable to Class B
shares, the 1-year, 5-year, and 10-year total returns above would be 3.02%,
5.92%, and 7.04%, respectively.
2 Based on SEC yield and a federal income tax rate of 31%. Represents the yield
on a taxable investment necessary to equal the yield of the Nuveen fund on an
after-tax basis.
6
<PAGE>
Nuveen Flagship Florida Municipal Bond Fund
May 31, 1997 Annual Report
*The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A Shares (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
Lehman
Brothers Nuveen Flagship Nuveen Flagship
Municipal Florida Municipal Florida Municipal Bond
Bond Index Bond Fund (NAV) Fund (offer)
June-90 $ 10,000.00 $ 10,000.00 $ 9,580.00
May-91 10,911.83 10,940.82 10,481.30
May-92 11,983.85 12,083.06 11,575.58
May-93 13,417.55 13,591.01 13,020.18
May-94 13,748.86 13,862.73 13,280.50
May-95 15,000.90 15,031.88 14,400.55
May-96 15,686.54 15,503.43 14,852.29
May-97 17,130.98 16,679.66 15,979.12
Lehman Brothers Municipal Bond Index $17,131
Nuveen Flagship Florida Municipal Bond Fund (NAV) $16,680
Nuveen Flagship Florida Municipal Bond Fund (Offer) $15,979
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1996 1997 Capital Gain
<S> <C> <C> <C> <C>
JUNE 0.04639 JANUARY 0.04857 0.00097
JULY 0.04794 FEBRUARY 0.0461
AUGUST 0.04794 MARCH 0.0461
SEPTEMBER 0.04598 APRIL 0.0461
OCTOBER 0.04717 MAY 0.0461
NOVEMBER 0.04533
DECEMBER 0.04684
</TABLE>
Capital Gain
7
<PAGE>
Florida Intermediate
Overview
Credit Quality
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 68%
BBB/NR 14%
A 9%
AA 9%
- --------------------------------
Diversification
[PIE CHART APPEARS HERE]
General Obligations 20%
Utilities 3%
Hospitals 8%
Tax Revenue 19%
Municipal Appropriations 3%
Transportation 11%
Water & Sewer 10%
Other 5%
Escrowed Bonds 13%
- --------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fund Highlights
========================================================================
Share Class A C R
Inception Date 2/94 2/94 2/97
- ------------------------------------------------------------------------
Net Asset Value (NAV) $10.09 $10.08 $ 10.11
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Total Net Assets ($000) $16,198
- ------------------------------------------------------------------------
Average Weighted Maturity (years) 8.92
- ------------------------------------------------------------------------
Duration (years) 6.7
- ------------------------------------------------------------------------
Annualized Total Return/1/
========================================================================
Share Class A(NAV) A(Offer) C R
1-Year 7.16% 2.66% 6.47% 7.42%
- ------------------------------------------------------------------------
Since Inception 5.85% 4.50% 5.25% 5.93%
- ------------------------------------------------------------------------
Tax-Free Yields
========================================================================
Share Class A(NAV) A(Offer) C R
Dist Rate 4.61% 4.48% 4.07% 4.81%
- ------------------------------------------------------------------------
SEC 30-Day Yld 4.34% 4.21% 3.90% 4.61%
- ------------------------------------------------------------------------
Taxable Equiv Yld/2/ 6.29% 6.10% 5.65% 6.68%
- ------------------------------------------------------------------------
</TABLE>
1 Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class C and R shares have no initial sales charge. Class
C shares have a 1% CDSC for redemptions within one year. Returns do not
reflect imposition of the CDSC.
2 Based on SEC yield and a federal income tax rate of 31%. Represents the yield
on a taxable investment necessary to equal the yield of the Nuveen fund on an
after-tax basis.
8
<PAGE>
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 31, 1997 Annual Report
*The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A Shares (3.0%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship
Lehman Florida Nuveen Flagship
Brothers Intermediate Florida Intermediate
Municipal Municipal Bond Municipal Bond Fund
Date Bond Index Fund(NAV) (offer)
<S> <C> <C> <C>
2/94 $ 10,000.00 $ 10,000.00 $ 9,700.00
4/94 $ 9,674.54 $ 9,962.11 $ 9,663.24
4/95 $ 10,318.24 $ 10,572.70 $ 10,255.52
4/96 $ 11,138.50 $ 11,299.82 $ 10,960.82
4/97 $ 11,912,00 $ 12,084.00 $ 11,576.00
</TABLE>
Lehman Brothers 10-Year Municipal Bond Index $11,912
Nuveen Flagship Florida Intermediate Municipal Bond Fund (NAV) $12,084
Nuveen Flagship Florida Intermediate Municipal Bond Fund (Offer) $11,576
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1996 Capital Gain 1997
<S> <C> <C> <C> <C>
JUNE 0.03811 JANUARY 0.03949
JULY 0.03939 FEBRUARY 0.0388
AUGUST 0.03939 MARCH 0.0388
SEPTEMBER 0.03811 APRIL 0.0388
OCTOBER 0.03939 MAY 0.0388
NOVEMBER 0.03811
DECEMBER 0.03939 0.0174
</TABLE>
Capital Gain
9
<PAGE>
Financial Section
Contents
12 Portfolio of Investments
29 Statement of Net Assets
30 Statement of Operations
31 Statement of Changes in Net Assets
33 Notes to Financial Statements
41 Financial Highlights
46 Independent Auditors' Report
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Education -- 0.1%
<S> <C> <C> <C> <C>
$ 300,000 Brevard County, Florida, Educational Facilities Authority 11/02 at 102 BBB $ 315,240
Revenue, Refunding and Improvement, Florida
Institute of Technology, 6.875%, 11/01/22
- --------------------------------------------------------------------------------------------------------------------
Escrowed to Maturity -- 0.9%
1,500,000 Dade County, Florida, Health Facilities Authority, No Opt. Call AAA 1,525,395
Hospital Revenue, Baptist Hospital Of Miami
Project, Series A, 5.750%, 5/01/21
1,160,000 Florida State Board Education, Capital Outlay, No Opt. Call AAA 1,189,441
Series C, 7.100%, 6/01/07
335,000 Florida State Board Education, Capital Outlay, No Opt. Call AAA 466,360
9.125%, 6/01/14
- --------------------------------------------------------------------------------------------------------------------
Health Care -- 4.8%
Jacksonville, Florida, Health Facilities Authority,
Industrial Development Revenue, National Benevolent,
Cypress Village, Series A:
345,000 6.125%, 12/01/16 12/06 at 102 Baa1 348,488
1,000,000 6.250%, 12/01/26 12/06 at 102 Baa1 1,013,750
8,000,000 Palm Beach County, Florida, Health Facilities, 11/06 at 102 A- 7,816,480
Authority Revenue, Retirement Community, Adult
Communities Total Services Inc., 5.625%, 11/15/20
4,000,000 Palm Beach County, Florida, Industrial Development 12/06 at 102 A+ 4,182,560
Revenue, Lourdes, Noreen McKeen Residence,
Geriatric Care Inc., 6.625%, 12/01/26
Sarasota County, Florida, Health Facility Authority
Revenue Refunding, Health Facilities, Sunnyside
Properties:
855,000 5.500%, 5/15/01 No Opt. Call N/R 856,479
540,000 5.500%, 5/15/02 No Opt. Call N/R 538,137
570,000 5.500%, 5/15/03 No Opt. Call N/R 564,009
600,000 5.500%, 5/15/04 No Opt. Call N/R 590,130
170,000 5.500%, 5/15/05 No Opt. Call N/R 168,485
1,000,000 6.000%, 5/15/10 5/06 at 102 N/R 997,560
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- 18.2%
2,480,000 Dade County, Florida, Public Facilities Revenue 6/03 at 102 AAA 2,267,191
Refunding, Jackson Memorial Hospital, Series A,
4.875%, 6/01/15
2,735,000 Dade County, Florida, Health Facilities Authority 8/00 at 102 A1 2,918,491
Revenue Refunding, Catholic Health and
Rehabilitation Inc., Series P, 7.125%, 8/15/09
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- continued
<S> <C> <C> <C> <C>
Escambia County, Florida, Health Facilities, Authority
Health Facility Revenue Refunding, Azalea Trace Inc.:
$ 1,000,000 6.000%, 1/01/15 1/07 at 102 N/R $ 990,300
1,595,000 6.100%, 1/01/19 1/07 at 102 N/R 1,578,492
1,750,000 Jacksonville, Florida, Health Facilities Authority, 6/01 at 102 AAA 1,898,628
Hospital Revenue, New Childrens Hospital At
Baptist, 7.000%, 6/01/21
3,000,000 Jacksonville, Florida, Health Facilities Authority, 11/01 at 102 AA+ 3,284,220
Hospital Revenue Refunding, Facilities, St. Lukes
Hospital Association Project, 7.125%, 11/15/20
6,000,000 Lakeland, Florida, Hospital System Revenue, Lakeland 11/06 at 102 AAA 5,666,100
Regional Medical Center, Series A,
5.250%, 11/15/25
2,100,000 Lee County, Florida, Hospital Board Directors, Hospital 4/07 at 102 AAA 2,098,614
Revenue, Lee Memorial Health System, Series A,
5.625%, 4/01/16
2,320,000 Martin County, Florida, Health Facilities Authority, 11/00 at 102 AAA 2,539,054
Hospital Revenue Refunding, Martin Memorial
Hospital, Series A, 7.125%, 11/15/04
1,000,000 Martin County, Florida, Health Facilities Authority, 11/00 at 102 AAA 1,083,270
Hospital Revenue, Martin Memorial Hospital
South Project, Series B, 7.100%, 11/15/20
North Broward Florida Hospital District, Revenue
Refunding and Improvement:
1,000,000 5.250%, 1/15/17 1/07 at 101 AAA 959,150
3,000,000 5.375%, 1/15/24 1/07 at 101 AAA 2,892,900
1,295,000 North Miami, Florida, Health Facilities Authority, 9/00 at 102 A+ 1,413,428
Health Facility Revenue, Villa Maria Housing,
Series B, Bon Secours, 7.500%, 9/01/12
2,500,000 Orange County, Florida, Health Facilities Authority 11/01 at 102 AAA 2,716,400
Revenue, Hospital, Adventist Health/Sunbelt,
Series A, 6.875%, 11/15/15
2,500,000 Orange County, Florida, Health Facilities Authority 11/01 at 102 AAA 2,704,075
Revenue, Hospital, Adventist Health/Sunbelt,
Series B, 6.750%, 11/15/21
11,895,000 Orange County, Florida, Health Facilities Authority 11/05 at 102 AAA 11,243,511
Revenue Refunding, Hospital, Adventist Health System,
5.250%, 11/15/20
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida--continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- continued
<S> <C> <C> <C> <C>
$2,070,000 Orange County, Florida, Health Facilities Authority No Opt. Call AAA $2,270,273
Revenue, Orlando Regional Healthcare,
Series A, 6.250%, 10/01/18
5,455,000 Orange County, Florida, Health Facilities Authority No Opt. Call AAA 6,003,609
Revenue Refunding, Orlando Regional
Healthcare, Series C, 6.250%, 10/01/21
1,550,000 Osceola County, Florida, Industrial Development 5/01 at 102 AAA 1,666,049
Authority Revenue, Evangelical Lutheran Soc
Project, 6.750%, 5/01/16
1,000,000 St. Johns County, Florida, Industrial Development 8/02 at 102 A2 1,000,650
Authority, Hospital Revenue, Flagler Hospital
Project, 6.000%, 8/01/22
630,000 St. Petersburg, Florida, Health Facilities Authority 12/01 at 102 AAA 688,061
Revenue, Allegany Health, Series A,
7.000%, 12/01/15
2,000,000 St. Petersburg, Florida, Health Facilities Authority 12/01 at 102 AAA 2,164,420
Revenue, Allegany Health System, St. Anthonys,
6.750%, 12/01/21
1,610,000 St. Petersburg, Florida, Health Facilities Authority 12/01 at 102 AAA 1,758,378
Revenue, Allegany Health System, St. Marys,
7.000%, 12/01/21
Tampa Florida Revenue, Allegany Health System,
St. Joseph:
1,000,000 6.750%, 12/01/17 12/01 at 102 AAA 1,082,210
2,000,000 6.500%, 12/01/23 12/04 at 102 AAA 2,160,420
- --------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- 7.2%
600,000 Broward County, Florida, Housing Finance Authority, 2/05 at 102 AAA 643,926
Multifamily Housing Revenue Refunding, Lakeside
Apartments Project, 7.000%, 2/01/25
250,000 Broward County, Florida, Housing Finance Authority, 8/06 at 102 AAA 258,113
Multifamily Housing Revenue Refunding,
Boardwalk Apartments Project, 6.200%, 8/01/16
2,700,000 Duval County, Florida, Housing Finance Authority, 4/05 at 102 BBB+ 2,786,346
Multifamily Housing Revenue Refunding,
Greentree Place Project, 6.750%, 4/01/25
750,000 Florida Housing Finance Agency, Refunding, General 6/02 at 103 AAA 771,720
Mortgage, Series A, 6.400%, 6/01/24
</TABLE>
14
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- continued
<S> <C> <C> <C> <C>
Florida Housing Finance Agency, Antigua Club
Apartments, Series A:
$1,000,000 6.750%, 8/01/14 2/05 at 102 AAA $1,064,120
5,000,000 6.875%, 8/01/26 2/05 at 102 AAA 5,290,600
1,115,000 Florida Housing Finance Agency, Brittany Rosemont 2/05 at 102 AAA 1,179,804
Apartments, Series C, 6.875%, 8/01/26
Florida Housing Finance Agency, Refunding,
Vinyards Project, Series H:
1,260,000 6.400%, 11/01/15 11/05 at 102 BBB+ 1,277,123
1,660,000 6.500%, 11/01/25 11/05 at 102 BBB+ 1,686,245
2,000,000 Florida Housing Finance Agency, Refunding, 8/06 at 102 AAA 2,064,900
Multifamily Housing, Series C, 6.200%, 8/01/16
3,500,000 Florida Housing Finance Agency, Housing, Villas of 10/06 at 102 AAA 3,571,435
Capri Project, Series H, 6.100%, 4/01/17
1,000,000 Florida Housing Finance Agency, Leigh Meadows 9/06 at 102 AAA 1,018,440
Apartments, Series N, 6.300%, 9/01/36
1,000,000 Florida Housing Finance Agency, Housing, Stoddert 9/06 at 102 AAA 1,018,440
Arms Apartments, Series O, 6.300%, 9/01/36
700,000 Florida Housing Finance Agency, Housing Revenue, 12/06 at 102 AAA 700,000
The Landing At the Sea Apartment Project, Series Q,
6.050%, 12/01/36
1,440,000 Florida Housing Finance Agency, Multifamily Housing, 6/99 at 103 AAA 1,522,915
Driftwood Terrace, Series I, 7.650%, 12/20/31
1,000,000 Orange County, Florida, Housing Finance Authority, 10/01 at 101 BBB+ 1,027,470
Housing Revenue, Multifamily, Ashley Point
Apartments, Series A, 7.100%, 10/01/24
- --------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 7.3%
Broward County Florida Housing Finance Authority
Revenue, Home Mortgage Series A:
4,885,000 0.000%, 4/01/16 No Opt. Call AAA 728,793
1,780,000 7.900%, 3/01/23 3/00 at 102 AAA 1,868,715
1,890,000 Clay County, Florida, Housing Finance Authority 3/05 at 102 Aaa 1,944,602
Revenue, Single Family Mortgage,
6.550%, 3/01/28
Dade County, Florida, Housing Finance Authority,
Single Family Mortgage Revenue, Series B:
265,000 7.750%, 3/01/17 9/00 at 102 Aaa 279,795
745,000 7.250%, 9/01/23 3/01 at 102 Aaa 779,702
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- continued
<S> <C> <C> <C> <C>
$1,005,000 Dade County, Florida, Housing Finance Authority, 12/01 at 102 AAA $1,062,667
Single Family Mortgage Revenue Refunding,
Series D, 6.950%, 12/15/12
40,000 Dade County, Florida, Housing Finance Authority, 3/01 at 102 Aaa 42,016
Single Family Mortgage Revenue Refunding,
Series E, 7.000%, 3/01/24
1,000,000 Dade County, Florida, Housing Finance Authority, 4/05 at 102 AAA 1,036,300
Single Family Mortgage Revenue,
6.700%, 4/01/28
400,000 Duval County, Florida, Housing Finance Authority, 6/00 at 102 Aaa 421,496
Single Family Mortgage Revenue Refunding,
Series B, 7.500%, 6/01/15
200,000 Duval County, Florida, Housing Finance Authority, 6/00 at 102 Aaa 210,952
Single Family Mortgage Revenue, Series A,
7.850%, 12/01/22
465,000 Duval County, Florida, Housing Finance Authority, 9/00 at 103 AAA 494,820
Single Family Mortgage Revenue, Series C,
7.650%, 9/01/10
725,000 Duval County, Florida, Housing Finance Authority, 10/04 at 102 Aaa 750,491
Single Family Mortgage Revenue, GNMA
Mortgage Backed Security Program,
6.550%, 10/01/15
1,690,000 Escambia County, Florida, Housing Finance Authority, 4/01 at 102 Aaa 1,776,883
Single Family Mortgage Revenue, Series A,
7.400%, 10/01/23
325,000 Escambia County, Florida, Housing Finance Authority, 10/02 at 102 Aaa 338,767
Single Family Mortgage Revenue, Multi-County
Program, Series A, 6.900%, 4/01/20
630,000 Escambia County, Florida, Housing Finance Authority, 4/05 at 102 AAA 658,205
Single Family Mortgage Revenue Refunding,
Multi County Program, 6.950%, 10/01/27
Florida Housing Finance Agency, Refunding, Single
Family Mortgage, Series A:
1,380,000 6.250%, 7/01/11 7/04 at 102 AAA 1,432,178
715,000 6.550%, 7/01/14 1/05 at 102 AAA 740,669
715,000 6.650%, 1/01/24 1/05 at 102 AAA 741,598
390,000 Leon County, Florida, Housing Finance Authority, 4/01 at 102 Aaa 408,174
Single Family Mortgage Revenue, Multi County
Program, Series A, 7.300%, 4/01/21
</TABLE>
16
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- continued
<S> <C> <C> <C> <C>
$ 3,000,000 Leon County, Florida, Housing Finance Authority, No Opt. Call AAA $3,306,060
Single Family Mortgage Revenue, Multi County
Program, Series B, 7.300%, 1/01/28
845,000 Manatee County, Florida, Housing Finance 11/05 at 105 Aaa 925,545
Authority, Mortgage Revenue, Single
Family, Sub Series 3, 7.600%, 11/01/26
1,185,000 Orange County, Florida, Housing Finance 5/99 at 103 Aaa 1,256,242
Authority, Mortgage Revenue, Series B,
8.100%, 11/01/21
280,000 Orange County, Florida, Housing Finance 7/00 at 103 AAA 297,142
Authority, Mortgage Revenue Refunding,
Series A, 7.600%, 1/01/24
1,055,000 Palm Beach County, Florida, Housing 9/00 at 103 Aaa 1,117,920
Finance Authority, Single Family Mortgage
Purchase Revenue, Series B,
7.600%, 3/01/23
2,000,000 Pinellas County, Florida, Housing Finance 2/05 at 102 AAA 2,076,280
Authority, Single Family Mortgage
Revenue, Multi County Program, Series A,
6.650%, 8/01/21
1,160,000 Polk County, Florida, Housing Finance 3/01 at 102 Aaa 1,219,346
Authority, Refunding, Series A,
7.150%, 9/01/23
- ----------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 10.9%
6,000,000 Citrus County, Florida, Pollution Control 1/02 at 102 A+ 6,448,020
Revenue Refunding, Florida Power
Corporation Crystal River, Series A,
6.625%, 1/01/27
750,000 Clay County, Florida, Development Authority, 7/02 at 102 AA- 800,415
Industrial Development Revenue Refunding,
Cargill Inc. Project, 6.400%, 3/01/11
Escambia County, Florida, Pollution Control
Control Revenue, Champion International
Corporation Project:
5,500,000 6.900%, 8/01/22 8/04 at 102 Baa1 5,876,585
8,350,000 6.400%, 9/01/30 9/06 at 102 Baa1 8,647,093
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida--continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development and Pollution Control -- continued
$ 2,500,000 Hillsborough County, Florida, Industrial Development 8/01 at 103 AA $ 2,851,750
Authority Pollution Control Revenue Refunding,
Tampa Electric Company Project, Series 91,
7.875%, 8/01/21
600,000 Jacksonville, Florida, Industrial Development 3/02 at 102 AA- 635,076
Revenue Refunding, Cargill Inc. Project,
6.400%, 3/01/11
375,000 Jacksonville, Florida, Water and Sewer Development 6/02 at 102 A 400,448
Revenue, Jacksonville Suburban Utilities
Corporation Project, 6.750%, 6/01/22
2,000,000 Martin County, Florida, Pollution Control Revenue 7/00 at 102 AAA 2,168,760
Refunding, Florida Power and Light Company
Project, 7.300%, 7/01/20
1,500,000 Nassau County, Florida, Pollution Control Revenue 7/03 at 102 BBB+ 1,526,580
Refunding, Itt Rayonier Inc. Project,
6.200%, 7/01/15
4,000,000 Pinellas County, Florida, Pollution Control Revenue 6/01 at 102 AA- 4,318,480
Refunding, Florida Power Corporation Anclote and
Bartow, 7.200%, 12/01/14
St. Lucie County, Florida, Solid Waste Disposal
Revenue, Florida Power and Light Company Project:
3,000,000 7,150%, 2/01/23 2/01 at 102 AA- 3,217,530
2,000,000 6.700%, 5/01/27 5/02 at 102 AA- 2,140,520
- --------------------------------------------------------------------------------------------------------------------
Municipal Appropriation Obligations -- 4.5%
Brevard County, Florida, School Board Certificates
of Participation, Series A, Refunding:
500,000 5.400%, 7/01/11 No Opt. Call AAA 506,830
500,000 5.400%, 7/01/12 No Opt. Call AAA 504,555
3,100,000 Brevard County, Florida, School Board Certificates 7/06 at 102 AAA 3,041,038
of Participation, Series B, Refunding,
5.500%, 7/01/21
5,425,000 Dade County, Florida, School Board Certificates of 5/06 at 101 AAA 5,314,818
Participation, Series A, 5.500%, 5/01/25
190,000 Escambia County, Florida, School Board Certificates 2/02 at 100 AAA 200,138
of Participation, 6.375%, 2/01/12
1,500,000 Florida State Department of Corrections, Certificates 3/04 at 102 A+ 1,550,880
of Participation, Gadsen County Correctional
Facility, 6.000%, 3/01/14
</TABLE>
18
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Appropriation Obligations -- continued
$ 4,115,000 Orange County, Florida, School Board Certificates 8/07 at 101 Aaa $3,960,976
of Participation, Refunding, Series A,
5.375%, 8/01/22
1,000,000 Palm Beach County, Florida, School Board Certificates 8/04 at 101 AAA 1,067,370
of Participation, Series A, 6.375%, 8/01/15
Municipal Revenue/Other -- 3.0%
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Other - 3.0%
3,105,000 Gulf Breeze, Florida, Revenue, Local Government, 12/99 at 102 AAA 3,395,752
Series E, 7.750%, 12/01/15
1,000,000 Gulf Breeze, Florida, Revenue, Local Government 12/11 at 100 AAA 1,030,530
Loan, Series B, 5.900%, 12/01/15
5,000,000 Hernando County, Florida, Revenue, Criminal No Opt. Call AAA 6,312,050
Justice Complex Financing Program,
7.650%, 7/01/16
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Transportation -- 3.1%
1,000,000 Dade County, Florida, Aviation Revenue, Series B, 10/02 at 102 AAA 1,073,690
6.550%, 10/01/13
1,000,000 Hillsborough County, Florida, Aviation Authority 10/06 at 102 AAA 1,017,300
Revenue, Tampa International Airport, Series B,
5.875%, 10/01/23
2,335,000 Palm Beach County, Florida Airport System No Opt. Call AAA 2,537,865
Revenue Refunding, 7.500%, 10/01/00
Sanford, Florida, Airport Authority, Industrial
Development Revenue, Central Florida Terminals
Inc. Project, Series A:
3,000,000 7.500%, 5/01/15 5/06 at 102 N/R 3,025,290
3,270,000 7.750%, 5/01/21 5/06 at 102 N/R 3,311,693
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 4.1%
2,000,000 Escambia County, Florida, Utilities Authority, No Opt. Call AAA 745,620
Utility System Revenue, Series B,
0.000%, 1/01/15
1,500,000 Gainesville, Florida, Utilities System Revenue, 10/06 at 102 AA 1,424,040
Refunding, Series A, 5.200%, 10/01/22
470,000 Jacksonville, Florida, Electric Authority Revenue, 10/97 at 101 1/2 Aa1 482,432
Series A, 7.500%, 10/01/02
1,000,000 Lakeland, Florida, Electric and Water Revenue No Opt. Call AAA 1,074,410
Refunding and Improvement, Junior Sub Lien,
Series B, 6.000%, 10/01/12
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida--continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Utility -- continued
Manatee County, Florida, Public Utilities Revenue
Refunding and Improvement, Series C:
$1,850,000 0.000%, 10/01/08 No Opt. Call AAA $1,021,311
2,800,000 0.000%, 10/01/09 No Opt. Call AAA 1,449,336
1,000,000 Orlando, Florida, Utilities Commission, Water and No Opt. Call Aa 1,167,350
Electric Revenue Refunding, Sub Series D,
6.750%, 10/01/17
1,250,000 Orlando, Florida, Utilities Commission, Water and 10/02 at 102 Aa 1,269,500
Electric Revenue, Sub, Series A, 6.000%, 10/01/20
6,000,000 Polk County, Florida, Industrial Development 12/06 at 102 A-1+ 6,012,420
Authority, Solid Waste Disposal Facility Revenue,
Tampa Electric Company Project, 5.850%, 12/01/30
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer -- 6.8%
3,750,000 Auburndale, Florida, Water and Sewer Revenue, 12/05 at 102 AAA 3,556,500
Refunding, 5.250%, 12/01/25
1,000,000 Callaway/Bay County, Florida, Wastewater System 9/99 at 100 AAA 1,037,610
Revenue, Series A, 6.000%, 9/01/26
1,000,000 Charlotte County, Florida, Utility Revenue, 10/97 at 100 AAA 1,002,510
Refunding, Series A, 6.200%, 10/01/23
Dade County, Florida, Water and Sewer System
Revenue:
3,000,000 5.250%, 10/01/21 10/07 at 101 AAA 2,878,470
7,500,000 5.250%, 10/01/26 10/07 at 101 AAA 7,138,950
1,000,000 Davie, Florida, Water and Sewer Revenue, Refunding 10/02 at 102 AAA 1,056,100
and Improvement, 6.250%, 10/01/17
600,000 Daytona Beach, Florida, Water and Sewer Revenue, 11/02 at 102 AAA 621,288
Refunding, 6.000%, 11/15/14
2,250,000 Hillsborough County, Florida, Utility Refunding 8/01 at 102 AAA 2,430,158
Revenue, Series A, FSA, CRS, 6.500%, 8/01/16
3,500,000 Hillsborough County, Florida, Utility Refunding 8/01 at 102 AAA 3,780,245
Revenue, Series B, 6.500%, 8/01/16
250,000 Jupiter, Florida, Water Revenue, Series B, 10/01 at 102 AAA 262,688
6.250%, 10/01/18
</TABLE>
20
<PAGE>
<TABLE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Water and Sewer -- continued
$ 500,000 Orange County, Florida, Water and Wastewater 4/02 at 102 AAA $ 525,875
Revenue Refunding, 6.250%, 10/01/17
165,000 Tampa, Florida, Water and Sewer Revenue, 10/02 at 101 AAA 170,061
Series A, 6.000%, 10/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 4.6%
2,990,000 Hillsborough County, Florida, Refunding, 7/02 at 102 A 3,155,825
Environmentally Sensitive LDS
Acquisition and Protection, 6.250%, 7/01/08
7,000,000 New York City, Series G, 5.750%, 2/01/20 2/06 at 101 1/2 BBB+ 6,779,850
1,000,000 New York, New York, Refunding Series F, 8/06 at 101 1/2 BBB+ 982,590
5.875%, 8/01/24
5,000,000 Sunrise Lakes, Florida, Phase 4 Recreation 8/05 at 102 BBB- 5,406,450
District, Series A, 6.750%, 8/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Pre-refunded -- 9.4%***
1,925,000 Boynton Beach, Florida, Water and Sewer 11/00 at 102 AAA 2,137,289
Revenue, Utility, 7.400%, 11/01/15
1,500,000 Broward County, Florida, School Board 7/00 at 102 AAA 1,641,315
Certificates of Participation, Series A,
7.125%, 7/01/10
250,000 Dade County, Florida, Health Facilities 10/99 at 102 AAA 269,270
Authority Hospital Revenue Refunding,
South Miami Hospital, 7.000%, 10/01/18
300,000 Dade County, Florida, Health Facilities 8/02 at 102 AAA 330,180
Authority, Hospital Revenue Refunding,
North Shore Medical Center Project,
6.500%, 8/15/15
310,000 Escambia County, Florida, School Board Certificates 2/02 at 100 AAA 332,661
of Participation, 6.375%, 2/01/12
5,000,000 Florida State Board Education Capital Outlay, 6/01 at 101 AAA 5,434,000
Public Education, Series B, 6.700%, 6/01/22
2,000,000 Florida State Board Education Capital Outlay, 6/02 at 101 Aaa 2,193,680
Public Education Capital Outlay, Series 91C,
6.625%, 6/01/17
1,000,000 Hillsborough County, Florida, Port District Revenue, 12/00 at 102 Baa1 1,135,300
Tampa Port Authority, 8.250%, 6/01/09
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida--continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pre-refunded--continued
$ 250,000 Hillsborough County, Florida, Capital Improvement 12/00 at 102 A $ 266,140
Revenue, Museum of Science and Industry,
6.400%, 1/01/12
1,635,000 Hillsborough County, Florida, Utility Refunding 8/01 at 102 BBB+ 1,806,953
Revenue, Refunding, Series A, 7.000%, 8/01/14
250,000 Hollywood, Florida, Water and Sewer Revenue, 10/01 at 102 AAA 276,890
6.875%, 10/01/21
1,810,000 Jacksonville, Florida, Electric Authority Revenue, 10/00 at 101 1/2 Aaa 1,975,814
Bulk Power Supply (Scherer 4 Project),
Series 1991A, 7.000%, 10/01/12
1,500,000 Lady Lake, Florida, Industrial Development Revenue, 7/00 at 102 N/R 1,741,140
Sunbelt Utilities Inc. Project, 9.625%, 7/01/15
1,050,000 Naples, Florida, Hospital Revenue, Naples Community 10/00 at 102 AAA 1,156,134
Hospital Inc. Project, Refunding, 7.200%, 10/01/19
250,000 North Broward, Florida, Hospital District Hospital 1/02 at 102 AAA 270,443
Revenue Refunding, 6.250%, 1/01/12
3,400,000 North Springs Improvement District, Florida Water 10/01 at 102 N/R 3,923,430
and Sewer Revenue, 8.000%, 10/01/16
145,000 Orange County, Florida, Sales Tax Revenue, 1/00 at 102 AAA 153,617
6.125%, 1/01/19
1,750,000 Orange County, Florida, Tourist Development Tax 10/00 at 102 AAA 1,931,300
Revenue, 7.250%, 10/01/10
1,750,000 Palm Beach County, Florida, Criminal Justice 6/00 at 102 AAA 1,917,755
Facilities Revenue, 7.250%, 6/01/11
1,425,000 Puerto Rico Electric Power Authority, Formerly 7/01 at 102 Aaa 1,584,557
Puerto Rico Commonwealth, Water Resource
Authority Power, Series P, 7.000%, 7/01/21
2,500,000 Seminole County, Florida, School Board Certificates 7/04 at 101 AAA 2,813,250
of Participation, Series B, 6.750%, 7/01/14
335,000 Tampa, Florida, Water and Sewer Revenue, Series A, 10/02 at 101 AAA 359,324
6.000%, 10/01/17
- ----------------------------------------------------------------------------------------------------------------------------
Resource Recovery -- 2.0%
4,395,000 Broward County, Florida, Resouce Recovery Revenue, 12/99 at 103 A 4,789,539
Broward Company LP South Project,
7.950%, 12/01/08
2,125,000 Lee County, Florida, Solid Waste System Revenue, 10/01 at 102 AAA 2,319,905
Series A, 7.000%, 10/01/11
</TABLE>
22
<PAGE>
<TABLE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Tax Revenue -- 7.4%
$10,730,000 Dade County, Florida, Professional Sports 10/05 at 102 AAA $10,126,330
Franchise Facilities Tax Revenue,
5.250%, 10/01/30
255,000 Dade County, Florida, Special Obligation, 4/04 at 102 A3 272,506
Courthouse Center Project,
6.300%, 4/01/14
4,585,000 Dade County, Florida, Special Obligation, 10/06 at 102 AAA 4,155,844
Refunding, Series B, 5.000%, 10/01/35
5,835,000 Dade County, Florida, Special Obligation, No Opt. Call AAA 3,428,938
Refunding, Series B, 0.000%, 10/01/07
250,000 Jacksonville, Florida, Excise Tax Revenue, 10/02 at 102 AAA 271,993
Refunding, 6.500%, 10/01/13
1,010,000 Martin County, Florida, Special Assessment 11/05 at 100 A2 1,035,855
Revenue, Tropical Farms Water,
5.900%, 11/01/11
1,000,000 Miami Beach, Florida, Redevelopment Agency, 12/04 at 102 BBB 970,450
Tax Increment Revenue, City Center, Historic
Convention Village, 5.875%, 12/01/22
1,000,000 Palm Beach County, Florida, Criminal Justice No Opt. Call AAA 1,018,760
Facilities Revenue, Refunding, 5.375%, 6/01/10
1,000,000 Palm Beach Gardens, Florida, Special Obligation 7/99 at 102 AAA 1,072,040
Revenue, 7.250%, 7/01/15
2,000,000 Puerto Rico Commonwealth Highway and 7/16 at 100 A 1,945,140
Transportation Authority, Highway Revenue,
Series Y, 5.500%, 7/01/36
3,300,000 Tampa, Florida, Utility Tax, 0.000%, 4/01/17 No Opt. Call AAA 1,073,984
1,000,000 Turtle Run, Florida, Community Development 5/03 at 100 A1 1,061,200
District Revenue, Refunding, Water
Management Benefit Tax, 6.400%, 5/01/11
- -------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 4.4%
Florida State, Broward County Expressway
Authority:
4,000,000 9.875%, 7/01/09 No Opt. Call AA+ 5,624,240
1,000,000 10.000%, 7/01/14 No Opt. Call AA+ 1,481,980
300,000 Florida State, Double Barrell, Pollution 7/02 at 101 AA+ 323,850
Control, Series Y, 6.600%, 7/01/17
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida--continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- continued
<S> <C> <C> <C> <C>
$ 2,165,000 Florida State Board Education Capital No Opt. Call AA+ $ 3,023,205
Outlay, 9.125%, 6/01/14
2,250,000 Florida State Board Education Capital Outlay, Public 6/05 at 101 AA+ 2,276,640
Education, Series B, 5.875%, 6/01/20
Puerto Rico Commonwealth, Public Improvement:
2,000,000 6.500%, 7/01/15 No Opt. Call AAA 2,260,580
700,000 5.375%, 7/01/25 7/07 at 101 1/2 A 667,813
- ------------------------------------------------------------------------------------------------------------------------------------
$349,830,000 Total Investments -- (cost $332,750,987) 98.7% $352,582,218
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.3% 4,549,764
-------------------------------------------------------------------------------------------------------
Net Assets -- 100% $357,131,982
=======================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the
report of independent auditors): Dates (month
and year) and prices of the earliest optional
call or redemption. There may be other call
provisions at varying prices at later dates.
** Ratings (not covered by the report of
independent auditors): Using the higher of
Standard & Poor's or Moody's rating.
*** Pre-refunded 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. Pre-refunded
securities are normally considered to be
equivalent to AAA rated securities.
N/R -- Investment is not rated.
See accompanying notes to financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Municipal Bond Funds
Nuveen Flagship Florida Intermediate May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care -- 2.3%
$165,000 Jacksonville, Florida, Health Facilities Authority, No Opt. Call Baa1 $168,863
Industrial Development, Revenue, National
Benevolent, Cypress Village, Series A,
5.850%, 12/01/06
200,000 Sarasota County, Florida, Health Facility No Opt. Call N/R 198,218
Authority, Revenue Refunding, Health Facilities,
Sunnyside Properties, 5.500%, 5/15/05
- -------------------------------------------------------------------------------------------------------------------
Hospitals -- 4.1%
200,000 Alachua County, Florida, Health Facilities 12/06 at 102 AAA 204,234
Authority, Health Facilities Revenue, Shands
Teaching Hospital, Series A, 5.300%, 12/01/08
250,000 Lee County, Florida, Hospital Board of Directors, 4/07 at 102 AAA 252,333
Hospital Revenue, Lee Memorial Health System,
Series A, 5.400%, 4/01/09
200,000 Leesburg, Florida, Hospital Revenue Refunding, 7/06 at 102 A-- 204,130
Leesburg Regional Medical Center Project,
Series A, 5.600%, 7/01/08
- -------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- 3.6%
300,000 Brevard County, Florida, Housing Finance 2/06 at 101 AAA 330,933
Authority, Multifamily Housing, Revenue
Refunding, Windover Oaks, Series A,
6.900%, 2/01/27
250,000 Indianapolis, Indiana, Economic Development, 6/97 at 100 N/R 250,003
Multifamily Housing, Mortgage Revenue Castle
Dore Project, Series A, 5.125%, 4/01/37
(Mandatory put 4/01/98)
- -------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 2.7%
250,000 Escambia County, Florida, Housing Finance 4/07 at 102 Aaa 252,010
Authority, Single Family Mortgage Revenue,
Multi County Program, Series A,
5.500%, 4/01/08
180,000 Florida, Housing Finance Agency, No Opt. Call AAA 183,217
Single Family Mortgage, Series A,
6.000%, 1/01/04
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship Florida Intermediate-- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development and Pollution Control -- 1.3%
$ 200,000 Escambia County, Florida, Pollution Control, Revenue 11/02 at 102 Baa1 $ 217,994
Refunding, Champion International Corporation
Project, 6.950%, 11/01/07
- --------------------------------------------------------------------------------------------------------------------
Municipal Appropriation Obligations -- 2.5%
100,000 Dade County, Florida, School Board, Certificates of No Opt. Call AAA 103,021
Participation, Series A, 5.375%, 5/01/04
290,000 Levy County, Florida, School Board, Certificates of 7/05 at 102 AA 299,402
Participation, 5.500%, 7/01/06
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Other -- 2.6%
405,000 Gulf Breeze, Florida, Revenue, Local Government Loan 12/06 at 101 AAA 415,016
Program, Series B, 5.600%, 12/01/15
(Mandatory put 12/01/07)
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/ Transportation -- 9.1%
350,000 Dade County, Florida, Aviation Revenue Refunding, No Opt. Call AAA 374,633
Series A, 6.250%, 10/01/02
325,000 Florida, Ports Financing Commission, Revenue, State No Opt. Call AAA 323,482
Transportation Tollroad Fund, 5.000%, 6/01/07
100,000 Palm Beach County, Florida, Airport System, Revenue 10/01 at 102 AAA 113,254
Refunding, 7.625%, 10/01/04
200,000 Pensacola, Florida, Airport Revenue, Series B, No Opt. Call AAA 204,760
5.400%, 10/01/07
250,000 Sanford, Florida, Airport Authority, Industrial No Opt. Call N/R 250,893
Development Revenue, Central Florida Terminals
Inc. Project, Series C, 6.750%, 5/01/05
200,000 Sarasota, Manatee Airport Authority, Florida Airport 8/06 at 102 AAA 203,282
Revenue Refunding, 5.250%, 8/01/08
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 2.3%
120,000 Jacksonville, Florida, Electric Authority, Revenue 4/06 at 101 Aa1 117,830
Refunding, St. Johns River Power Park System,
Issue 2, 15, 4.750%, 10/01/07
250,000 Plant City, Florida, Utility System Revenue Refunding 10/04 at 101 AAA 259,405
and Improvement, 5.400%, 10/01/06
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provision* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Water and Sewer -- 7.8%
$ 485,000 Auburndale, Florida, Water and Sewer, Revenue 12/05 at 102 AAA $ 498,323
Refunding, 5.375%, 12/01/08
250,000 Lee County, Florida, Industrial Development 11/06 at 101 AAA 259,143
Authority, Utilities Revenue Refunding,
Bonita Springs Utilities Project,
5.450%, 11/01/07
Ocoee, Florida, Water and Sewer System, Revenue:
100,000 4.900%, 10/01/06 No Opt. Call AAA 100,209
150,000 5.000%, 10/01/07 10/06 at 102 AAA 151,014
155,000 5.100%, 10/01/08 10/06 at 102 AAA 155,984
100,000 Port St. Lucie, Florida, Utility Revenue, No Opt. Call AAA 104,580
5.500%, 9/01/04
- --------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 6.3%
200,000 Dade County, Florida, School District, 7/06 at 101 AAA 188,034
4.500%, 7/15/08
500,000 Duval County, Florida, School District, 8/02 at 102 AAA 536,400
6.300%, 8/01/08
275,000 New York City, Refunding, Series A, 8/06 at 101 1/2 BBB+ 290,840
6.250%, 8/01/08
- --------------------------------------------------------------------------------------------------------------------
Pre-refunded -- 10.6%
1,000,000 Florida State Municipal Power Agency, Revenue, 10/02 at 102 AAA 1,092,160
All Requirements Power Supply Project,
6.250%, 10/01/21
570,000 Florida State Turnpike Authority, Turnpike 7/02 at 101 AAA 618,872
Revenue, Series A, 6.350%, 7/01/22
- --------------------------------------------------------------------------------------------------------------------
Special Tax Revenue -- 15.0%
200,000 Broward County, Florida, Professional Sports 9/06 at 101 AAA 203,886
Facilities, Tax Revenue, Civic Arena
Project, Series A, 5.200%, 9/01/07
335,000 Dade County, Florida, Special Obligation, 10/08 at 98 7/32 AAA 171,332
Refunding Bond, Series B, 0.000%, 10/01/09
250,000 Florida, State Division of Bond Finance, 7/05 at 101 AAA 260,975
Department of General Services, Revenue,
Department of Environmental Preservation
2000, Series A, 5.500%, 7/01/06
27
</TABLE>
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida Intermediate - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Tax Revenue -- continued
$ 100,000 Gulf County, Florida, Gas Tax, Revenue Refunding and 10/05 at 102 AAA $ 100,676
Improvement, 5.000%, 10/01/07
200,000 Hillsborough County, Florida, Capital Improvement 8/06 at 102 AAA 194,742
Program, Revenue Refunding, 4.800%, 8/01/08
150,000 Indian Trace Community Development District, Florida, 5/05 at 102 AAA 156,710
Water Management, Special Benefit,
Series A, 5.500%, 5/01/06
100,000 Jacksonville, Florida, Excise Taxes Revenue, Series B, 10/01 at 101 AAA 101,318
5.050%, 10/01/03
125,000 Lynn Haven, Florida, Special Project Revenue, No Opt. Call AAA 126,166
5.250%, 10/01/05
250,000 Martin County, Florida, Special Assessment Revenue, No Opt. Call A2 258,285
Tropical Farms Water, 5.600%, 11/01/05
500,000 Palm Beach County, Florida, Criminal Justice Facilities, No Opt. Call AAA 518,300
Revenue Refunding, 5.300%, 6/01/05
125,000 Pembroke Pines, Florida, Special Assessment, No Opt. Call Baa1 127,668
Number 94, Series 1, 5.750%, 11/01/05
200,000 Puerto Rico Commonwealth, Highway and No Opt. Call A 202,692
Transportation Authority, Highway Revenue,
Series X, 5.200%, 7/01/03
- ------------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 9.1%
225,000 Florida, Broward County, Expressway Authority, No Opt. Call AA+ 316,364
9.875%, 7/01/09
Florida State Board of Education, Capital Outlay,
Refunding, Public Education, Series A:
100,000 6.000%, 6/01/07 6/02 at 101 AA+ 105,545
250,000 5.000%, 6/01/08 AA+ 250,105
325,000 Guam Government, Series A, 4.900%, 11/15/04 11/03 at 102 BBB 310,931
500,000 Puerto Rico Commonwealth, Refunding Improvement, A 509,990
5.375%, 7/01/05
- ------------------------------------------------------------------------------------------------------------------
$ 12,505,000 Total Investments -- (cost $12,522,887) -- 79.3% 12,838,157
============------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 20.7% 3,359,551
--------------------------------------------------------------------------------------------------
Net Assets -- 100% $16,197,708
==================================================================================================
</TABLE>
* Optional Call Provisions (Not covered by the report of independent auditors):
Dates (month and year) and prices of the earliest optional call or
redemption. There may be other call provisions at varying prices at later
dates.
** Ratings (Not covered by the report of independent auditors): Using the higher
of Standard & Poor's or Moody's rating.
N/R -- Investment is not rated.
See accompanying notes to financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
May 31, 1997
Nuveen Flagship Nuveen Flagship
Florida Florida Intermediate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $352,582,218 $ 12,838,157
Cash 193,832 --
Receivables:
Interest 6,021,276 200,662
Shares sold 189,085 6,999,999
Investments sold 3,298,993 --
Other assets 17,037 1,693
- ------------------------------------------------------------------------------------------------------------------------
Total assets 362,302,441 20,040,511
- ------------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- 24,381
Payables:
Investments purchased 2,928,008 1,611,884
Shares redeemed 339,831 2,122,214
Accrued expenses:
Management fees (note 6) 72,439 633
12b-1 distribution and service fees (notes 1 and 6) 54,147 3,444
Other 211,284 34,447
Dividends payable 1,564,750 45,800
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,170,459 3,842,803
- ------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $357,131,982 $16,197,708
========================================================================================================================
Class A Shares (note 1)
Net assets $296,970,141 $13,088,902
Shares outstanding 28,017,793 1,297,607
Net asset value and redemption price per share $ 10.60 $ 10.09
Offering price per share (net asset value per
share plus maximum sales charge of 4.20%
and 3.00%, respectively, of offering price) $ 11.06 $ 10.40
========================================================================================================================
Class B Shares (note 1)
Net assets $ 785,020 $ N/A
Shares outstanding 73,979 N/A
Net asset value, offering and redemption price per share $10.61 $ N/A
========================================================================================================================
Class C Shares (note 1)
Net assets $ 5,130,109 $ 3,007,561
Shares outstanding 483,771 298,256
Net asset value, offering and redemption price per share $ 10.60 $ 10.08
========================================================================================================================
Class R Shares (note 1)
Net assets $ 54,246,712 $ 101,245
Shares outstanding 5,117,482 10,011
Net asset value, offering and redemption price per share $ 10.60 $ 10.11
========================================================================================================================
N/A - Nuveen Flagship Florida Intermediate is not authorized to issue Class B Shares.
See accompanying notes to financial statements.
29
</TABLE>
<PAGE>
Statement of Operations
Year ended May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Florida* Florida Intermediate**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Tax-exempt interest income (note 1) $ 20,229,707 $ 512,118
- ------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 1,687,564 50,874
12b-1 service fees -- Class A (notes 1 and 6) 1,032,039 21,227
12b-1 distribution and service fees -- Class B (notes 1 and 6) 1,449 N/A
12b-1 distribution and service fees -- Class C (notes 1 and 6) 24,848 26,833
Shareholders' servicing agent fees and expenses 169,380 27,935
Custodian's fees and expenses 114,653 47,450
Trustees' fees and expenses (note 6) 8,643 199
Professional fees 24,196 11,923
Shareholders' reports -- printing and mailing expenses 35,840 1,301
Federal and state registration fees 7,532 803
Organizational expenses (note 1) - 9,121
Other expenses 11,606 1,203
- ------------------------------------------------------------------------------------------------------------------
Total expenses before reimbursement 3,117,750 198,869
Expense reimbursement from investment adviser (note 6) (448,690) (110,883)
- ------------------------------------------------------------------------------------------------------------------
Net expenses 2,669,060 87,986
- ------------------------------------------------------------------------------------------------------------------
Net investment income 17,560,647 424,132
- ------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions
(notes 1 and 4) 1,079,346 (26,511)
Net change in unrealized appreciation or depreciation
of investments 5,172,708 223,395
- ------------------------------------------------------------------------------------------------------------------
Net gain from investments 6,252,054 196,884
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 23,812,701 $ 621,016
==================================================================================================================
</TABLE>
* Information represents eight months of Flagship Florida and four months of
Nuveen Flagship Florida (see note 1 of the Notes to Financial Statements).
** Information represents eight months of Flagship Florida Intermediate and
four months of Nuveen Flagship Intermediate (see note 1 of the Notes to
Financial Statements).
N/A - Nuveen Flagship Florida Intermediate is not authorized to issue Class B
Shares.
See accompanying notes to financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
Nuveen Flagship Flagship
Florida Florida
- --------------------------------------------------------------------------------------------------------------------
Year ended 5/31/97* Year ended 5/31/96
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 17,560,647 $ 17,831,203
Net realized gain from investment transactions
(notes 1 and 4) 1,079,346 4,828,780
Net change in unrealized appreciation or depreciation
of investments 5,172,708 (12,275,838)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 23,812,701 10,384,145
- ---------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (16,417,162) (17,864,777)
Class B (6,544) N/A
Class C (136,909) (15,706)
Class R (978,903) N/A
From accumulated net realized gains from
investment transactions:
Class A (27,453) --
Class B -- N/A
Class C (288) --
Class R -- N/A
- ---------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (17,567,259) (17,880,483)
- ---------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in the reorganization
of Nuveen Florida (note 1) 65,696,034 --
Net proceeds from shares issued as a capital contribution 33,360 --
Net proceeds from sale of shares 30,465,913 36,866,299
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 5,587,408 6,774,286
101,782,715 43,640,585
- ---------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (70,527,219) (57,887,168)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions 31,255,496 (14,246,583)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 37,500,938 (21,742,921)
Net assets at the beginning of year 319,631,044 341,373,965
- --------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 357,131,982 $ 319,631,044
====================================================================================================================
Balance of undistributed net investment income at end of year $ 21,129 $ --
====================================================================================================================
</TABLE>
* Information represents eight months of Flagship Florida and four months of
Nuveen Flagship Florida (see note 1 of the Notes to Financial Statements).
N/A - Flagship Florida was not authorized to issue Class B or Class R Shares.
31 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets -- continued
Nuveen Flagship Flagship Florida
Florida Intermediate Intermediate
- --------------------------------------------------------------------------------------------------------------------
Year ended 5/31/97* Year ended 5/31/96
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 424,132 $ 331,742
Net realized gain (loss) from investment transactions
(notes 1 and 4) (26,511) 38,343
Net change in unrealized appreciation or depreciation
of investments 223,395 (149,369)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 621,016 220,716
- ---------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (312,115) (235,102)
Class C (123,497) (100,151)
Class R (406) N/A
From accumulated net realized gains from
investment transactions:
Class A (11,177) (22,352)
Class C (5,494) (11,661)
Class R -- N/A
- ---------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (452,689) (369,266)
- ---------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 13,641,821 5,685,452
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 160,751 185,193
- ---------------------------------------------------------------------------------------------------------------------
13,802,572 5,870,645
- ---------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (5,846,919) (3,310,832)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 7,955,653 2,559,813
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets 8,123,980 2,411,263
Net assets at the beginning of year 8,073,728 5,662,465
- ---------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 16,197,708 $ 8,073,728
=====================================================================================================================
Balance of undistributed net investment income at end of year $ 10,894 $ 22,780
=====================================================================================================================
</TABLE>
* Information represents eight months of Flagship Florida Intermediate and
four months of Nuveen Flagship Florida Intermediate (see note 1 of the
Notes to Financial Statements).
N/A - Flagship Florida Intermediate was not authorized to issue Class R Shares.
32 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Florida Municipal Bond Fund and Nuveen Flagship
Florida Intermediate Municipal Bond Fund (the "Funds"), among others. The Trust
was organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Funds, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Flagship Florida Double Tax
Exempt Fund ("Flagship Florida") and Nuveen Florida Tax-Free Value Fund ("Nuveen
Florida") reorganized into Nuveen Flagship Florida Municipal Bond Fund ("Nuveen
Flagship Florida"). Flagship Florida Intermediate Tax Exempt Fund ("Flagship
Florida Intermediate") was reorganized into the Trust and renamed Nuveen
Flagship Florida Intermediate Municipal Bond Fund ("Nuveen Flagship Florida
Intermediate"). Prior to these reorganizations, Flagship Florida and Flagship
Florida Intermediate were each a sub-trust of Flagship Tax Exempt Funds Trust,
while Nuveen Florida was a series of the Nuveen Multistate Tax-Free Trust.
Nuveen Florida had a fiscal year end of January 31 prior to being reorganized
into Nuveen Flagship Florida which has a May 31 fiscal year end.
The Funds seek to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Funds' investment portfolio are provided by
a pricing service approved by the Funds' Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Funds had no such commitments.
33
<PAGE>
Notes to Financial Statements--continued
Interest Income
Interest income is determined on the basis of interest accrued,
adjusted for amortization of premiums and accretion of discounts on
long-term debt securities when required for federal income tax
purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly
and payment is made or reinvestment is credited to shareholder
accounts on the first business day after month-end. Net realized
capital gains and/or market discount from investment transactions,
if any, are distributed to shareholders not less frequently than
annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship
Florida and Flagship Florida Intermediate was declared as a
dividend daily and payment was made on the last business day of
each month.
Distributions to shareholders of tax-exempt net investment income,
net realized capital gains and/or market discount are recorded on
the ex-dividend date. The amount and timing of distributions are
determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles.
Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either
distributions in excess of net investment income, distributions in
excess of net realized gains and/or distributions in excess of net
ordinary taxable income from investment transactions, where
applicable.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes.
Each Fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its tax-exempt net investment income, in addition
to any significant amounts of net realized capital gains and/or
market discount from investment transactions. The Funds currently
consider significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the
Funds intend to satisfy conditions which will enable interest from
municipal securities, which is exempt from regular federal income
taxes, to retain such tax-exempt status when distributed to the
shareholders of the Funds. All income dividends paid during the
fiscal year ended May 31, 1997, for each fund have been designated
Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Effective February 1, 1997, each Fund offers Class A, C and R
Shares. Also effective February 1, 1997, Nuveen Flagship Florida
began offering Class B Shares. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are
sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class B Shares agrees to pay a
contingent deferred sales charge ("CDSC") of up to 5% depending
upon the length of time the shares are held by the investor (CDSC
is reduced to 0% at the end of six years). Class C Shares are sold
without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a
CDSC of 1% if Class C Shares are redeemed within 18 months of
purchase. Class R Shares, are not subject to any sales
34
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
charge or 12b-1 distribution or service fees. Class R Shares are
available for purchases of over $1 million and in other limited
circumstances.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments
including futures, forward, swap, and option contracts, and other
financial instruments with similar characteristics. Although the
Funds are authorized to invest in such financial instruments, and
may do so in the future, they did not make any such investments
during the fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Funds that are not directly attributable to a
specific class of shares are prorated among the classes based on
the relative net assets of each class. Expenses directly
attributable to a class of shares, which presently only includes
12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from
operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of Nuveen Flagship
Florida Intermediate (approximately $27,400) will be reimbursed to
the Adviser on a straight-line basis over a period of three years
beginning June 1, 1996. As of May 31, 1997, $9,121 has been
reimbursed. In the event that the Adviser's current investment in
the Trust falls below $100,000 prior to the full reimbursement of
the organizational expenses, then it will forego any further
reimbursement.
35
<PAGE>
Notes to Financial Statements--continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Florida* Flagship Florida
------------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in the
reorganization of Nuveen Florida:
Class A 1,049,952 $ 11,119,107 - $ -
Class B - - N/A N/A
Class C 33,855 358,702 - -
Class R 5,119,701 54,218,225 N/A N/A
Shares issued as a
capital contribution:
Class A 788 8,340 - -
Class B 788 8,340 N/A N/A
Class C 787 8,340 - -
Class R 788 8,340 N/A N/A
Shares sold:
Class A 2,325,105 24,486,690 3,341,801 35,642,289
Class B 72,980 773,584 N/A N/A
Class C 363,870 3,832,018 114,811 1,224,010
Class R 129,989 1,373,621 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 488,917 5,143,242 635,528 6,768,677
Class B 211 2,219 N/A N/A
Class C 3,197 33,754 526 5,609
Class R 38,779 408,193 N/A N/A
- ---------------------------------------------------------------------------------------------------
9,629,707 101,782,715 4,092,666 43,640,585
- ---------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (6,499,240) (68,393,215) (5,453,566) (57,862,882)
Class B - - N/A N/A
Class C (30,973) (324,954) (2,302) (24,286)
Class R (171,775) (1,809,050) N/A N/A
- ---------------------------------------------------------------------------------------------------
(6,701,988) (70,527,219) (5,455,868) (57,887,168)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) 2,927,719 $ 31,255,496 (1,363,202) $(14,246,583)
===================================================================================================
</TABLE>
* Information represents eight months of Flagship Florida and four months of
Nuveen Flagship Florida (see note 1).
N/A--Flagship Florida was not authorized to issue Class B or Class R Shares.
- ------
36
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
Nuveen Flagship Flagship
Florida Intermediate* Florida Intermediate
------------------------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
------------------------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,278,167 $12,883,393 366,520 $ 3,698,170
Class C 65,754 657,819 195,954 1,987,282
Class R 10,011 100,609 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 11,064 110,935 12,299 124,575
Class C 4,973 49,816 5,977 60,618
Class R - - N/A N/A
- ----------------------------------------------------------------------------------------------------------
1,369,969 13,802,572 580,750 5,870,645
- ----------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (496,941) (5,002,329) (261,357) (2,643,760)
Class C (83,942) (844,590) (66,052) (667,072)
Class R - - N/A N/A
- ----------------------------------------------------------------------------------------------------------
(580,883) (5,846,919) (327,409) (3,310,832)
- ----------------------------------------------------------------------------------------------------------
Net increase 789,086 $ 7,955,653 253,341 $ 2,559,813
==========================================================================================================
* Information represents eight months of Flagship Florida Intermediate and four months of Nuveen
Flagship Florida Intermediate (see note 1).
N/A -- Flagship Florida Intermediate was not authorized to issue Class R Shares.
</TABLE>
37
<PAGE>
Notes to Financial Statements--continued
3. Distributions to Shareholders On June 9, 1997, the Funds declared dividend
distributions from their tax-exempt net investment income which were paid on
July 1, 1997, to shareholders of record on June 9, 1997, as follows:
Nuveen Flagship Nuveen Flagship
Florida Florida Intermediate
- -------------------------------------------------------------------------------
Dividend per share:
Class A $.0460 $.0390
Class B .0395 N/A
Class C .0415 .0345
Class R .0480 .0405
- -------------------------------------------------------------------------------
N/A - Nuveen Flagship Florida Intermediate is not authorized to issue Class B
Shares.
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1997, were as follows:
Nuveen
Nuveen Flagship Flagship Florida
Florida* Intermediate**
- -------------------------------------------------------------------------------
Purchases
Investments in municipal securities $176,585,969 $7,996,047
Investments in municipal securities in the
reorganization of Nuveen Florida 61,479,704 ---
Temporary municipal investments 7,000,000 600,000
Sales
Investments in municipal securities 214,958,922 3,372,192
Temporary municipal investments 7,000,000 600,000
- -------------------------------------------------------------------------------
* Information represents eight months of Flagship Florida and four months of
Nuveen Flagship Florida (see note 1).
** Information represents eight months of Flagship Florida Intermediate and four
months of Nuveen Flagship Florida Intermediate (see note 1).
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes may differ from the cost for financial reporting purposes.
At May 31, 1997, Nuveen Flagship Florida had unused capital loss carryforwards
of $541,818 available for federal income tax purposes to be applied against
future capital gains, if any. If not applied, $187,294 of the carryover will
expire in the year 2002, $141,494 in the year 2003 and $213,030 in the year
2004.
At May 31, 1997, Nuveen Flagship Florida Intermediate had an unused capital loss
carryforward of $4,069 available for federal income tax purposes to be applied
against future capital gains, if any. If not applied, the carryover will expire
in the year 2005.
38
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1997, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Florida Florida Intermediate
- --------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized:
appreciation $19,966,773 $315,378
depreciation (135,542) (108)
- --------------------------------------------------------------------------------
Net unrealized appreciation $19,831,231 $315,270
- --------------------------------------------------------------------------------
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Funds
pay an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of each Fund as follows:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
Prior to the reorganization (see note 1) the Funds paid a management fee of .5
of 1%. The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office facilities. The Trust
pays no compensation directly to its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
39
<PAGE>
Notes to Financial Statements--continued
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship Resources Inc.)
collected gross sales charges on purchases of Class A Shares, the majority of
which were paid out as concessions to authorized dealers as follows:
Nuveen Flagship Nuveen Flagship
Florida Florida Intermediate
- -----------------------------------------------------------------------------
Gross sales charges collected $ 442,500 $ 12,200
Paid to authorized dealers 381,300 9,600
- -----------------------------------------------------------------------------
The Distributor and its predecessor also received 12b-1 service fees on Class A
Shares, approximately one-half of which was paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $66,200 for Nuveen
Flagship Florida and approximately $12,700 for Nuveen Flagship Florida
Intermediate in commission advances at the time of purchase. To compensate for
commissions advanced to authorized dealers, all 12b-1 service fees collected on
Class B Shares during the fiscal year following a purchase, all 12b-1
distribution fees on Class B Shares, and all 12b-1 service and distribution fees
on Class C Shares during the first year following a purchase are retained by the
Distributor. The remaining 12b-1 fees charged to the Fund were paid to
compensate authorized dealers for providing services to shareholders relating to
their investments. The Distributor and its predecessor also collected and
retained CDSC on share redemptions of approximately $1,600 for Nuveen Flagship
Florida and approximately $300 for Nuveen Flagship Florida Intermediate during
the fiscal year ended May 31, 1997.
7. Composition of Net Assets
At May 31, 1997, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Florida Florida Intermediate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in.................................................................. $337,891,838 $15,898,055
Balance of undistributed net investment income................................... 21,129 10,894
Accumulated net realized gain (loss) from investment transactions................ (612,216) (26,511)
Net unrealized appreciation of investments....................................... 19,831,231 315,270
- -------------------------------------------------------------------------------------------------------------------------
Net assets $357,131,982 $16,197,708
=========================================================================================================================
</TABLE>
40
<PAGE>
Financial Highlights
41
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------------- -----------------------------
Net
NUVEEN FLAGSHIP FLORIDA++ Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income(b) investments income gains period value(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (6/90)
1997 $10.39 $.56 $ .21 $(.56) $ -- $10.60 7.59%
1996 10.63 .57 (.24) (.57) -- 10.39 3.14
1995 10.38 .58 .26 (.59) -- 10.63 8.43
1994 10.76 .60 (.38) (.60) -- 10.38 2.00
1993 10.18 .63 .61 (.64) (.02) 10.76 12.49
1992 9.87 .66 .33 (.67) (.01) 10.18 10.32
1991(c) 9.58 .64 .29 (.64) -- 9.87 9.81+
Class B (2/97)
1997(c) 10.59 .16 .02 (.16) -- 10.61 1.70
Class C (9/95)
1997 10.39 .50 .21 (.50) -- 10.60 7.00
1996(c) 10.65 .35 (.26) (.35) -- 10.39 1.30+
Class R (2/97)
1997(c) 10.59 .19 .01 (.19) -- 10.60 1.93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Florida.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After the waiver of certain management fees or reimbursement of expenses,
if applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
42
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
Ratios/Supplemental data
- --------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$296,970 .96% 5.20% .82% 5.34% 54%
318,456 1.02 5.17 .83 5.36 94
341,374 1.04 5.40 .73 5.71 53
372,082 1.00 5.09 .58 5.51 32
369,123 .99 5.47 .45 6.01 23
276,811 1.03 5.82 .26 6.59 50
136,509 1.05 6.00 .19+ 6.86+ 152
785 1.58+ 4.52+ 1.58+ 4.52+ 54
5,130 1.46 4.64 1.35 4.75 54
1,175 1.55+ 4.42+ 1.38+ 4.59+ 94
54,247 .64+ 5.55+ .64+ 5.55+ 54
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
Class (Inception date) Operating performance Less distributions
------------------------- -------------------------
NUVEEN FLAGSHIP Net
FLORIDA INTERMEDIATE++ Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income (b) investments income gains period value (a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (2/94)
1997 $ 9.88 $.45 $ .25 $(.47) $(.02) $10.09 7.16%
1996 10.05 .46 (.12) (.46) (.05) 9.88 3.41
1995 9.66 .46 .33 (.40) - 10.05 8.42
1994(c) 9.70 .12 (.04) (.12) - 9.66 1.75+
Class C (2/94)
1997 9.88 .40 .23 (.41) (.02) 10.08 6.47
1996 10.05 .40 (.11) (.41) (.05) 9.88 2.88
1995 9.66 .40 .33 (.34) - 10.05 7.80
1994(c) 9.70 .11 (.06) (.09) - 9.66 1.33+
Class R (2/97)
1997(c) 10.20 .12 (.09) (.12) - 10.11 .32
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Florida
Intermediate.
(a) Total returns are calculated on net asset value without any sales
charge.
(b) After the waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
44
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
Ratios/Supplemental data
- ----------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment (b) ment (b) rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13,089 1.80% 3.42% .73% 4.49% 35%
4,995 1.67 3.57 .76 4.48 66
3,898 3.54 1.87 .67 4.74 105
964 6.70+ (2.62)+ .29+ 3.79+ 28
3,008 2.56 2.71 1.28 3.99 35
3,079 2.25 2.97 1.34 3.88 66
1,765 4.53 .85 1.19 4.19 105
1,058 7.38+ (3.28)+ .68+ 3.42+ 28
101 1.21+ 3.82+ .56+ 4.47+ 35
- ----------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship Florida Municipal Bond Funds:
We have audited the accompanying statements of net assets of the
Nuveen Flagship Florida Municipal Bond Fund and the Nuveen Flagship
Florida Intermediate Municipal Bond Fund, including the portfolios
of investments, as of May 31, 1997, the related statements of
operations for the period then ended and the statements of changes
in net assets, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned as of May 31, 1997, by correspondence with the Funds'
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
the Nuveen Flagship Florida Municipal Bond Fund and the Nuveen
Flagship Florida Intermediate Municipal Bond Fund at May 31, 1997,
the results of their operations, the changes in their net assets
and the financial highlights for the respective stated periods, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
46
<PAGE>
Shareholder Meeting Report
Flagship Florida
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Directors A Shares C Shares
==============================================================================
Bremner For 25,319,015 215,850
Withhold 460,122 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Brown For 25,307,588 215,850
Withhold 471,549 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Dean For 25,319,015 215,850
Withhold 460,122 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Impellizzeri For 25,319,015 215,850
Withhold 460,122 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Rosenheim For 25,307,588 215,850
Withhold 471,549 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Sawers For 25,319,015 215,850
Withhold 460,122 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Schneider For 25,319,015 215,850
Withhold 460,122 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Schwertfeger For 25,319,015 215,850
Withhold 460,122 4,763
-------------------------------------------------------
Total 25,779,137 220,613
==============================================================================
Advisory Agreement For 23,225,428 198,503
Against 316,166 4,763
Abstain 711,093 -
-------------------------------------------------------
Total 24,252,687 203,266
==============================================================================
Broker Non Votes 1,526,450 17,347
==============================================================================
12b-1 Plan For 22,669,951 198,503
Against 633,915 4,763
Abstain 948,822 -
-------------------------------------------------------
Total 24,252,688 203,266
==============================================================================
Broker Non Votes 1,526,449 17,347
==============================================================================
Reorganization For 14,929,829 125,301
Against 362,121 1,430
Abstain 486,518 -
-------------------------------------------------------
Total 15,778,468 126,731
==============================================================================
Broker Non Votes 10,000,669 93,882
-------------------------------------------------------
</TABLE>
47
<PAGE>
Shareholder Meeting Report
Flagship Florida Intermediate
<TABLE>
<CAPTION>
A Shares C Shares
========================================================================
<S> <C> <C> <C>
Advisory Agreement For 441,974 253,873
Against 14,754 -
Abstain 12,791 1,687
------------------------------------------------
Total 469,519 255,560
========================================================================
Broker Non Votes 3,514 7,548
========================================================================
Reorganization For 279,336 155,364
Against 5,607 -
Abstain 9,716 686
------------------------------------------------
Total 294,659 156,050
========================================================================
Broker Non Votes 178,374 107,058
========================================================================
Investment Objective For 278,156 143,507
Against 16,503 12,543
Abstain --- ---
------------------------------------------------
Total 294,659 156,050
========================================================================
Broker Non Votes 178,374 107,358
========================================================================
Investment Assets For 278,156 143,507
Against 16,503 12,543
Abstain --- ---
------------------------------------------------
Total 294,659 156,050
========================================================================
Broker Non Votes 178,374 107,058
========================================================================
Type of Securities For 278,156 143,507
Against 16,503 12,543
Abstain --- ---
------------------------------------------------
Total 294,659 156,050
========================================================================
Broker Non Votes 178,374 107,058
========================================================================
Borrowing For 278,156 143,507
Against 16,503 12,543
Abstain --- ---
------------------------------------------------
Total 294,659 156,050
========================================================================
Broker Non Votes 178,374 107,058
========================================================================
Pledges For 278,156 143,507
Against 16,503 12,543
Abstain --- ---
------------------------------------------------
Total 294,659 156,050
========================================================================
Broker Non Votes 178,374 107,058
------------------------------------------------
</TABLE>
48
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A Shares C Shares
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Senior Securities For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
======================================================================
Underwriting For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
======================================================================
Real Estate For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
======================================================================
Commodities For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
======================================================================
Loans For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
======================================================================
Short Sales/Margin Purchases For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
======================================================================
Put and Call Options For 278,156 143,507
Against 16,503 12,543
Abstain -- --
--------------------------------------
Total 294,659 156,050
======================================================================
Broker Non Votes 178,374 107,058
--------------------------------------
</TABLE>
49
<PAGE>
Shareholder Meeting Report
Flagship Florida Intermediate--continued
<TABLE>
<CAPTION>
A Shares C Shares
- ---------------------------------------------------------------
<S> <C> <C> <C>
Industry Concentration For 278,156 143,507
Against 16,503 12,543
Abstain -- --
-------------------------------------
Total 294,659 156,050
===============================================================
Broker Non Votes 178,374 107,058
===============================================================
Affiliate Purchases For 278,156 143,507
Against 16,503 12,543
Abstain -- --
-------------------------------------
Total 294,659 156,050
===============================================================
Broker Non Votes 178,374 107,058
===============================================================
Investment Companies For 278,156 143,507
Against 16,503 12,543
Abstain -- --
-------------------------------------
Total 294,659 156,050
===============================================================
Broker Non Votes 178,374 107,058
===============================================================
12b-1 Fees For 406,364 246,021
Against 19,758 --
Abstain 43,403 9,545
-------------------------------------
Total 469,525 255,566
===============================================================
Broker Non Votes 3,508 7,542
-------------------------------------
</TABLE>
50
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Directors A Shares C Shares
========================================================================
<S> <C> <C> <C>
Bremner For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Brown For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Dean For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Impellizzeri For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Rosenheim For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Sawers For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Schneider For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
========================================================================
Schwertfeger For 473,033 263,108
Withhold --- ---
------------------------------------------------
Total 473,033 263,108
------------------------------------------------
</TABLE>
51
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed
to help you reach your financial goals.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
52
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
53
<PAGE>
Serving Investors
for Generations
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
John Nuveen, Sr.
[PHOTO OF JOHN NUVEEN, SR.
APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Arizona
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Arizona Overview
9 Financial Section
33 Shareholder Meeting Report
34 Shareholder Information
35 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Dear Shareholder
It's a pleasure to report to you on the performance of the Nuveen Flagship
Arizona Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 7.85%
for Class A shares, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) kept close pace with the 8.28% increase produced by the
Lehman Brothers Municipal Bond Index, which is used to represent the broad
municipal bond market on an unmanaged basis.
In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds, which
provide excellent income for investors. As of May 31, 1997, shareholders were
receiving tax-free yields on net asset value of 4.58% for Class A shares. To
match this yield, investors in the 34.5% combined federal and state income tax
bracket would have had to earn at least 6.99% on taxable alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising short-term interest rates by 0.25%,
but then maintained the status quo at its May and July meetings. Overall market
returns continue to be good, but fear of inflation has hampered the performance
of municipals and led to increased volatility in both the equity and bond
markets.
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
During this time, bonds have often been the bellwether for the direction of
stocks. Whenever inflation talk is at its most rampant, the stock market has
kept an eye on the bond market for its response before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation--as well as attractive yields--have sparked increased interest in
tax-free investments. The current level of the stock market reminds investors to
re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
Answering Your Questions
What are the investment objectives of the fund?
The fund aims to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the fund's after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
What is your strategy for meeting these objectives?
To meet this fund's objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
What key economic factors affected
the fund's performance during the year?
The U.S. economy continued to grow, exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels. The fund had the added advantage of operating in a
healthy supply environment, where securities were available as needed.
3
<PAGE>
"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates."
Given this market environment, how did the fund perform?
The Arizona Municipal Bond Fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 7.85% for Class
A shares, including price changes and reinvested dividends. Additionally, the
fund was ranked among the top third of 33 Arizona municipal bond funds for the
one-year period by Lipper Analytical Services, a nationally recognized
performance measurement service.
What strategies did you employ to add value?
As the spread between yields on higher and lower quality bonds continued to
narrow during the year, we were able to enhance the credit quality of the fund
without sacrificing yield. As always, we also focused on finding value in the
marketplace with attractively priced high-quality bonds. One example of our
success in value investing is the recent purchase of a number of zero-coupon
Arizona school bonds. Because the market did not favor zero-coupon bonds at the
time, we were able to purchase high-quality bonds at a good value for the fund.
What is the current status of Arizona's municipal market?
Arizona has experienced phenomenal economic and population growth over the last
several years. This growth has strained the infrastructure and prompted
increased bond financing by cities, counties and school districts. The volume of
new issues for the state was up 25% in the first quarter of 1997, and additional
volume growth is expected. Overall, strong demand has welcomed the recent supply
of higher education and school district bonds. Based on the projected strong
economic growth of the state, especially in the Mesa-Phoenix metro area, the
overall supply of bonds should increase to help meet the demand of hungry
Arizona municipal investors.
4
<PAGE>
What is the current outlook for the municipal market
as a whole?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Although structural changes in the
economy appear to have suspended the relationship between faster growth and
higher inflation, the risk remains that inflation may reassert itself if
capacity constraints are reached and resources are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market should continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation, and many
are rebalancing their portfolios by shifting some assets into bonds.
5
<PAGE>
Arizona
Overview
Credit Quality
[PIE CHART APPEARS HERE]
BBB/NR 11%
A 10%
AA 7%
AAA/
Pre-refunded 72%
Diversification
[PIE CHART APPEARS HERE]
Housing Facilities 5%
Municipal Appropriations 3%
Other 13%
Pollution Control 4%
General Obligations 29%
Educational Facilities 3%
Hospitals 11%
Excrowed Bonds 25%
Water & Sewer 7%
<TABLE>
<CAPTION>
Fund Highlights
==================================================================================
<S> <C> <C> <C> <C> <C>
Share Class A B C R
Inception Date 10/86 2/97 2/94 2/97
- ----------------------------------------------------------------------------------
Net Asset Value (NAV) $10.94 $10.94 $10.94 $ 10.94
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Total Net Assets ($000) $105,135
- ----------------------------------------------------------------------------------
Average Weighted Maturity (years) 15.27
- ----------------------------------------------------------------------------------
Duration (years) 8.06
- ----------------------------------------------------------------------------------
Annualized Total Return/1/
==================================================================================
Share Class A(NAV) A(Offer) B C R
1-Year 7.85% 3.32% 7.20% 7.28% 7.93%
- ----------------------------------------------------------------------------------
5-Year 7.40% 6.48% 6.80% 6.81% 7.41%
- ----------------------------------------------------------------------------------
10-Year 8.32% 7.86% 7.85% 7.73% 8.33%
- ----------------------------------------------------------------------------------
Tax-Free Yields
==================================================================================
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.07% 4.85% 4.32% 4.52% 5.27%
- ----------------------------------------------------------------------------------
SEC 30-Day Yld 4.58% 4.38% 3.83% 4.03% 4.78%
- ----------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 6.99% 6.69% 5.85% 6.15% 7.30%
- ----------------------------------------------------------------------------------
</TABLE>
1 Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class C
shares have a 1% CDSC for redemptions within one year. Returns do not reflect
imposition of the CDSC. Giving effect to the CDSC applicable to Class B
shares, the 1-year, 5-year, and 10-year total returns above would be 3.20%,
6.65%, and 7.85%, respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 34.5%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship Arizona Municipal Bond Fund
May 31, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A Shares (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Arizona Nuveen Flagship Arizona
Lehman Brothers Municipal Bond Fund Municipal Bond Fund
Municipal Bond Index (NAV) (Offer)
<S> <C> <C>
May 1987 10000 10000 9580
May 1988 10898.1 10744.8 10132.3
May 1989 12150.6 12253.3 11554.9
May 1990 13039.7 12930.6 12193.6
May 1991 14353.9 14118.8 13314
May 1992 15764.1 15565.7 14678.4
May 1993 17650 17645.1 16639.3
May 1994 18085.8 17983.7 16958.6
May 1995 19732.8 19788 18660.1
May 1996 20634.7 20621.8 19446.3
May 1997 22534.8 22241.5 20973.7
</TABLE>
- -- Lehman Brothers Municipal Bond Index $22,535
- -- Nuveen Flagship Arizona Municipal Bond Fund (NAV) $22,241
- -- Nuveen Flagship Arizona Municipal Bond Fund (Offer) $21,307
Past performance is not predicitive of turure performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Dividend History Capital
(A Shares) Gains
<S> <C> <C>
1996
June 0.04541
July 0.04692
August 0.04692
September 0.04541
October 0.04692
November 0.04541
December 0.04692 0.0457
1997
January 0.04926 0.01135
February 0.0462
March 0.0462
April 0.0462
May 0.0462
</TABLE>
- -- Capital Gains
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
20 Statement of Net Assets
21 Statement of Operations
22 Statement of Changes in Net Assets
23 Notes to Financial Statements
30 Financial Highlights
32 Independent Auditors' Report
9
<PAGE>
<TABLE>
Portfolio of Investments
Nuveen Flagship Arizona
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education -- 2.9%
$ 500,000 Arizona State University, Resh Park Development, 7/06 at 100 AAA $ 465,250
Revenue Refunding, 5.000%, 7/01/21
500,000 Glendale Arizona, Industrial Development Authority, 5/06 at 102 AAA 511,470
Midwestern University, Series A, 6.000%, 5/15/16
1,370,000 University of Arizona, Foundation Lease Revenue, 7/97 at 102 AAA 1,401,894
7.750%, 7/01/07
300,000 University of Arizona, University Revenue Refunding 6/02 at 102 AA 319,935
System, 6.250%, 6/01/11
335,000 Yavapai County, Arizona, Community College District 7/03 at 101 A- 345,687
Revenue, 6.000%, 7/01/12
- --------------------------------------------------------------------------------------------------------------------
Escrowed to Maturity -- 10.7%
380,000 Maricopa County, Arizona, Hospital Revenue, No Opt. Call AAA 464,694
St. Lukes Hospital Medical Center Project,
8.750%, 2/01/10
17,300,000 Maricopa County, Arizona, Industrial Development No Opt. Call AAA 5,906,393
Authority, Single Family Mortgage Revenue,
Capital Appreciation and Accrual,
0.000%, 2/01/16
500,000 Phoenix, Arizona, Street and Highway User Revenue, 7/02 at 102 AA 541,520
Senior Lien, 6.250%, 7/01/11
11,570,000 Tucson and Pima County, Arizona, Industrial No Opt. Call AAA 4,296,982
Development Authorities, Single Family Mortgage
Revenue, Series 1983A, 0.000%, 12/01/14
- --------------------------------------------------------------------------------------------------------------------
Health Care -- 1.7%
1,670,000 Cochise County, Arizona, Industrial Development 5/04 at 102 AAA 1,817,027
Authority, Mortgage Revenue Refunding, Sierra
Vista Care Center, Series A, 6.750%, 11/20/19
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- 8.8%
1,250,000 Arizona, Health Facilities Authority, Arizona 10/99 at 101 AAA 1,329,850
Volunteer Hospital, Series B, 7.250%, 10/01/13
2,775,000 Maricopa County, Arizona, Industrial Development No Opt. Call AAA 3,278,385
Authority, Hospital Facility Revenue Refunding,
Samaritan Health Services, Series A,
7.000%, 12/01/16
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hospitals -- continued
$ 375,000 Maricopa County, Arizona, Industrial Development 12/00 at 102 AAA $ 411,281
Authority, Hospital Facility Revenue,
7.500%, 12/01/13
600,000 Maricopa County, Arizona, Industrial Development 9/05 at 101 AAA 587,052
Authority, Revenue Refunding, Baptist Hospital
System, 5.500%, 9/01/16
Phoenix, Arizona, Industrial Development Authority,
Hospital Revenue, John C. Lincoln Hospital and
Health:
500,000 6.000%, 12/01/10 12/03 at 102 BBB+ 504,575
500,000 6.000%, 12/01/14 12/03 at 102 BBB+ 498,285
Pima County, Arizona, Industrial Development
Authority, Health Care Corporation Revenue Refunding,
Carondelet Health Care Corporation:
500,000 5.250%, 7/01/12 No Opt. Call AAA 495,610
640,000 5.250%, 7/01/13 No Opt. Call AAA 630,746
1,500,000 Scottsdale, Arizona, Industrial Development No Opt. Call AAA 1,523,910
Authority, Hospital Revenue, Scottsdale Memorial
Hospitals, 5.500%, 9/01/12
- --------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- 2.9%
1,000,000 Maricopa County, Arizona, Industrial Development 1/07 at 102 AAA 1,008,180
Authority, Multi-Family Mortgage Revenue,
Tempe Grove Apartments Project,
Series A, 6.150%, 7/20/28
295,000 Phoenix, Arizona, Housing Finance Corporation, 7/02 at 101 AAA 304,529
Mortgage Revenue, Project A,
6.500%, 7/01/24
Phoenix, Arizona, Industrial Development Authority,
Mortgage Revenue Refunding, Chris Ridge
Village Project:
200,000 6.750%, 11/01/12 11/02 at 101 AAA 210,850
425,000 6.800%, 11/01/25 11/02 at 101 AAA 442,791
500,000 Phoenix, Arizona, Industrial Development Authority, 2/03 at 102 Aaa 498,515
Multi-family Housing, Revenue Refunding, Meadow
Glen Apartments, Series A, 5.800%, 8/20/28
500,000 Tempe, Arizona, Industrial Development Authority, 6/03 at 102 AAA 509,760
Multi-family Mortgage Revenue Refunding,
Quadrangles Village Apartments,
Series A, 6.250%, 6/01/26
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona-continued
<TABLE>
<CAPTION>
Prinicpal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family -- 1.8%
$ 485,000 Phoenix, Arizona, Industrial Development Authority, 6/05 at 102 AAA $ 493,512
Single Family Mortgage Revenue,
6.150%, 12/01/08
420,000 Pima County, Arizona, Industrial Development 8/05 at 102 A 436,094
Authority, Single Family Mortgage Revenue
Refunding, Series A, 6.500%, 2/01/17
1,000,000 Pima County, Arizona, Industrial Development 5/07 at 102 AAA 1,011,670
Authority, Single Family Mortgage Revenue,
Series A, 6.250%, 11/01/30
- --------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 4.4%
250,000 Casa Grande, Arizona, Industrial Development 12/02 at 103 A1 270,013
Authority, Industrial Development Revenue,
Frito-Lay/Pepsico, 6.650%, 12/01/14
2,000,000 Coconino County, Arizona, Pollution Control 10/06 at 102 BBB- 2,013,740
Corporation Revenue, Pollution Control, Nevada
Power Company Project, 6.375%, 10/01/36
1,000,000 Mesa, Arizona, Industrial Development Authority, No Opt. Call N/R 1,057,550
Industrial Revenue, TRW Vehicle Safety
System Inc. Project, 7.250%, 10/15/04
500,000 Mohave County, Arizona, Industrial Development 2/00 at 101 AA+ 523,800
Authority, Industrial Development Revenue,
Citizens Utilities Company Projects,
Series B, 7.150%, 2/01/26
500,000 Mohave County, Arizona, Industrial Development 11/03 at 101 A-1+ 522,740
Authority, Industrial Development Revenue,
Citizens Utilities Company Project,
6.600%, 5/01/29
240,000 Pima County, Arizona, Industrial Development 1/02 at 103 AAA 265,601
Authority, Industrial Revenue Refunding, Lease
Obligation, Series A, Irvington Project Tucson
Electric Power Company, 7.250%, 7/15/10
- --------------------------------------------------------------------------------------------------------------------
Municipal Appropriation Obligations -- 3.1%
700,000 Apache County, Arizona, Public Finance Corporation, 5/00 at 102 A 707,385
Certificates of Participation, 5.500%, 5/01/10
250,000 Arizona State, Certificates of Participation, 9/02 at 102 AAA 266,975
Series B, 6.250%, 9/01/10
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Appropriation Obligations -- continued
$ 225,000 Arizona State Municipal Financing Program, No Opt. Call AAA $ 296,822
Certificates of Participation, Series 11,
8.000%, 8/01/17
280,000 Eloy, Arizona, Municipal Property Corporation, 7/02 at 101 BBB 300,714
Municipal Facilities, Revenue Refunding,
7.000%, 7/01/11
Pinal County, Arizona, Certificates of Participation:
300,000 6.375%, 6/01/06 6/02 at 100 AA 320,334
200,000 6.500%, 6/01/09 6/02 at 100 AA 214,650
850,000 Tucson, Arizona, Certificates of Participation, 7/04 at 100 AA 905,930
6.375%, 7/01/09
250,000 Tucson, Arizona, Local Development, Business 7/02 at 102 AAA 265,303
Development Finance Corporation, Lease Revenue
Refunding, 6.250%, 7/01/12
- -------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Transportation -- 1.8%
500,000 Phoenix, Arizona, Airport Revenue, 7/04 at 102 AAA 537,920
Series D, 6.400%, 7/01/12
250,000 Phoenix, Arizona, Civic Improvement Corporation, 7/97 at 102 AA+ 255,763
Airport Terminal Excise Tax Revenue,
7.800%, 7/01/11
500,000 Tucson, Arizona, Airport Authority Inc., Series B, 6/00 at 102 AAA 538,855
7.125%, 6/01/15
575,000 Tucson, Arizona, Airport Authority Inc., Revenue 6/03 at 102 AAA 584,183
Refunding, 5.700%, 6/01/13
- -------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 3.8%
500,000 Central Arizona Water Conservation District, Contract No Opt. Call AA- 509,250
Revenue Refunding, Central Arizona Project,
Series A, 5.500%, 11/01/10
5,000 Central Arizona Water Conservation District Contract 5/01 at 102 AA- 5,375
Revenue, Central Arizona Project, Series B,
6.500%, 11/01/11
3,000,000 Guam Power Authority Revenue, Series A, 10/03 at 102 BBB 2,665,800
5.250%, 10/01/23
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Utility - continued
$ 280,000 Salt River Project, Arizona Agricultural Improvement 8/97 at 100 AA $ 279,986
and Power District, Electric System Revenue,
Series C, 5.750%, 1/01/20
500,000 Salt River Project, Arizona Agricultural Improvement No Opt. Call AA 524,435
and Power District, Electric System Revenue,
Series A, 5.750%, 1/01/10
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer 7.0%
175,000 Arizona State Wastewater Management Authority, 7/02 at 102 AAA 181,419
Wastewater Treatment Financial Assistance
Revenue, Series A, 5.950%, 7/01/12
250,000 Arizona State Wastewater Management Authority, 7/05 at 102 AAA 255,845
Wastewater Treatment Financial Assistance,
Revenue Refunding, 5.750%, 7/01/15
1,750,000 Chandler, Arizona, Water and Sewer Revenue 7/01 at 101 AAA 1,893,973
Refunding, 6.750%, 7/01/06
Cottonwood, Arizona, Sewer Revenue Refunding:
500,000 6.900%, 7/01/03 7/02 at 101 BBB- 542,080
100,000 7.000%, 7/01/06 7/02 at 101 BBB- 108,137
100,000 7.000%, 7/01/07 7/02 at 101 BBB- 107,674
1,000,000 Phoenix, Arizona, Civic Improvement Corporation, 7/04 at 102 Aa3 916,410
Wastewater System, Lease Revenue Refunding,
5.000%, 7/01/18
1,000,000 Phoenix, Arizona, Civic Improvement Corporation, 7/06 at 100 Aa 996,880
Water System Revenue, Junior Lien,
5.600%, 7/01/18
540,000 Pima County, Arizona, Sewer Revenue Refunding, 7/01 at 101 AAA 580,262
6.750%, 7/01/15
800,000 Sedona, Arizona, Sewer Revenue Refunding, 7/04 at 101 BBB 863,560
7.000%, 7/01/12
500,000 Tucson, Arizona, Water Revenue Refunding, 7/01 at 102 A+ 541,235
6.700%, 7/01/12
390,000 Tucson, Arizona, Water Revenue, Series 1994, 7/06 at 101 AAA 406,169
Series A, 6.000%, 7/01/21
- --------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 28.5%
800,000 Chandler, Arizona, Refunding, 7.000%, 7/01/12 7/01 at 101 AAA 866,968
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-State General Obligations -- continued
Cochise County, Arizona, Unit School District
Number 68, Sierra Vista Formerly Cochise County,
Arizona:
$ 250,000 7.500%, 7/01/09 No Opt. Call AAA $ 301,855
300,000 7.500%, 7/01/10 No Opt. Call AAA 362,658
Coconino and Yavapai Counties, Arizona, Joint Unit
School District Number 9, Sedona Oak Creek,
Series A:
250,000 6.700%, 7/01/06 7/01 at 101 A- 268,280
250,000 6.750%, 7/01/07 7/01 at 101 A- 268,738
375,000 Maricopa County, Arizona, Rural Road Improvement 7/99 at 101 N/R 390,383
District, 6.900%, 7/01/05
300,000 Maricopa County, Arizona, Hospital District Number 1, 6/04 at 101 AAA 318,663
Series B, 6.250%, 6/01/10
1,000,000 Maricopa County, Arizona, Hospital District Number 1, 6/06 at 101 A 1,043,310
6.500%, 6/01/17
750,000 Maricopa County, Arizona, School District 7/01 at 101 AAA 796,890
Number 11 Peoria Unit, 6.400%, 7/01/10
675,000 Maricopa County, Arizona, School District No Opt. Call AAA 426,769
Number 11 Peoria Unit, Second Series,
0.000%, 7/01/06
4,000,000 Maricopa County, Arizona, School District No Opt. Call AAA 2,392,760
Number 28, Kyrene Elementary, Series C,
0.000%, 7/01/07
Maricopa County, Arizona, School District
Number 28, Kyrene Elementary:
1,870,000 0.000%, 1/01/09 No Opt. Call AAA 1,013,185
3,805,000 0.000%, 1/01/10 No Opt. Call AAA 1,936,288
6,000,000 0.000%, 1/01/11 No Opt. Call AAA 2,874,660
50,000 Maricopa County, Arizona, School District 7/02 at 100 AAA 51,506
Number 28, Kyrene Elementary, Series E,
6.000%, 7/01/12
Maricopa County, Arizona, School District
Number 40, Glendale Improvement:
500,000 6.200%, 7/01/09 7/05 at 101 AAA 538,170
2,500,000 6.250%, 7/01/10 7/05 at 101 AAA 2,683,575
1,750,000 6.300%, 7/01/11 7/05 at 101 AAA 1,874,653
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-State General Obligations - continued
Maricopa County, Arizona, Unit School District
Number 41, Gilbert, Refunding:
$2,000,000 0.000%, 1/01/06 No Opt. Call AAA $1,296,820
500,000 6.250%, 7/01/15 7/08 at 100 AAA 532,285
515,000 Maricopa County, Arizona, Elementary School 7/04 at 102 AAA 567,808
District 68, Alhambra, Series A, 6.750%, 7/01/14
500,000 Maricopa County, Arizona, Chandler Unit School No Opt. Call AAA 550,100
District Number 80, 6.250%, 7/01/11
1,275,000 Maricopa County, Arizona, School District Number 98, No Opt. Call AAA 806,119
Fountain Hills Unit, 0.000%, 7/01/06
Navajo County, Arizona, Unit School District
Number 2 Joseph City, Formerly Navajo County
Arizona School, Series A:
125,000 6.800%, 7/01/01 No Opt. Call N/R 133,016
375,000 6.800%, 7/01/02 No Opt. Call N/R 401,629
635,000 Navajo County, Arizona, Unit School District 7/06 at 101 AAA 653,872
District Number 32, Blue Ridge, Formerly
Navajo County, Arizona, Projects Of 1994,
School Improvement, 5.800%, 7/01/14
1,000,000 Pima County, Arizona, Unit School District No Opt. Call AAA 1,208,860
Number 1, Tucson, 7.500%, 7/01/10
300,000 Pima County, Arizona, Unit School District Number 1, 7/02 at 102 AAA 313,737
Tucson, School Improvement Series D.
6.100%, 7/01/12
500,000 Pima County, Arizona, Unit School District Number 13, 7/04 at 102 AAA 553,575
Tanque Verde, Refunding and Improvement,
6.700%, 7/01/10
315,000 Scottsdale Mountain Community, Facilities 7/03 at 102 A 329,115
District, Series A, 6.200%, 7/01/17
1,925,000 Tatum Ranch, Arizona, Community Facilities 7/02 at 102 A 2,086,662
District, Series A, 6.875%, 7/01/16
225,000 Tempe, Arizona, Series B, 6.000%, 7/01/08 7/02 at 101 AA+ 236,610
600,000 Tempe, Arizona, Unit High School District Number 213, 7/04 at 101 AAA 628,110
Refunding and Improvement, 6.000%, 7/01/12
500,000 Tucson, Arizona, Series 1984, Series G, 7/04 at 101 AAA 527,395
6.250%, 7/01/18
675,000 Yuma County, Arizona, Unit High School District 7/02 at 101 AAA 705,692
Number 70, Yuma, 5.700%, 7/01/06
</TABLE>
16
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Pre-refunded -- 13.8%***
<S> <C> <C> <C> <C>
$ 300,000 Arizona Health Facilities Authority, Hospital System 9/03 at 100 AAA $ 320,403
Revenue Refunding, Phoenix Baptist Hospital and
Medical, 6.250%, 9/01/11
200,000 Arizona State Municipal Financing Program, Certificates Opt. No Call AAA 242,108
of Participation, Series 20, 7.700%, 8/01/10
500,000 Arizona State Transportation Board, Highway Revenue, 7/00 at 101 AAA 541,405
7.000%, 7/01/09
300,000 Arizona State University Revenue System, 7/02 at 101 Aaa 334,902
7.000%, 7/01/15
1,195,000 Central Arizona Water Conservation District, Contract 5/01 at 102 AA- 1,298,451
Revenue, Central Arizona Project, Series B,
6.500%, 11/01/11
375,000 Maricopa County, Arizona, Industrial Development 12/00 at 102 AAA 418,343
Authority, Hospital Facility Revenue,
7.500%, 12/01/13
1,250,000 Maricopa County, Arizona, Industrial Development 12/00 at 102 AAA 1,344,250
Authority, Mercy Health System Revenue, Series B,
7.150%, 7/01/12
265,000 Maricopa County, Arizona, School District Number 28, 7/02 at 100 AAA 281,828
Kyrene Elementary, Series E, 6.000%, 7/01/12
Maricopa County, Arizona, School District Number 214,
Tolleson Unit High, Series B:
575,000 6.500%, 7/01/09 7/00 at 100 AAA 616,469
300,000 6.500%, 7/01/10 7/00 at 101 AAA 321,636
1,250,000 Northern Arizona University Revenue, 6/99 at 100 Aaa 1,328,325
7.500%, 6/01/08
700,000 Peoria, Arizona, Municipal Development Authority Inc., 7/99 at 102 AAA 751,051
Municipal Facilities Revenue, 7.000%, 7/01/10
400,000 Phoenix, Arizona, Civic Improvement Corporation, 7/03 at 102 AAA 436,436
Wastewater System Lease Revenue, 6.125%, 7/01/23
650,000 Pima County, Arizona, Unit School District Number 1, 7/00 at 101 A 706,947
Tucson, Series B, 7.200%, 7/01/09
460,000 Pima County, Arizona, Sewer Revenue Refunding, 7/01 at 101 AAA 501,961
6.750%, 7/01/15
1,500,000 Price, Elliott Resh Park Inc., Arizona Revenue Refunding, 7/01 at 102 AAA 1,663,185
Arizona State University, Resh Park,
7.000%, 7/01/21
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Pre-refunded -- continued
Salt River Project, Arizona Agricultural Improvement
and Power District, Electric System Revenue,
Series E:
<S> <C> <C> <C> <C>
$ 100,000 8.250%, 1/01/13 1/98 at 100 AAA $ 102,616
100,000 8.250%, 1/01/28 1/98 at 100 AAA 102,616
1,000,000 Scottsdale, Arizona, Industrial Development Authority, 9/97 at 102 AAA 1,031,610
Hospital Revenue Refunding, Scottsdale Memorial
Hospital, Series A, 8.500%, 9/01/17
2,085,000 University of Arizona, Medical Center Corporation, 7/97 at 102 N/R 2,134,081
Hospital Revenue, 8.100%, 7/01/16
- --------------------------------------------------------------------------------------------------------------------
Special Tax Revenue -- 5.0%
965,000 Bullhead City, Arizona, Special Assessment, Bullhead 1/03 at 103 Baa 981,695
Parkway Improvement District, 6.100%, 1/01/13
550,000 Douglas, Arizona, Municipal Property Corporation, 7/05 at 101 AAA 561,869
Municipal Facilities, Excise Tax Revenue,
5.750%, 7/01/15
385,000 Flagstaff, Arizona, Street and Highway User Revenue, No Opt. Call AAA 409,994
Junior Lien, 5.900%, 7/01/10
Peoria, Arizona, Improvement District, Special
Assessment, North Valley Power Center No. 8801:
425,000 7.300%, 1/01/12 1/03 at 101 BBB 459,901
460,000 7.300%, 1/01/13 1/03 at 101 BBB 497,545
300,000 Phoenix, Arizona, Street and Highway User Revenue 7/02 at 102 A+ 319,149
Refunding, Junior Lien, 6.250%, 7/01/11
2,050,000 Puerto Rico, Commonwealth Highway and 7/16 at 100 A 1,993,769
Transportation Authority, Highway Revenue, Series Y,
5.500%, 7/01/36
- --------------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 0.2%
250,000 Guam Government, Series A, 5.400%, 11/15/18 11/03 at 102 BBB 230,466
- --------------------------------------------------------------------------------------------------------------------
Student Loan Revenue Bonds -- 2.2%
570,000 Arizona Educational Loan Marketing Corporation, 3/02 at 101 A 606,110
Educational Loan Revenue, Series B,
7.000%, 3/01/05
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------
Student Loan Revenue Bonds -- continued
<S> <C> <C> <C> <C>
$ 100,000 Arizona Educational Loan Marketing Corporation, 9/02 at 101 Aa $ 105,185
Educational Loan Revenue, Senior Series B,
6.375%, 9/01/05
1,500,000 Arizona Student Loan Acquisition Authority, Student 5/04 at 102 Aa 1,595,982
Loan Revenue, Senior Series B, 6.600%, 5/01/10
- ----------------------------------------------------------------------------------------------------------------------
$127,100,000 Total Investments (cost $97,173,044) -- 98.6% 103,654,219
- ----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.4% 1,480,454
---------------------------------------------------------------------------------------------
Net Assets -- 100% $105,134,673
---------------------------------------------------------------------------------------------
* Optional Call Provisions (not covered by the report of independent auditors): Dates
(month and year) and prices of the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors): Using the higher of Standard
and Poor's or Moody's rating.
*** Pre-refunded 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. Pre-refunded securities are normally considered to be
equivalent to AAA rated securities.
N/R -- Investment is not rated.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets Nuveen Municipal Bond Fund
May 31, 1997 May 31, 1997 Annual Report
Nuveen Flagship
Arizona
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $103,654,219
Cash 216,942
Receivables:
Interest 1,880,054
Shares sold 98,742
Other assets 4,417
- -----------------------------------------------------------------------------------------------
Total assets 105,854,374
- -----------------------------------------------------------------------------------------------
Liabilities
Payable for Shares redeemed 138,255
Accrued expenses:
Management fees (note 6) 28,296
12b-1 distribution and service fees (notes 1 and 6) 16,255
Other 90,565
Dividends payable 446,330
- -----------------------------------------------------------------------------------------------
Total liabilities 719,701
- -----------------------------------------------------------------------------------------------
Net assets (note 7) $105,134,673
===============================================================================================
Class A Shares (note 1)
Net assets $ 82,566,717
Shares outstanding 7,545,943
Net asset value and redemption price per share $ 10.94
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.42
===============================================================================================
Class B Shares (note 1)
Net assets $ 347,407
Shares outstanding 31,764
Net asset value, offering and redemption price per share $ 10.94
===============================================================================================
Class C Shares (note 1)
Net assets $ 3,189,083
Shares outstanding 291,451
Net asset value, offering and redemption price per share $ 10.94
===============================================================================================
Class R Shares (note 1)
Net assets $ 19,031,466
Shares outstanding 1,739,156
Net asset value, offering and redemption price per share $ 10.94
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended May 31, 1997
Nuveen Flagship
Arizona*
- ----------------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $5,379,767
- ----------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 467,943
12b-1 service fees -- Class A (notes 1 and 6) 270,038
12b-1 distribution and service fees -- Class B (notes 1 and 6) 617
12b-1 distribution and service fees -- Class C (notes 1 and 6) 22,346
Shareholders' servicing agent fees and expenses 73,738
Custodian's fees and expenses 66,064
Trustees' fees and expenses (note 6) 2,389
Professional fees 15,901
Shareholders' reports -- printing and mailing expenses 14,920
Federal and state registration fees 6,062
Other expenses 3,805
- ----------------------------------------------------------------------------------------
Total expenses before reimbursement 943,823
Expense reimbursement (note 6) (190,556)
- ----------------------------------------------------------------------------------------
Net expenses 753,267
- ----------------------------------------------------------------------------------------
Net investment income 4,626,500
- ----------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 344,913
Net change in unrealized appreciation or depreciation of investments 1,724,243
- ----------------------------------------------------------------------------------------
Net gain from investments 2,069,156
- ----------------------------------------------------------------------------------------
Net increase in net assets from operations $6,695,656
========================================================================================
</TABLE>
* Information represents eight months of Flagship Arizona and four months of
Nuveen Flagship Arizona (see note 1 of the Notes to Financial Statements).
See accompanying notes to financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Nuveen Flagship Flagship
Arizona* Arizona
--------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $4,626,500 $ 4,362,788
Net realized gain from investment transactions
(notes 1 and 4) 344,913 317,259
Net change in unrealized appreciation or depreciation
of investments 1,724,243 (1,200,471)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 6,695,656 3,479,576
- ---------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (4,163,497) (4,301,398)
Class B (2,842) N/A
Class C (117,169) (82,198)
Class R (335,301) N/A
From accumulated net realized gains from
investment transactions:
Class A (414,050) --
Class B -- N/A
Class C (12,740) --
Class R -- N/A
- ---------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (5,045,599) (4,383,596)
- ---------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in the
reorganization of Nuveen Arizona (note 1) 25,221,663 --
Net proceeds from shares issued as a capital contribution 33,360 --
Net proceeds from sale of shares 9,311,968 11,832,617
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 2,094,732 1,939,151
- ---------------------------------------------------------------------------------------------------------------
36,661,723 13,771,768
- ---------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (15,241,517) (12,829,723)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 21,420,206 942,045
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets 23,070,263 38,025
Net assets at the beginning of year 82,064,410 82,026,385
- ---------------------------------------------------------------------------------------------------------------
Net assets at the end of year $105,134,673 $82,064,410
- ---------------------------------------------------------------------------------------------------------------
Balance of undistributed net investment income at end of year $ 7,691 $ --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Arizona and four months of
Nuveen Flagship Arizona (see note 1 of the Notes to Financial Statements).
N/A--Flagship Arizona was not authorized to issue Class B or Class R Shares.
22 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Arizona Municipal Bond Fund (the "Fund"), among
others. The Trust was organized as a Massachusetts business trust on July 1,
1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Fund, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Flagship Arizona Double Tax
Exempt Fund ("Flagship Arizona") and Nuveen Arizona Tax-Free Value Fund ("Nuveen
Arizona") reorganized into Nuveen Flagship Arizona Municipal Bond Fund ("Nuveen
Flagship Arizona"). Prior to the reorganization, Flagship Arizona was a sub-
trust of the Flagship Tax Exempt Funds Trust, while Nuveen Arizona was a series
of the Nuveen Multistate Tax Free Trust. Nuveen Arizona had a fiscal year end of
January 31 prior to being reorganized into Nuveen Flagship Arizona which has
retained the fiscal year end of Flagship Arizona.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Fund had no such purchase commitments.
23
<PAGE>
Notes to Financial Statements--continued
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
as required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship Arizona was
declared as a dividend daily and payment was made on the last business day of
each month.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Arizona state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Fund. All
income dividends paid during the fiscal year ended May 31, 1997, have been
designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Effective February 1, 1997, the Fund offers Class A, B, C and R Shares. Class A
Shares are sold with a sales charge and incur an annual 12b-1 service fee. Class
B Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class B Shares agrees to pay a contingent
deferred sales charge ("CDSC") of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class C Shares are sold without a sales charge but incur annual 12b-1
distribution and service fees. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% if Class C Shares are redeemed within 18 months of purchase.
Class R Shares are not subject to any sales charge or 12b-1 distribution or
service fees. Class R Shares are available for purchases of over $1 million and
in other limited circumstances.
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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 fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
25
<PAGE>
Notes to Financial Statements--continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Arizona* Arizona
--------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
--------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in the reorganization
of Nuveen Arizona:
Class A 491,617 $ 5,367,690 - $ -
Class B - - - -
Class C 48,608 530,721 - -
Class R 1,769,783 19,323,252 - -
Shares issued as a
capital contribution:
Class A 764 8,340 - -
Class B 764 8,340 - -
Class C 764 8,340 - -
Class R 764 8,340 - -
Shares sold:
Class A 712,114 7,768,419 987,074 10,720,918
Class B 30,949 339,939 N/A N/A
Class C 86,515 940,835 101,591 1,111,699
Class R 23,885 262,775 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 172,561 1,878,199 174,172 1,897,941
Class B 51 556 N/A N/A
Class C 6,676 72,706 3,779 41,210
Class R 13,166 143,271 N/A N/A
- -----------------------------------------------------------------------------------------------------
3,358,981 36,661,723 1,266,616 13,771,768
- -----------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,294,344) (14,116,042) (1,111,337) (12,066,428)
Class B - - N/A N/A
Class C (34,699) (378,684) (71,245) (763,295)
Class R (68,442) (746,791) N/A N/A
- -----------------------------------------------------------------------------------------------------
(1,397,485) (15,241,517) (1,182,582) (12,829,723)
- -----------------------------------------------------------------------------------------------------
Net increase 1,961,496 $ 21,420,206 84,034 $ 942,045
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Arizona and four months
of Nuveen Flagship Arizona (see note 1).
N/A -- Flagship Arizona was not authorized to issue Class B or Class R Shares.
26
<PAGE>
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
Nuveen Flagship
Arizona
- --------------------------------------------------------------------------------
Dividend per share:
Class A $.0460
Class B .0395
Class C .0410
Class R .0480
- --------------------------------------------------------------------------------
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1997, were as follows:
Nuveen Flagship
Arizona*
- --------------------------------------------------------------------------------
Purchases
Investments in municipal securities $21,768,865
Investments in municipal securities
in the reorganization of Nuveen Arizona 23,499,139
Temporary municipal investments 1,100,000
Sales
Investments in municipal securities 27,766,685
Temporary municipal investments 1,100,000
- --------------------------------------------------------------------------------
* Information represents eight months of Flagship Arizona and four months of
Nuveen Flagship Arizona (see note 1).
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes was the same as the cost for financial reporting purposes for the Fund.
At May 31, 1997, the Fund had unused capital loss carryforwards of $36,219
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $18,529 of the carryover will expire in the year
2002 and $17,690 will expire in the year 2003.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, net unrealized appreciation aggregated $6,481,175 of which
$6,530,057 related to appreciated securities and $48,882 related to depreciated
securities.
27
<PAGE>
Notes to Financial Statements -- continued
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund as follows:
Average daily net asset value Management fee
- --------------------------------------------------------------------------------
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
Prior to the reorganization (see note 1) Flagship Arizona paid a management fee
of .5 of 1%. The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office facilities. The Trust
pays no compensation directly to its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship Resources Inc.)
collected gross sales charges on purchases of Class A Shares of approximately
$144,600 of which approximately $125,000 were paid out as concessions to
authorized dealers. The Distributor and its predecessor also received 12b-1
service fees on Class A Shares, approximately one-half of which was paid to
compensate authorized dealers for providing services to shareholders relating to
their investments.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $51,000 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, and all 12b-1 service and distribution fees on Class C Shares
during the first year following a purchase are retained by the Distributor. The
remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor and its predecessor also collected and retained approximately
$400 of CDSC on share redemptions during the fiscal year ended May 31, 1997.
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
7. Composition of Net Assets
At May 31, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
Nuveen Flagship
Arizona
- --------------------------------------------------------------------------------
Capital paid in $ 98,682,026
Balance of undistributed net investment income 7,691
Accumulated net realized gain (loss) from investment transactions (36,219)
Net unrealized appreciation of investments 6,481,175
- --------------------------------------------------------------------------------
Net assets $105,134,673
================================================================================
29
<PAGE>
Financial Highlights
Selected data for a common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------- ------------------
NUVEEN FLAGSHIP ARIZONA ++ Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income (b) investments income gains period value(a)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (10/86)
1997 $10.73 $.56 $ .27 $(.56) $(.06) $10.94 7.85%
1996 10.85 .57 (.12) (.57) - 10.73 4.21
1995 10.43 .58 .42 (.58) - 10.85 10.03
1994 10.81 .60 (.38) (.60) - 10.43 1.92
1993 10.13 .63 .69 (.64) - 10.81 13.37
1992 9.81 .65 .32 (.65) - 10.13 10.25
1991 9.60 .64 .21 (.64) - 9.81 9.19
1990 9.72 .64 (.12) (.64) - 9.60 5.53
1989 9.12 .64 .60 (.64) - 9.72 14.04
1988 9.12 .64 - (.64) - 9.12 7.45
Class B (2/97)
1997 (c) 10.92 .16 .02 (.16) - 10.94 1.64
Class C (2/94)
1997 10.73 .50 .27 (.50) (.06) 10.94 7.28
1996 10.84 .51 (.11) (.51) - 10.73 3.75
1995 10.43 .52 .41 (.52) - 10.84 9.32
1994 (c) 11.22 .14 (.79) (.14) - 10.43 (16.61)+
Class R (2/97)
1997 (c) 10.92 .19 .02 (.19) - 10.94 1.96
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Arizona.
(a) Total returns are calculated on net asset value without any
sales charge.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
30
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- --------------------------------------------------------------------------------
Ratio of net Ratio of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment (b) ment (b) rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$82,567 1.05% 4.91% .83% 5.13% 25%
80,094 1.07 4.82 .69 5.20 38
80,406 1.20 5.21 .82 5.59 27
82,676 1.09 5.03 .64 5.48 21
72,778 1.11 5.36 .44 6.03 20
51,123 1.20 5.79 .44 6.55 34
38,933 1.25 6.15 .78 6.62 18
32,066 1.25 6.23 .85 6.63 37
29,433 1.27 6.50 .92 6.85 37
33,696 1.17 6.65 .86 6.96 68
347 1.67+ 4.38+ 1.62+ 4.43+ 25
3,189 1.59+ 4.37 1.38+ 4.58+ 25
1,970 1.63 4.24 1.23 4.64 38
1,621 1.75 4.62 1.36 5.01 27
1,122 1.62+ 3.94+ 1.20+ 4.36+ 21
19,031 .73+ 5.32+ .67+ 5.38+ 25
- --------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship Arizona Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Flagship
Arizona Municipal Bond Fund, including the portfolio of investments, as of May
31, 1997, the related statement of operations for the period then ended and the
statement of changes in net assets, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the Fund's custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Flagship
Arizona Municipal Bond Fund at May 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
32
<PAGE>
Shareholder Meeting Report
Flagship Arizona
<TABLE>
<CAPTION>
Directors A Shares C Shares
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bremner For 6,044,382 184,410
Withhold 209,656 906
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Brown For 6,044,382 184,410
Withhold 209,656 906
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Dean For 6,044,382 184,410
Withhold 209,656 906
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Impellizzeri For 6,044,382 183,637
Withhold 209,656 1,679
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Rosenheim For 6,044,381 183,637
Withhold 209,657 1,679
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Sawers For 6,044,382 184,410
Withhold 209,656 906
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Schneider For 6,044,382 184,410
Withhold 209,656 906
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Schwertfeger For 6,044,382 184,410
Withhold 209,656 906
-----------------------------------------------
Total 6,254,038 185,316
- -------------------------------------------------------------------------------
Advisory Agreement For 5,171,787 123,810
Against 198,843 19,796
Abstain 301,693 6,523
-----------------------------------------------
Total 5,672,323 150,129
- -------------------------------------------------------------------------------
Broker Non Votes 581,715 35,187
- -------------------------------------------------------------------------------
12b-1 Plan For 5,114,018 127,093
Against 228,157 16,511
Abstain 330,151 6,523
-----------------------------------------------
Total 5,672,326 150,127
- -------------------------------------------------------------------------------
Broker Non Votes 581,712 35,189
- -------------------------------------------------------------------------------
Reorganization For 4,040,072 81,823
Against 144,276 13,880
Abstain 285,684 6,523
-----------------------------------------------
Total 4,470,032 102,226
- -------------------------------------------------------------------------------
Broker Non Votes 1,784,006 83,090
-----------------------------------------------
</TABLE>
33
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
34
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
35
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
[NUVEEN LOGO]
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Colorado
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Colorado Overview
9 Financial Section
29 Shareholder Meeting Report
32 Shareholder Information
33 Fund Information
<PAGE>
Dear Shareholder
It's a pleasure to report to you on the performance of the Nuveen Flagship
Colorado Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 9.22%
for Class A shares if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) outpaced the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds, which
provide excellent income for investors. As of May 31, 1997, shareholders were
receiving tax-free yields on net asset value of 4.95% for Class A shares. To
match this yield, investors in the 34.5% combined federal and state income tax
bracket would have had to earn at least 7.56% on taxable alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising short-term interest rates by 0.25%,
but then maintained the status quo at its May and July meetings. Overall market
returns continue to be good, but fear of inflation has hampered the performance
of municipals and led to
[PHOTO OF Timothy R. Schwertfeger APPEARS HERE]
1
<PAGE>
"In addition to substantial total returns, shareholders
continue to enjoy very attractive current yields generated by a portfolio
of quality bonds."
increased volatility in both the equity and bond markets. During this time,
bonds have often been the bellwether for the direction of stocks. Whenever
inflation talk is at its most rampant, the stock market has kept an eye on the
bond market for its response before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation--as well as attractive yields--have sparked increased interest in
tax-free investments. The current level of the stock market reminds investors
to re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based
portfolio management team, talks about the
municipal bond market and offers insights
into factors that affected fund performance
over the past year.
Answering Your Questions
What are the investment objectives of the fund?
The fund aims to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the fundOs after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
What is your strategy for meeting these objectives?
To meet this fund's objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
What key economic factors affected
the fund's performance during the year?
The U.S. economy continued to grow, exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels. The fund had the added advantage of operating in a
healthy supply environment, where securities were available as needed.
3
<PAGE>
"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates."
Given this market environment, how did the fund perform?
The Colorado Municipal Bond Fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 9.22% for Class
A shares, including price changes and reinvested dividends. Additionally, the
fund was ranked number one among 20 Colorado municipal bond funds for the one-
year period by Lipper Analytical Services, a nationally recognized performance
measurement service.
What strategies did you employ to add value?
As the spread between yields on higher and lower quality bonds continued to
narrow during the year, the fund was able to enhance credit quality without
sacrificing yield. As always, we focused on finding value in the marketplace
with attractively priced high-quality bonds. For example, we purchased a number
of zero-coupon bonds at a time when the market as a whole did not respond
favorably to zero-coupon issues. The fund has since been rewarded with solid
gains from these bonds, which proved to be a good value for the fund.
What is the current status of Colorado's
municipal market?
Strong demand for tax-exempt investments continues in Colorado. The state has
continued its economic recovery from the recession in the mid 1980s. As the
growth rates decline to a manageable level, the state will have the ability to
balance the level of infrastructure with the demands resulting from the
significant growth in population. The growth is also diversifying the economy,
primarily by increasing jobs in the services, trade, construction and high
technology sectors, which more than offset the jobs lost due to the closure of
some military bases. The improved economy is providing additional revenue to the
state that will fund capital improvements and maintenance, as well as additional
resources for education.
4
<PAGE>
What is the current outlook for the municipal market as a whole?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Whatever the cause, inflation has not
ignited. Although structural changes in the economy appear to have suspended the
relationship between faster growth and higher inflation, the risk remains that
inflation may reassert itself if capacity constraints are reached and resources
are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market should continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation, and many
are rebalancing their portfolios by shifting some assets into bonds.
5
<PAGE>
Colorado
Overview
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 58%
AA 12%
A 5%
BBB/NR 26%
DIVERSIFICATION
[PIE CHART APPEARS HERE]
Hospitals 4%
Housing Facilities 16%
Escrowed Bonds 44%
Tax Revenue 3%
Transportation 11%
General Obligations 8%
Other 14%
<TABLE>
<CAPTION>
Fund Highlights
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share Class A B C R
Inception Date 5/87 2/97 2/97 2/97
- ------------------------------------------------------------------------------------------
Net Asset Value (NAV) $10.15 $10.16 $10.15 $ 10.16
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Total Net Assets ($000) $32,188
- ------------------------------------------------------------------------------------------
Average Weighted Maturity (years) 17.07
- ------------------------------------------------------------------------------------------
Average Weighted Duration (years) 9.68
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
1-Year 9.22% 4.63% 8.67% 8.77% 9.38%
- ------------------------------------------------------------------------------------------
5-Year 7.40% 6.48% 6.82% 7.01% 7.43%
- ------------------------------------------------------------------------------------------
10-Year 7.57% 7.11% 7.10% 7.20% 7.59%
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.14% 4.93% 4.39% 4.60% 5.34%
- ------------------------------------------------------------------------------------------
SEC 30-Day Yld 4.95% 4.74% 4.20% 4.40% 5.15%
- ------------------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.56% 7.24% 6.41% 6.72% 7.86%
- ------------------------------------------------------------------------------------------
</TABLE>
/1/ Return of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class
C shares have a 1% CDSC for redemptions within one year. Returns above do
not reflect imposition of the CDSC. Giving effect to the CDSC applicable to
Class B shares, the 1-year, 5-year, and 10-year total returns above would
be 4.67%, 6.67%, and 7.10%, respectively.
/2/ Based on SEC yield and a combined federal and state income tax rate of
34.5%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship Colorado Municipal Bond Fund
May 31, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A Shares (4.20%) and all ongoing
fund expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Nuveen Flagship Nuveen Flagship
Municipal Bond Colorado Municipal Colorado Municipal
Index Bond Fund (NAV) Bond Fund (Offer)
<S> <C> <C> <C>
May 1987 10000 10000 9580
May 1988 10898.1 10212.8 9783.85
May 1989 12150.6 11522.8 11038.8
May 1990 13039.7 12167.2 11656.2
May 1991 14353.9 13231.8 12676.1
May 1992 15764.1 14525.3 13915.2
May 1993 17650 16325.7 15640.1
May 1994 18085.8 16656.8 15957.2
May 1995 19732.8 18246.4 17480.1
May 1996 20634.7 19001.4 18203.4
May 1997 22534.8 20752.7 19881.1
<C>
-- Lehman Brothers Municipal Bond Index $22,535
-- Nuveen Flagship Colorado Municipal Bond Fund (NAV) $20,752
-- Nuveen Flagship Colorado Municipal Bond Fund (Offer) $19,881
</TABLE>
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
June 1996 0.04279
July 1996 0.04421
Aug. 1996 0.04421
Sept. 1996 0.04279
Oct. 1996 0.04421
Nov. 1996 0.04279
Dec. 1996 0.04421
Jan. 1997 0.04433
Feb. 1997 0.0435
Mar. 1997 0.0435
Apr. 1997 0.0435
May 1997 0.0435
</TABLE>
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
15 Statement of Net Assets
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Notes to Financial Statements
25 Financial Highlights
28 Independent Auditors' Report
9
<PAGE>
Portfolio of Investments
Nuveen Flagship Colorado
<TABLE>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Escrowed to Maturity -- 31.3%
$1,000,000 Adams County, Colorado, Multi County, Single Family No Opt. Call Aaa $ 341,160
Mortgage Revenue, Series 1985 A,
0.000%, 6/01/16
6,500,000 Arapahoe County, Colorado, Single Family Mortgage No Opt. Call AAA 3,191,500
Revenue, 1984 Series A, 0.000%, 9/01/10
7,500,000 Colorado, Health Facilities Authority, Retirement No Opt. Call AAA 1,157,175
Facilities Revenue, Liberty Heights, Series B,
0.000%, 7/15/24
900,000 Colorado Springs, Colorado, Utilities Revenue, No Opt. Call AAA 973,899
Utility Improvement, Series B, 6.600%, 11/15/18
3,000,000 El Paso County, Colorado, Single Family Mortgage No Opt. Call AAA 1,078,770
Revenue, Series A 1985, 0.000%, 5/01/15
4,300,000 El Paso County, Colorado, Single Family Mortgage No Opt. Call AAA 1,517,083
Revenue, Series 1984 A, 0.000%, 9/01/15
4,000,000 Mesa County, Colorado, Residual Revenue Refunding, No Opt. Call Aaa 1,823,640
0.000%, 12/01/11
- --------------------------------------------------------------------------------------------------------------------
Health Care -- 3.1%
1,000,000 Colorado, Health Facilities Authority, Revenue 1/07 at 101 N/R 1,003,840
Refunding, First Mortgage, Christian Living,
Series A, 7.050%, 1/01/19
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- 0.8%
250,000 Pueblo County, Colorado, Hospital Facility Revenue, 9/01 at 101 AAA 270,095
Refunding, Series A, Parkview Episcopal,
7.000%, 9/01/09
- --------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- 9.9%
100,000 Aurora, Colorado, Multifamily Revenue, Dayton 7/98 at 103 AAA 105,109
Project, Series A, 8.250%, 1/20/29
1,500,000 Colorado, Housing Finance Authority, 10/06 at 102 AA 1,534,080
Multifamily Housing Insured Mortgage, Series C,
Issue 3, 6.250%, 10/01/38
500,000 Colorado, Housing Finance Authority, 4/05 at 102 AA 523,075
Multifamily Housing, Insured Mortgage, Series A,
6.650%, 10/01/28
1,000,000 Lakewood, Colorado, Multifamily Housing Revenue, 10/05 at 102 AAA 1,040,050
Mortgage, FHA Insured Mortgage Loan,
6.650%, 10/01/25
</TABLE>
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family--5.2%
$ 120,000 Colorado, Housing Finance Authority, Single Family 9/97 at 102 Aa1 $ 123,068
Residential Housing Revenue, Series A,
8.125%, 9/01/17
300,000 Colorado, Housing Finance Authority, Single Family 8/01 at 102 AA 314,679
Senior, Series C, Issue 2, 7.375%, 8/01/23
850,000 Colorado Housing Finance Authority, Single Family 8/01 at 102 Aa1 475,405
Housing, Series A, 0.000%, 11/01/06
170,000 Commerce City, Colorado, Single Family Mortgage, 3/02 at101 A 176,273
Revenue Refunding, Series A, 6.875%, 3/01/12
130,000 Pueblo County, Colorado, Single Family Mortgage 6/02 at 102 AA- 134,667
Revenue, Series A, 6.850%, 12/01/25
440,000 Pueblo County, Colorado, Single Family Mortgage, 11/04 at 102 AAA 463,144
Revenue Refunding, Mortgage-Backed Securities,
Series A, 7.050%,11/01/27
- --------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control--1.6%
500,000 Denver, Colorado,City and County Special Facilities, 10/02 at 102 Baa3 524,395
Airport Revenue, United Air Lines Project, Series A,
6.875%, 10/01/32
- --------------------------------------------------------------------------------------------------------------------
Municipal Appropriation Obligations--2.3%
500,000 El Paso County, Colorado, School District 12/01 at 101 AAA 543,250
Number 38, Certificates of Participation, Colorado
Association of School Boards Finance, Series 1992A,
6.900%, 12/01/13
175,000 Jefferson County, Colorado, Certificates of 12/02 at 102 AAA 192,967
Participation, Refunding, 6.650%, 12/01/08
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Other--4.9%
1,500,000 Hyland Hills, Metropolitan Park and Recreation 12/06 at 101 N/R 1,573,815
District, Colorado Special Revenue, Refunding and
Improvement, Series A, 6.750%, 12/15/15
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Transportation--11.2%
4,300,000 Arapahoe County, Colorado, Capital Improvement, 8/05 at 95 Baa 2,542,977
Tollroad Fund, Highway Revenue, Issue E,
470 Series C, 0.000%, 8/31/06
1,000,000 Eagle County, Colorado, Air Terminal Corporation 5/06 at 101 N/R 1,038,070
Revenue, Airport Terminal Project, 7.500%, 5/01/21
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Colorado -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility--1.4%
<C> <S> <C> <C> <C>
$ 500,000 Puerto Rico, Electric Power Authority, Power Revenue, 7/05 at 100 BBB+ $ 465,440
Formerly Puerto Rico Commonwealth Water
Resource Authority Power, Refunding, Series Z,
5.250%, 7/01/21
- -------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer--0.4%
120,000 Colorado Water Resource and Power Development 11/02 at 100 AAA 130,018
Authority, Small Water Resource Revenue,
Series A, 6.700%, 11/01/12
- -------------------------------------------------------------------------------------------------------------------------
Non-State General Obligations--8.2%
450,000 Cherry Creek, Vista Park and Recreation District, 10/02 at 100 N/R 478,130
Colorado, Refunding and Improvement,
Series B, 6.875%, 10/01/11
500,000 El Paso and Elbert Counties, Colorado, School District 12/05 at 100 A 551,950
Number RJ, 1 Elpaso, 6.800%, 12/01/14
El Paso County, Colorado, School District Number 3
Widefield, Series A:
1,025,000 0.000%, 12/15/07 12/05 at 92 AAA 592,952
1,020,000 0.000%, 12/15/08 12/05 at 86 AAA 553,952
250,000 Pitkin County, Colorado, Refunding and Improvement, 12/04 at 102 A 277,410
6.875%, 12/01/24
190,000 Valley Metropolitan District, Colorado, Jefferson 12/00 at 101 Baa 199,838
County Refunding, 7.000%, 12/15/06
- -------------------------------------------------------------------------------------------------------------------------
Pre-refunded--12.2%***
175,000 Aspen, Colorado, Certificates of Participation, 9/98 at 105 1/2 AAA 182,165
7.000%, 9/01/09
200,000 Boulder, Colorado, Municipal Property Authority, Lease 12/97 at 101 AAA 205,642
Purchase Revenue, Series B, 7.400%, 12/01/02
100,000 Colorado, Association Of School Boards, Certificates 12/99 at 101 AAA 107,816
of Participation, Pueblo School District Number 60
Project, Series A, 7.250%, 12/01/09
300,000 Colorado, Health Facilities Authority, Revenue, Rose 8/01 at 102 AAA 332,250
Medical Center, 7.000%, 8/15/21
350,000 Colorado, Health Facilities Authority, Revenue, 9/97 at 101 N/R 358,047
Bethesda Psychealth Project, 9.125%, 9/01/17
100,000 Colorado, State Board, Agricultural Revenue, Colorado 4/98 at 102 AAA 105,140
State University, Sports Recreation Facilities,
7.700%, 4/01/09
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------
Pre-refunded--continued
<C> <S> <C> <C> <C>
$ 300,000 Colorado, Water Resource Power Development 11/99 at 100 N/R $ 324,336
Authority, Water Power Revenue, Stagecoach
Project, 8.000%, 11/01/17
250,000 Denver, Colorado, City and County Industrial 3/01 at 102 AAA 279,515
Development, Revenue, University Of Denver
Project, 7.500%, 3/01/16
350,000 Denver, Colorado, City and County Revenue, Mercy 5/98 at 102 AAA 368,851
Medical Center Project, 7.700%, 5/01/07
100,000 El Paso County, Colorado, Revenue Refunding, 5/98 at 102 AAA 105,429
St.Francis Hospital System, 7.750%, 5/01/14
250,000 Fountain Valley Authority, Colorado, Water Treatment 6/01 at 100 AA 269,948
Revenue, 6.800%, 12/01/19
250,000 Logan County, Colorado, HealthCare Facilities, 1/99 at 102 AAA 267,373
Revenue, Western Health Network, Series A,
Issue 7, 7.625%, 1/01/19
300,000 Parker, Colorado, Sales and Use Tax, Revenue 11/00 at 100 N/R 330,402
Improvement, Series B, 7.600%, 11/01/10
100,000 Regional Transportation District, Colorado, Sales Tax 11/00 at 101 AAA 109,126
Revenue, 7.100%, 11/01/10
175,000 Thornton, Colorado, Sales and Use Tax, Revenue, 9/97 at 100 AAA 176,855
Series D, 8.000%, 9/01/07
100,000 University of Colorado, Certificates of Participation, 12/98 at 102 A2 106,550
Series D, Colorado Association of School Boards,
Lease Purchase Finance Program,
7.400%, 12/01/05
250,000 University of Colorado, University Revenues, Auxiliary 6/00 at 101 A1 269,723
Facilities System, Boulder Projects,
7.050%, 6/01/15
- -----------------------------------------------------------------------------------------------------------------------
Special Tax Revenue--3.2%
200,000 Mesa County, Colorado, Sales Tax, Revenue Refunding, 12/98 at 100 AAA 210,012
7.750%, 12/01/13
750,000 Woodland Park, Colorado, Limited Sales Tax, Revenue 12/03 at 101 AA 799,155
Refunding, Series B, 6.400%, 12/01/12
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Colorado -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Student Loan Revenue Bonds--2.2%
$ 400,000 Colorado, Student Obligation Bond Authority, Student 9/00 at 100 A $ 416,740
Loan, Revenue, Series A, Issue 3, 7.250%, 9/01/05
250,000 Colorado, Student Obligation Bond Authority, Student 9/02 at 102 A 264,943
Loan, Revenue, Series C, 7.150%, 9/01/06
- ----------------------------------------------------------------------------------------------------------------------
$ 50,840,000 Total Investments--(cost $29,444,945)--97.9% 31,501,894
- ----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--2.1% 686,086
- ----------------------------------------------------------------------------------------------------------------------
Net Assets--100% $ 32,187,980
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Optional Call Provisions (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional call
or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent auditors): Using the
higher of Standard and Poor's or MoodyOs rating.
***Pre-refunded 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. Pre-refunded
securities are normally considered to be equivalent to AAA rated
securities.
N/R--Investment is not rated.
14 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets Nuveen Municipal Bond Fund
May 31, 1997 May 31, 1997 Annual Report
Nuveen Flagship
Colorado
- -----------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $ 31,501,894
Cash 293,380
Receivables:
Interest 329,455
Shares sold 10,541
Investments sold 260,102
Other assets 1,399
- -----------------------------------------------------------------------------------------
Total assets 32,396,771
- -----------------------------------------------------------------------------------------
Liabilities
Payable for shares redeemed 20,750
Accrued expenses:
Management fees (note 6) 4,161
12b-1 distribution and service fees (notes 1 and 6) 5,281
Other 41,126
Dividends payable 137,473
- -----------------------------------------------------------------------------------------
Total liabilities 208,791
- -----------------------------------------------------------------------------------------
Net assets (note 7) $ 32,187,980
- -----------------------------------------------------------------------------------------
Class A Shares (note 1)
Net assets $ 31,228,876
Shares outstanding 3,077,488
Net asset value and redemption price per share $ 10.15
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.59
- -----------------------------------------------------------------------------------------
Class B Shares (note 1)
Net assets $ 443,523
Shares outstanding 43,643
Net asset value, offering and redemption price per share $ 10.16
- -----------------------------------------------------------------------------------------
Class C Shares (note 1)
Net assets $ 102,955
Shares outstanding 10,147
Net asset value, offering and redemption price per share $ 10.15
- -----------------------------------------------------------------------------------------
Class R Shares (note 1)
Net assets $ 412,626
Shares outstanding 40,627
Net asset value, offering and redemption price per share $ 10.16
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended May 31, 1997
Nuveen Flagship
Colorado*
- -----------------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $ 1,955,618
- -----------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 166,812
12b-1 service fees--Class A (notes 1 and 6) 107,814
12b-1 distribution and service fees--Class B (notes 1 and 6) 414
12b-1 distribution and service fees--Class C (notes 1 and 6) 211
Shareholders' servicing agent fees and expenses 18,693
Custodian's fees and expenses 50,804
Trustees' fees and expenses (note 6) 940
Professional fees 12,532
Shareholders' reports--printing and mailing expenses 3,793
Federal and state registration fees 1,407
Organizational expenses (note 1) 16,717
Other expenses 1,797
- -----------------------------------------------------------------------------------------
Total expenses before reimbursement 381,934
Expense reimbursement from investment adviser (note 6) (142,072)
- -----------------------------------------------------------------------------------------
Net expenses 239,862
- -----------------------------------------------------------------------------------------
Net investment income 1,715,756
- -----------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 64,238
Net change in unrealized appreciation or depreciation of investments 1,095,182
- -----------------------------------------------------------------------------------------
Net gain from investments 1,159,420
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations $ 2,875,176
- -----------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Colorado and four months of
Nuveen Flagship Colorado (see note 1 of the Notes to Financial Statements).
16
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Nuveen Flagship Flagship
Colorado* Colorado
----------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 1,715,756 $ 1,875,792
Net realized gain from investment transactions
(notes 1 and 4) 64,238 86,320
Net change in unrealized appreciation or depreciation
of investments 1,095,182 (554,501)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 2,875,176 1,407,611
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (1,687,245) (1,893,445)
Class B (1,292) N/A
Class C (1,256) --
Class R (2,521) N/A
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (1,692,314) (1,893,445)
- ---------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 5,390,547 4,177,017
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 767,704 901,092
- ---------------------------------------------------------------------------------------------------------------------------
6,158,251 5,078,109
- ---------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (8,789,634) (5,847,745)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions (2,631,383) (769,636)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,448,521) (1,255,470)
Net assets at the beginning of year 33,636,501 34,891,971
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 32,187,980 $ 33,636,501
- ---------------------------------------------------------------------------------------------------------------------------
Balance of undistributed net investment income at end of year $ 23,442 $ --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Colorado and four months of
Nuveen Flagship Colorado (see note 1 of the Notes to Financial Statements).
N/A--Flagship Colorado was not authorized to issue Class B or Class R Shares.
17 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Colorado Municipal Bond Fund (the "Fund"), among
others. The Trust was organized as a Massachusetts business trust on July 1,
1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Fund, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Flagship Colorado Double Tax
Exempt Fund ("Flagship Colorado") was reorganized into the Trust and renamed
Nuveen Flagship Colorado Municipal Bond Fund ("Nuveen Flagship Colorado").
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The 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 May
31, 1997, the Fund had no such purchase commitments.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
18
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship Colorado was
declared as a dividend daily and payment was made on the last business day of
each month.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Colorado state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Fund. All
income dividends paid during the fiscal year ended May 31, 1997, have been
designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class B, C and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). Class C Shares are
sold without a sales charge but incur annual 12b-1 distribution and service
fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1% if
Class C Shares are redeemed within 18 months of purchase. Class R Shares are not
subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available for purchases of over $1 million and in other limited
circumstances.
19
<PAGE>
Notes to Financial Statements--continued
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 fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
include 12b-1 distribution and service fees, are recorded to the specific class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$83,600) are being reimbursed to the Adviser on a straight-line basis over a
period of five years. As of May 31, 1997 $66,914 has been reimbursed. In the
event that the Adviser's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Colorado* Flagship Colorado
----------------------------------------------------
Year ended Year ended
5/31/97 5/31/96
----------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 442,011 $ 4,440,932 416,678 $ 4,177,017
Class B 43,588 440,150 N/A N/A
Class C 10,094 102,708 -- --
Class R 40,559 406,757 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 76,620 765,931 90,419 901,092
Class B 55 553 N/A N/A
Class C 53 536 -- --
Class R 68 684 N/A N/A
- ---------------------------------------------------------------------------------------------
613,048 6,158,251 507,097 5,078,109
- ---------------------------------------------------------------------------------------------
Shares redeemed:
Class A (877,171) (8,789,634) (586,370) (5,847,745)
Class B -- -- N/A N/A
Class C -- -- -- --
Class R -- -- N/A N/A
- ---------------------------------------------------------------------------------------------
(877,171) (8,789,634) (586,370) (5,847,745)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) (264,123) $(2,631,383) (79,273) $ (769,636)
- ----------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Colorado and four months of
Nuveen Flagship Colorado (see note 1).
N/A--Flagship Colorado was not authorized to issue Class B or Class R shares.
21
<PAGE>
Notes to Financial Statements--continued
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
Colorado
- ------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $ .0435
Class B .0370
Class C .0390
Class R .0450
- ------------------------------------------------------------------
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1997, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
Colorado*
- ------------------------------------------------------------------
<S> <C>
Purchases
Investments in municipal securities $ 8,525,203
Temporary municipal investments 1,500,000
Sales
Investments in municipal securities 12,494,924
Temporary municipal investments 1,500,000
- ------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Colorado and four months of
Nuveen Flagship Colorado (see note 1).
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes was the same as the cost for financial reporting purposes
for the Fund.
At May 31, 1997, the Fund had an unused capital loss carryforward of $495,637
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryover will expire in the year 2003.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, unrealized appreciation aggregated $2,056,949,
all of which related to appreciated securities.
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund as follows:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
- --------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------
</TABLE>
Prior to the reorganization (see note 1) Flagship Colorado paid a management fee
of .5 of 1%. The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office facilities. The Trust
pays no compensation directly to its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship Resources Inc.)
collected gross sales charges on purchases of Class A Shares of approximately
$78,300, of which approximately $67,900 were paid out as concessions to
authorized dealers. The Distributor and its predecessor also received 12b-1
service fees on Class A Shares, approximately one-half of which was paid to
compensate authorized dealers for providing services to shareholders relating to
their investments.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $20,200 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees on Class B
Shares, and all 12b-1 service and distribution fees on Class C Shares during the
first year following a purchase are retained by the Distributor. The remaining
12b-1 fees charged to the Fund were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
23
<PAGE>
Notes to Financial Statements -- continued
7. Composition of Net Assets
At May 31, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Flagship
Colorado
- ----------------------------------------------------------------------------------
<S> <C>
Capital paid-in $ 30,609,685
Balance of undistributed net investment income 23,442
Accumulated net realized gain (loss) from investment transactions (502,096)
Net unrealized appreciation of investments 2,056,949
- ----------------------------------------------------------------------------------
Net assets $ 32,187,980
- ----------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Financial Highlights
25
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
------------------------ --------------------------
Net
NUVEEN FLAGSHIP COLORADO++ Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value or net
Year ending beginning investment from investment from capital end of asset
May 31, of period income(b) investments income gains period value (a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (5/87)
1997 $ 9.79 $.53 $ .35 $(.52) $ -- $10.15 9.22%
1996 9.93 .54 (.13) (.55) -- 9.79 4.14
1995 9.62 .57 .30 (.56) -- 9.93 9.54
1994 10.04 .58 (.37) (.58) (.05) 9.62 2.03
1993 9.56 .60 .55 (.60) (.07) 10.04 12.41
1992 9.29 .61 .27 (.61) -- 9.56 9.80
1991 9.13 .60 .17 (.61) -- 9.29 8.75
1990 9.24 .62 (.12) (.61) -- 9.13 5.59
1989 8.78 .63 .46 (.63) -- 9.24 12.83
1988 9.27 .62 (.46) (.65) -- 8.78 2.13
Class B (2/97)
1997(c) 10.21 .12 (.06) (.11) -- 10.16 .61
Class C (2/97)
1997(c) 10.13 .16 .02 (.16) -- 10.15 1.75
Class R (2/97)
1997(c) 10.21 .15 (.06) (.14) -- 10.16 .85
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Colorado.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory, or its predecessor, Flagship Financial.
(c) From commencement of class operations as noted.
26
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- ---------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$31,229 1.18% 4.87% .74% 5.31% 27%
33,637 1.27 4.69 .55 5.41 70
34,982 1.27 5.22 .50 5.99 38
35,796 1.27 4.81 .37 5.71 42
26,656 1.35 5.11 .41 6.05 30
15,699 1.51 5.40 .49 6.42 39
9,108 1.80 5.66 .84 6.62 29
7,386 1.87 5.70 .87 6.70 16
7,545 2.10 5.61 .67 7.04 19
7,561 1.54 6.04 .55 7.03 138
444 1.78+ 4.35+ 1.53+ 4.60+ 27
103 1.58+ 4.67+ 1.31+ 4.94+ 27
413 .83+ 5.35+ .58+ 5.60+ 27
- ---------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship Colorado Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Flagship
Colorado Municipal Bond Fund, including the portfolio of investments, as of May
31, 1997, the related statement of operations for the period then ended and the
statement of changes in net assets, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the Fund's custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Flagship
Colorado Municipal Bond Fund at May 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
28
<PAGE>
Shareholder Meeting Report
Flagship Colorado
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Advisory Agreement For 2,479,861
Against 54,425
Abstain 27,327
-----------------------------------------------
Total 2,561,613
- --------------------------------------------------------------------------------
Broker Non Votes 115,259
- --------------------------------------------------------------------------------
Reorganization For 1,706,353
Against 55,094
Abstain 33,626
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Investment Objective For 1,697,265
Against 88,206
Abstain 9,602
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Investment Assets For 1,694,195
Against 91,277
Abstain 9,602
-----------------------------------------------
Total 1,795,074
- --------------------------------------------------------------------------------
Broker Non Votes 881,798
- --------------------------------------------------------------------------------
Type of Securities For 1,703,702
Against 81,769
Abstain 9,602
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Borrowing For 1,692,732
Against 92,739
Abstain 9,602
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Pledges For 1,703,702
Against 81,769
Abstain 9,602
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Senior Securities For 1,703,702
Against 81,769
Abstain 9,602
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Underwriting For 1,697,396
Against 88,075
Abstain 9,602
-----------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
-----------------------------------------------
</TABLE>
29
<PAGE>
Shareholder Meeting Report
Flagship Colorado--continued
<TABLE>
<S> <C> <C>
A Shares
- --------------------------------------------------------------------------------
Real Estate For 1,688,018
Against 92,589
Abstain 14,466
------------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Commodities For 1,689,407
Against 91,201
Abstain 14,466
------------------------------------------------
Total 1,795,074
- --------------------------------------------------------------------------------
Broker Non Votes 881,798
- --------------------------------------------------------------------------------
Loans For 1,688,018
Against 92,589
Abstain 14,466
------------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Short Sales/Margin Purchases For 1,673,991
Against 106,617
Abstain 14,466
------------------------------------------------
Total 1,795,074
- --------------------------------------------------------------------------------
Broker Non Votes 881,798
- --------------------------------------------------------------------------------
Put and Call Options For 1,679,290
Against 96,184
Abstain 19,600
------------------------------------------------
Total 1,795,074
- --------------------------------------------------------------------------------
Broker Non Votes 881,798
- --------------------------------------------------------------------------------
Industry Concentration For 1,684,764
Against 96,795
Abstain 13,515
------------------------------------------------
Total 1,795,074
- --------------------------------------------------------------------------------
Broker Non Votes 881,798
- --------------------------------------------------------------------------------
Affiliate Purchases For 1,689,797
Against 90,811
Abstain 14,466
------------------------------------------------
Total 1,795,074
- --------------------------------------------------------------------------------
Broker Non Votes 881,798
- --------------------------------------------------------------------------------
Investment Companies For 1,681,384
Against 94,474
Abstain 19,215
------------------------------------------------
Total 1,795,073
- --------------------------------------------------------------------------------
Broker Non Votes 881,799
- --------------------------------------------------------------------------------
Div vs. Non-Div For 1,636,902
Against 106,617
Abstain 49,123
------------------------------------------------
Total 1,792,642
- --------------------------------------------------------------------------------
Broker Non Votes 884,230
- --------------------------------------------------------------------------------
12b-1 Fees For 2,371,127
Against 100,740
Abstain 59,746
------------------------------------------------
Total 2,531,613
- --------------------------------------------------------------------------------
Broker Non Votes 145,259
------------------------------------------------
</TABLE>
30
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A Shares
- -----------------------------------------
Directors
- -----------------------------------------
<S> <C> <C>
(A) Bremner For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(B) Brown For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(C) Dean For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(D) Impellizzeri For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(E) Rosenheim For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(F) Sawers For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(G) Schneider For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
- -----------------------------------------
(H) Schwertfeger For 2,576,466
Withhold 100,406
--------------------
Total 2,676,872
--------------------
</TABLE>
31
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
32
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
33
<PAGE>
Serving Investors
for Generations
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
[ARTWORK OF JOHN NUVEEN, SR.]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
VAN-CO 5-97
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
New Mexico
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 New Mexico Overview
9 Financial Section
27 Shareholder Meeting Report
31 Shareholder Information
32 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Dear Shareholder
It's a pleasure to report to you on the performance of the Nuveen Flagship New
Mexico Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 8.90%
for Class A shares, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) outpaced the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds, which
provide excellent income for investors. As of May 31, 1997, shareholders were
receiving tax-free yields on net asset value of 4.93% for Class A shares. To
match this yield, investors in the 37% combined federal and state income tax
bracket would have had to earn at least 7.83% on taxable alternatives.
These results were produced against a backdrop of continued economic expansion
and the lowest unemployment rates in almost two decades, a combination that in
the past has foreshadowed an increase in inflation. In March, the Federal
Reserve made a pre-emptive strike by raising short-term interest rates by 0.25%,
but then maintained the status quo at its May and July meetings. Overall market
returns continue to be good, but fear of inflation has
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
hampered the performance of municipals and led to increased volatility in both
the equity and bond markets. During this time, bonds have often been the
bellwether for the direction of stocks. Whenever inflation talk is at its most
rampant, the stock market has kept an eye on the bond market for its response
before reacting.
In the first six months of the year, the markets also focused on fiscal issues,
including the federal budget accord and discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared to be moderating, corporate earnings
reports continued to exhibit strength, and interest rates fell in the second
quarter. All of this was positive news. The net effect is that the markets are
better off now than at the beginning of the year, but the volatility experienced
in getting there has been significant.
Recently, the need for diversification and a renewed emphasis on asset
allocation--as well as attractive yields--have sparked increased interest in
tax-free investments. The level current of the stock market reminds investors to
re-allocate profits to other segments of the market in order to limit risk.
Nuveen municipal bond funds provide an excellent lower-risk alternative, and
their current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you for your confidence in us and our
family of investments. You can continue to depend on us for high-quality
investments that withstand the test of time. We look forward to reporting to you
again in six months.
Sincerely,
/s/Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
Answering Your Questions
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
What are the investment objectives of the fund?
The fund aims to provide investors with a high level of tax-free income while
preserving capital by investing in a diversified portfolio of high-quality
municipal bonds. To that end, we attempt to maximize the fund's after-tax total
return by generating high tax-free income and minimizing the distribution of
taxable capital gains when possible.
What is your strategy for meeting these objectives?
To meet this fund's objectives of income and enhanced value, our portfolio
management strategy relies on conservative value investing principles, sound
research and credit surveillance activities, and senior management involvement.
At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates. This approach focuses on the characteristics of
individual bonds, such as sector, geographic region, structure and intrinsic
credit quality, rather than on the general economic environment. The idea behind
this philosophy is that we, as investment managers, can control the selection
process, but not the direction of the economy as a whole.
What key economic factors affected
the fund's performance during the year?
The U.S. economy continued to grow, exhibiting low unemployment, increased
manufacturing and construction activity, and lack of price pressure at the
consumer and producer levels.
3
<PAGE>
"At Nuveen, value investing means taking a fundamental approach to finding bonds
that offer the best balance of high potential return with low risk regardless of
the direction of interest rates."
Given this market environment, how did the fund perform?
The New Mexico Municipal Bond Fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 8.90% for Class
A shares, including price changes and reinvested dividends. Additionally, the
fund was ranked third among 62 state municipal bond funds for the one-year
period by Lipper Analytical Services, a nationally recognized performance
measurement service.
What strategies did you employ to add value?
As the spread between yields on higher and lower quality bonds continued to
narrow during the year, we were able to enhance the credit quality of the fund
without sacrificing yield. In addition, we focused on finding bonds with strong
call protection, such as the recent purchase of bonds from the University of New
Mexico that are not callable until the year 2021. We also took advantage of
high-quality limited issues that, in our view, had been overlooked by the market
as a whole.
What is the current status of New Mexico's
municipal market?
New Mexico continues to benefit from a stable economy and low housing and labor
costs. The services, manufacturing and construction sectors are continuing to
fuel a statewide economic expansion that began in the early 1980s. However, the
economic expansion has not translated into a relative increase in income levels.
The governor has proposed a plan to support long-term economic growth within the
state by improving local infrastructure and lowering taxes. While these
proposals should help continue the economic expansion, the relative trading
levels of New Mexico municipal bonds could be lowered as a result. The state's
municipal bond market is currently strong because of the limited supply of new
bonds.
4
<PAGE>
What is the current outlook for the municipal market as a whole?
As we make our way through the seventh year of the current economic expansion,
some observers believe that a fundamental shift may have occurred in our
economy. Based on past experience and months of reports of economic growth,
especially employment statistics, the markets have long been anticipating an
increase in inflation. However, even with almost full employment, we have not
seen the expected rise in hourly wages that would be considered inflationary.
This change in the traditional economic cause-and-effect relationship has been
variously attributed to the globalization of the economy and consequent
competitive pressures, to increased use of technology, and to corporations'
recent ability to downsize as necessary. Although structural changes in the
economy appear to have suspended the relationship between faster growth and
higher inflation, the risk remains that inflation may reassert itself if
capacity constraints are reached and resources are stretched too thin.
Talk of Fed tightening will continue. If the Fed does act to increase rates, it
will be perceived as a move against inflation. If the Fed does not tighten, it
will be seen as an indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the municipal market should continue to
offer the attractive yields and tax advantages that make it a good alternative
if and when a correction in the stock market occurs. While money continues to
flow into equity mutual funds, investors are also beginning to evaluate the
effect of the huge run-up in stock prices on their asset allocation, and many
are rebalancing their portfolios by shifting some assets into bonds.
5
<PAGE>
New Mexico
Overview
Credit Quality
[PIE CHART APPEARS HERE]
BBB/NR 15%
A 16%
AA 13%
AAA/Prerefunded 56%
- -----------------------
Diversification
[PIE CHART APPEARS HERE]
Hospitals 8%
Tax Revenue 23%
General Obligations 8%
Housing Facilities 14%
Pollution control 4%
Education 17%
Utility 9%
Other 14%
Escrowed Bonds 3%
- -----------------------
Fund Highlights
<TABLE>
<CAPTION>
=======================================================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 9/92 2/97 2/97 2/97
.......................................................................................................
Net Asset Value (NAV) $10.16 $10.15 $10.16 $ 10.17
- -------------------------------------------------------------------------------------------------------
Total Net Assets ($000) $51,981
.......................................................................................................
Average Weighted Maturity (years) 19.61
.......................................................................................................
Duration (years) 9.08
- -------------------------------------------------------------------------------------------------------
</TABLE>
Annualized Total Return/1/
<TABLE>
<CAPTION>
========================================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 8.90% 4.33% 8.14% 8.47% 9.06%
........................................................................................................
Since Inception 6.67% 5.71% 6.05% 6.28% 6.71%
- --------------------------------------------------------------------------------------------------------
Tax-Free Yields
========================================================================================================
Share Class A(NAV) A(Offer) B C R
Dist Rate 4.96% 4.75% 4.22% 4.42% 5.16%
........................................................................................................
SEC 30-Day Yld 4.93% 4.72% 4.18% 4.38% 5.13%
........................................................................................................
Taxable Equiv Yld/2/ 7.83% 7.49% 6.63% 6.95% 8.14%
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Returns of the oldest share class of a fund are actual. Returns for other
classes are actual for the period since inception and prior to class
inception are the returns for the fund's oldest class, adjusted for
differences in sales charges and expenses. Class A shares have an initial
sales charge, while Class B, C and R shares have no initial sales charge.
Class B shares have a CDSC that declines from 5% to 0% after 6 years. Class
C shares have a 1% CDSC for redemptions within one year. Returns do not
reflect imposition of the CDSC. Giving effect to the CDSC applicable to
Class B shares, the 1-year and since inception total returns above would be
4.14% and 5.71%, respectively.
/2/ Based on SEC yield and a combined federal and state income tax rate of 37%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship New Mexico Municipal Bond Fund
May 31, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
Shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A Shares (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship
Lehman Brothers Nuveen Flagship New Mexico
Municipal Bond New Mexico Municipal Municipal Bond
Index Bond Fund (NAV) Fund (Offer)
--------------- -------------------- ---------------
<S> <C> <C> <C>
September 1992 10,000 10,000 9,580
10,065.4 9,958.25 9,540
9,966.46 9,749.48 9,340
10,145 10,037.5 9,615.9
10,248.5 10,192.1 9,764.04
10,367.7 10,401.7 9,964.81
10,742.7 10,733.2 10,282.4
10,628.9 10,602.9 10,157.6
10,736.2 10,737.6 10,286.7
10,796.3 10,831.7 10,376.7
10,976.6 11,043.1 10,579.3
10,990.9 11,018.8 10,556
11,219.5 11,321 10,845.6
11,347.4 11,500.3 11,017.3
11,369 11,528.2 11,044
11,268.9 11,355.9 10,879
11,506.7 11,612.9 11,125.2
11,637.9 11,752.8 11,259.1
11,336.5 11,417.7 10,938.2
10,875.1 10,849.1 10,393.4
10,967.5 10,875.2 10,418.4
11,062.9 11,039.2 10,575.6
10,995.4 10,917.3 10,458.7
11,196.6 11,197.4 10,727.1
11,235.8 11,191 10,721
11,070.7 10,963.4 10,502.9
10,873.6 10,701.5 10,252
10,676.8 10,460 10,020.7
10,911.7 10,805.3 10,351.5
11,223.8 11,175.9 10,706.5
11,550.4 11,566.8 11,081
11,683.2 11,631.6 11,143.1
11,697.2 11,623.4 11,135.2
12,070.4 12,060.6 11,554
11,965.4 11,847.4 11,349.8
12,079 11,949.7 11,447.8
12,232.4 12,088.9 11,581.1
12,309.5 12,153.7 11,643.2
12,488 12,367.7 11,848.2
12,695.3 12,593.2 12,064.3
12,817.2 12,732.7 12,198
12,914.6 12,810.6 12,272.6
12,826.7 12,723.2 12,188.8
12,662.6 12,476.1 11,952.1
12,627.1 12,389.7 11,869.4
12,622.1 12,443.6 11,921
12,759.6 12,584.8 12,056.3
12,875.7 12,715.6 12,181.6
12,873.2 12,693.5 12,160.4
13,053.4 12,913.6 12,371.2
13,200.9 13,059 12,510.5
13,442.5 13,319.8 12,760.3
13,498.9 13,245.2 12,688.9
13,524.6 13,235.7 12,679.8
13,649 13,395.8 12,833.2
13,467.5 13,200.9 12,646.5
13,580.6 13,322.6 12,763.1
May 1997 13,784.3 13,551.1 12,981.9
</TABLE>
. Lehman Brothers Municipal Bond Index $13,784
. Nuveen Flagship New Mexico Municipal Bond Fund (NAV) $13,551
. Nuveen Flagship Mew Mexico Municipal Bond Fund (Offer) $12,982
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
June 1996 0.04131
0.04269
0.04269
0.04131
0.04269
0.04131
0.04269
0.04281
0.042
0.042
0.042
0.042
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
15 Statement of Net Assets
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Notes to Financial Statements
24 Financial Highlights
26 Independent Auditors' Report
9
<PAGE>
Portfolio of Investments
Nuveen Flagship New Mexico
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education -- 8.0%
$ 435,000 Puerto Rico Industrial Medical and Environmental No Opt. Call BBB- $ 429,571
Pollution Control Facilities Financing Authority,
Revenue Refunding, Formerly Puerto Rico,
Higher Education, Catholic University, Series A,
5.600%, 12/01/07
Santa Fe, New Mexico, Educational Facilities
Revenue Refunding and Improvement, College of
Santa Fe Project:
500,000 6.000%, 10/01/13 10/07 at 100 BBB- 501,480
500,000 5.875%, 10/01/21 10/07 at 100 BBB- 483,020
University of New Mexico, University Revenue
Refunding, Series A:
60,000 5.900%, 6/01/04 No Opt. Call AA 63,611
2,500,000 6.000%, 6/01/21 No Opt. Call AA 2,660,275
- --------------------------------------------------------------------------------------------------------------------
Escrowed to Maturity -- 0.8%
327,000 Santa Fe County, New Mexico, Office and Training No Opt. Call Aaa 407,972
Facilities Project Revenue, 9.000%, 7/01/07
- --------------------------------------------------------------------------------------------------------------------
Health Care -- 2.9%
1,000,000 Hobbs New Mexico Health Facilities Revenue, 5/06 at 102 AAA 969,700
Evangelical Lutheran Project, 5.500%, 5/01/26
500,000 Las Cruces, New Mexico, Health Facilities Revenue 12/03 at 102 AAA 533,770
Refunding, Evangelical Lutheran Project,
6.450%, 12/01/17
- --------------------------------------------------------------------------------------------------------------------
Hospitals -- 4.6%
450,000 Albuquerque, New Mexico, Hospital Revenue, 8/02 at 102 AAA 487,710
Crossover Refunding, Series A, Presbyterian
Healthcare Services, 6.375%, 8/01/07
1,500,000 Albuquerque, New Mexico, Revenue Refunding, 6/03 at 102 AAA 1,543,020
The Evangelical Lutheran, 5.900%, 6/01/13
350,000 Socorro, New Mexico, Health Facility Revenue 5/04 at 102 AAA 371,431
Refunding, Evangelical Lutheran Good Samaritan,
6.000%, 5/01/08
- --------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- 1.9%
1,000,000 Las Cruces, New Mexico, Housing Development 4/03 at 102 A 1,013,120
Corporation, Multifamily Revenue Refunding,
Series A, 6.400%, 10/01/19
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family -- 11.1%
$2,000,000 New Mexico Mortgage Finance Authority, Single 7/06 at 102 AAA $2,048,060
Family Mortgage, Series D-1, 6.250%, 7/01/22
1,445,000 New Mexico Mortgage Finance Authority, Single 7/07 at 102 AAA 1,457,138
Family, Series G, 6.200%, 7/01/28
1,245,000 New Mexico Mortgage Finance Authority, Single 7/05 at 102 AAA 1,289,297
Family Mortgage Program, Series A, Class D,
6.650%, 7/01/26
165,000 New Mexico Mortgage Finance Authority, Single 7/02 at 102 Aa1 171,849
Family Mortgage Purchase, Refunding, Senior
Series A1, 6.850%, 7/01/10
780,000 New Mexico Mortgage Finance Authority, Single 7/02 at 102 Aa1 812,230
Family Mortgage Purchase, Refunding, Senior
Series A2, 6.900%, 7/01/24
- ---------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 4.1%
985,000 Farmington, New Mexico, Pollution Control Revenue, 12/02 at 102 AAA 1,045,390
Refunding, Public Service Company of New Mexico,
Series A, 6.375%, 12/15/22
1,000,000 Lordsburg, New Mexico, Pollution Control Revenue, 4/03 at 102 A 1,059,940
Refunding, Phelps Dodge Corporation Project,
6.500%, 4/01/13
- ---------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Other -- 8.3%
4,000,000 Santa Fe County, New Mexico, Correctional System No Opt. Call AAA 4,287,520
Revenue, 6.000%, 2/01/27
- ---------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Transportation -- 2.1%
1,000,000 Albuquerque, New Mexico, Airport Revenue, 7/00 at 105 AAA 1,069,960
Series A, 6.600%, 7/01/16
- ---------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 9.0%
1,300,000 Guam Power Authority Revenue, Series A, 10/03 at 102 BBB 1,155,180
5.250%, 10/01/23
90,000 Las Cruces, New Mexico, Joint Utility Refunding and 7/02 at 102 A1 97,046
Improvement Revenue, 6.250%, 7/01/12
Los Alamos County, New Mexico, Inc. Utility System
Revenue Refunding, Series A:
1,000,000 5.700%, 7/01/05 7/04 at 102 AAA 1,051,130
1,000,000 6.000%, 7/01/15 7/04 at 102 AAA 1,036,410
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship New Mexico -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Utility -- Continued
$ 250,000 Puerto Rico Electric Power Authority Power 7/05 at 100 BBB+ $ 232,720
Revenue, Formerly Puerto Rico Commonwealth Water
Resource Authority Power, Refunding, Series Z,
5.250%, 7/01/21
Rio Grande, New Mexico, Natural Gas Association,
Natural Gas System Revenue Refunding and
Improvement:
100,000 6.000%, 7/01/07 7/03 at 100 BBB+ 99,508
1,000,000 6.125%, 7/01/13 7/03 at 100 BBB+ 990,860
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer -- 1.3%
1,000,000 Albuquerque, New Mexico, Joint Water and Sewer No Opt. Call AAA 595,260
System Revenue, Series A, 0.000%, 7/01/07
100,000 Grants, New Mexico, Water and Sewer Revenue 1/02 at 100 Baa 100,997
Refunding and Improvement, 5.600%, 1/01/08
- ----------------------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 2.6%
25,000 Albuquerque, New Mexico, Municipal School District No Opt. Call AA 25,425
No. 012, 5.000%, 8/01/02
80,000 Bernalillo County, New Mexico, 5.750%, 10/01/05 10/04 at 100 Aa1 84,521
Grants/Cibola County, New Mexico,
School District No 1:
480,000 6.250%, 5/01/08 5/04 at 100 Baa 501,019
510,000 6.250%, 5/01/09 5/04 at 100 Baa 529,365
200,000 Torrance County, New Mexico, 5.500%, 7/01/04 7/00 at 100 N/R 202,418
- ----------------------------------------------------------------------------------------------------------------------------------
Pre-refunded -- 2.0%***
250,000 Albuquerque, New Mexico, Joint Water and Sewer 7/00 at 100 AAA 261,010
System Revenue, Series A, 6.000%, 7/01/15
160,000 Las Cruces, New Mexico, Joint Utility Refunding 7/02 at 102 A1 173,661
and Improvement Revenue, 6.250%, 7/01/12
30,000 New Mexico Finance Authority Revenue, Public 6/05 at 100 AAA 31,352
Project, Revolving Fund, Series A, 5.500%, 6/01/07
500,000 Sandoval County, New Mexico, Gross Receipts Tax 11/05 at 101 N/R 583,355
Revenue, 7.150%, 11/01/10
- ----------------------------------------------------------------------------------------------------------------------------------
Resource Recovery -- 1.9%
1,000,000 Las Cruces, New Mexico, South Central Solid Waste 6/05 at 100 A 1,003,210
Authority, Environmental Services Gross Receipts
Tax, 6.000%, 6/01/16
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Tax Revenue -- 21.6%
$4,250,000 Albuquerque, New Mexico, Gross Receipts Lodgers No Opt. Call AAA $1,968,303
Tax Revenue Refunding, Series B, 0.000%, 7/01/11
1,000,000 Bernalillo County, New Mexico, Gross Receipts Tax 4/06 at 100 AA 995,410
Revenue, Series A, 5.750%, 4/01/21
1,550,000 Dona Ana County, New Mexico, Gross Receipts 6/03 at 102 AA 1,569,127
Tax Revenue, Refunding and Improvement,
6.000%, 6/01/19
250,000 Las Cruces, New Mexico, Gross Receipts Tax Revenue 12/02 at 101 A 264,368
Refunding, 6.250%, 12/01/05
1,000,000 Las Cruces, New Mexico, Revenue, 5.450%, 12/01/08 No Opt. Call AAA 1,017,100
35,000 New Mexico Finance Authority Revenue, Special AAA 35,407
Cigarette Tax, University of New Mexico,
5.000%, 6/01/03
70,000 New Mexico Finance Authority Revenue, Public No Opt. Call AAA 72,402
Project, Series A, 5.500%, 6/01/07
Puerto Rico Commonwealth Highway and
Transportation Authority, Highway Revenue,
Series Y:
3,550,000 5.500%, 7/01/36 7/16 at 100 A 3,452,624
1,000,000 5.000%, 7/01/36 7/16 at 100 A 895,790
Sandoval County, New Mexico, Gross Receipts Tax,
Fire District Revenue:
225,000 6.600%, 12/01/04 12/99 at 100 N/R 230,607
200,000 6.900%, 12/01/07 12/99 at 100 N/R 206,582
375,000 Sandoval County, New Mexico, Gross Receipts Tax 11/02 at 102 Baa1 399,698
Revenue Refunding, 6.900%, 11/01/12
130,000 Sandoval County, New Mexico, Gross Receipts Tax 12/02 at 102 Baa1 137,210
Revenue Refunding, Series A, 6.500%, 12/01/06
- ---------------------------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 4.7%
1,500,000 Guam Government, Series A, 5.375%, 11/15/13 11/03 at 102 BBB 1,403,505
1,000,000 Puerto Rico Commonwealth, Public Improvement, No Opt. Call AAA 1,030,970
Series B, 5.500%, 7/01/00
- ---------------------------------------------------------------------------------------------------------------------------------
Student Loan Revenue Bonds -- 8.5%
1,600,000 New Mexico Educational Assistance Foundation, 4/02 at 102 AAA 1,704,896
Student Loan Revenue, Series A, 6.850%, 4/01/05
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship New Mexico -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Student Loan Revenue Bonds -- continued
$ 400,000 New Mexico Educational Assistance Foundation, 12/02 at 101 Aaa $ 414,304
Student Loan Revenue, Senior, Series 1A,
6.550%, 12/01/05
275,000 New Mexico Educational Assistance Foundation, 12/02 at 101 A 289,850
Student Loan Revenue, Sub, Series 1B,
6.850%, 12/01/05
900,000 New Mexico Educational Assistance Foundation, 6/04 at 102 Aaa 910,826
Student Loan Revenue, Senior, Series A,
5.500%, 12/01/07
1,040,000 New Mexico Educational Assistance Foundation, No Opt. Call Aaa 1,114,222
Student Loan Revenue, Purchase, Senior,
Series A1, 6.500%, 3/01/04
- ---------------------------------------------------------------------------------------------------------------------
$51,167,000 Total Investments (Cost -- $47,539,553) -- 95.4% 49,573,712
============---------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 1.7%
$ 900,000 Farmington Pollution Control Revenue, Arizona Public Service 900,000
============ Company (Four Corners Project), Variable Rate Demand
Bonds, 4.000%, 5/01/24+
-----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 2.9% 1,507,536
-----------------------------------------------------------------------------------------------------
Net Assets -- 100% $51,981,248
=====================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent auditors): Dates (month and year) and prices of
the earliest optional call or redemption. There may be other
call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent auditors):
Using the higher of Standard & Poor's or Moody's rating.
*** Pre-refunded 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. Pre-refunded securities are normally
considered to be equivalent to AAA-rated securities.
N/R -- Investment is not rated.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that currently in
effect. This rate changes periodically based on market
conditions or a specified market index.
14 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets Nuveen Municipal Bond Fund
May 31, 1997 May 31, 1997 Annual Report
<CAPTION>
Nuveen Flagship
New Mexico
- -------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $49,573,712
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 900,000
Cash 181,313
Receivables:
Interest 982,985
Shares sold 380,027
Investments sold 265,000
Other assets 1,920
- -------------------------------------------------------------------------------------------
Total assets 52,284,957
- -------------------------------------------------------------------------------------------
Liabilities
Payable for Shares redeemed 26,557
Accrued expenses:
Management fees (note 6) 9,037
12b-1 distribution and service fees (notes 1 and 6) 9,225
Other 44,275
Dividends payable 214,615
- -------------------------------------------------------------------------------------------
Total liabilities 303,709
- -------------------------------------------------------------------------------------------
Net assets (note 7) $51,981,248
===========================================================================================
Class A Shares (note 1)
Net assets $50,807,085
Shares outstanding 5,002,787
Net asset value and redemption price per share $ 10.16
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 10.61
===========================================================================================
Class B Shares (note 1)
Net assets $ 657,166
Shares outstanding 64,730
Net asset value, offering and redemption price per share $ 10.15
===========================================================================================
Class C Shares (note 1)
Net assets $ 155,277
Shares outstanding 15,283
Net asset value, offering and redemption price per share $ 10.16
===========================================================================================
Class R Shares (note 1)
Net assets $ 361,720
Shares outstanding 35,568
Net asset value, offering and redemption price per share $ 10.17
===========================================================================================
</TABLE>
15 See accompanying notes to financial statements.
<PAGE>
Statement of Operations
Year ended May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship
New Mexico*
<S> <C>
- -----------------------------------------------------------------------------------
Investment income
Tax-exempt interest income (note 1) $3,005,592
- -----------------------------------------------------------------------------------
Expenses
Management fees (note 6) 265,661
12b-1 service fees -- Class A (notes 1 and 6) 171,788
12b-1 distribution and service fees -- Class B (notes 1 and 6) 776
12b-1 distribution and service fees -- Class C (notes 1 and 6) 228
Shareholders' servicing agent fees and expenses 26,703
Custodian's fees and expenses 53,428
Trustees' fees and expenses (note 6) 1,304
Professional fees 13,446
Shareholders' reports -- printing and mailing expenses 5,226
Federal and state registration fees 3,524
Organizational expenses (note 1) 10,330
Other expenses 2,480
- -----------------------------------------------------------------------------------
Total expenses before reimbursement 554,894
Expense reimbursement (note 6) (155,889)
- -----------------------------------------------------------------------------------
Net expenses 399,005
- -----------------------------------------------------------------------------------
Net investment income 2,606,587
- -----------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 92,293
Net change in unrealized appreciation or depreciation of investments 1,740,188
- -----------------------------------------------------------------------------------
Net gain from investments 1,832,481
- -----------------------------------------------------------------------------------
Net increase in net assets from operations $4,439,068
===================================================================================
</TABLE>
* Information represents eight months of Flagship New Mexico and four months of
Nuveen Flagship New Mexico (see note 1 of the Notes to Financial Statements).
16 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Nuveen Flagship Flagship
New Mexico* New Mexico
--------------------------------------------
Year ended Year ended
5/31/97 5/31/96
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 2,606,587 $ 2,646,917
Net realized gain (loss) from investment transactions
(notes 1 and 4) 92,293 (189,794)
Net change in unrealized appreciation or depreciation
of investments 1,740,188 (845,219)
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 4,439,068 1,611,904
- ---------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (2,592,045) (2,660,344)
Class B (2,872) N/A
Class C (1,113) --
Class R (309) N/A
- ---------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (2,596,339) (2,660,344)
- ---------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 7,206,729 6,925,871
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 1,155,487 1,333,109
- ---------------------------------------------------------------------------------------------------------
8,362,216 8,258,980
- ---------------------------------------------------------------------------------------------------------
Cost of shares redeemed (9,396,878) (8,187,762)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions (1,034,662) 71,218
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 808,067 (977,222)
Net assets at the beginning of year 51,173,181 52,150,403
- ---------------------------------------------------------------------------------------------------------
Net assets at the end of year $51,981,248 $51,173,181
=========================================================================================================
Balance of undistributed net investment income at end of year $ 10,248 $ --
=========================================================================================================
</TABLE>
* Information represents eight months of Flagship New Mexico and four months of
Nuveen Flagship New Mexico (see note 1 of the Notes to Financial Statements).
N/A - Flagship New Mexico was not authorized to issue Class B or Class R Shares.
17 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship New Mexico Municipal Bond Fund (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Fund, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Flagship New Mexico Double Tax
Exempt Fund ("Flagship New Mexico") was reorganized into the Trust and renamed
Nuveen Flagship New Mexico Municipal Bond Fund ("Nuveen Flagship New Mexico").
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Fund had no such purchase commitments.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
18
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship New Mexico was
declared as a dividend daily and payment was made on the last business day of
each month.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which generally accepted accounting principles.
Accordingly, temporary over-distributions as a result of these differences may
occur and will be classified as either distributions in excess of net investment
income, distributions in excess of net realized gains and/or distributions in
excess of net ordinary taxable income from investment transactions, where
applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and New Mexico state income taxes, to
retain such tax-exempt status when distributed to the shareholders of the Fund.
All income dividends paid during the fiscal year ended May 31, 1997, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class B, C and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). Class C Shares are
sold without a sales charge but incur annual 12b-1 distribution and service
fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1% if Class
C Shares are redeemed within 18 months of purchase. Class R Shares are not
subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available for purchases of over $1 million and in other limited
circumstances.
19
<PAGE>
Notes to Financial Statements -- continued
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 fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$51,700), are being reimbursed to the Adviser on a straight-line basis over a
period of five years. As of May 31, 1997, $41,348 has been reimbursed. In the
event that the Adviser's current investment in the Trust falls below $100,000
prior to the full reimbursement of the organizational expenses, then it will
forego any further reimbursement.
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
New Mexico* New Mexico
----------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
----------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 604,874 $ 6,044,381 691,631 $ 6,925,871
Class B 64,688 647,809 N/A N/A
Class C 15,271 153,600 -- --
Class R 35,553 360,939 N/A N/A
Shares issued to shareholders
due to reinvestment
of distributions:
Class A 115,338 1,154,792 133,282 1,333,109
Class B 42 418 N/A N/A
Class C 12 123 -- --
Class R 15 154 N/A N/A
- ----------------------------------------------------------------------------------------------------------
835,793 8,362,216 824,913 8,258,980
- ----------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (936,465) (9,396,878) (817,071) (8,187,762)
Class B -- -- N/A N/A
Class C -- -- -- --
Class R -- -- N/A N/A
- ----------------------------------------------------------------------------------------------------------
(936,465) (9,396,878) (817,071) (8,187,762)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (100,672) $(1,034,662) 7,842 $ 71,218
==========================================================================================================
</TABLE>
* Information represents eight months of Flagship New Mexico and four months of
Nuveen Flagship New Mexico (see note 1).
N/A -- Flagship New Mexico was not authorized to issue Class B or Class R
Shares.
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997 as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
New Mexico
- -------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0420
Class B .0355
Class C .0375
Class R .0435
- -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Notes to Financial Statements -- continued
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1997, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
New Mexico*
- --------------------------------------------------------------------
<S> <C>
Purchases
Investments in municipal securities $22,082,776
Temporary municipal investments 5,500,000
Sales
Investments in municipal securities 25,727,639
Temporary municipal investments 4,600,000
- --------------------------------------------------------------------
</TABLE>
*Information represents eight months of Flagship New Mexico and
four months of Nuveen Flagship New Mexico (see note 1).
At May 31, 1997, the identified cost of investments owned for federal income tax
purposes may differ from the cost used for financial reporting purposes.
At May 31, 1997, the Fund had unused capital loss carryforwards of $1,287,752
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $997,166 of the carryover will expire in the year
2003 and $290,586 will expire in the year 2004.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, unrealized appreciation aggregated $2,034,159 of which
$2,039,341 related to appreciated securities and $5,182 related to depreciated
securities.
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund as follows:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
- -------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- -------------------------------------------------------------
</TABLE>
Prior to the reorganization (see note 1) Flagship New Mexico paid a management
fee of .5 of 1%. The management fee compensates the Adviser for overall
investment advisory and administrative services, and general office facilities.
The Trust pays no compensation directly to its Trustees who are affiliated with
the Adviser or to its officers, all of whom receive remuneration for their
services to the Trust from the Adviser.
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship Resources Inc.)
collected sales charges on purchases of Class A Shares of approximately $113,000
of which approximately $98,100 were paid out as concessions to authorized
dealers. The Distributor and it predecessor also received 12b-1 service fees on
Class AShares, approximately one-half of which was paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $29,100 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees on Class B
Shares, and all 12b-1 service and distribution fees on Class C Shares during the
first year following a purchase are retained by the Distributor. The remaining
12b-1 fees charged to the Fund were paid to compensate authorized dealers for
providing services to shareholders relating to their investments. The
Distributor and its predecessor also collected and retained approximately $100
of CDSC on share redemptions during the fiscal year ended May 31, 1997.
7. Composition of Net Assets
At May 31, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Flagship
New Mexico
- ------------------------------------------------------------------------------
<S> <C>
Capital paid-in $51,227,877
Balance of undistributed net investment income 10,248
Accumulated net realized gain (loss) from investment income (1,291,036)
Net unrealized appreciation of investments 2,034,159
- ------------------------------------------------------------------------------
Net assets $51,981,248
==============================================================================
</TABLE>
23
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------------- ----------------------------
Net
NUVEEN FLAGSHIP NEW MEXICO++ Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income(b) investments income gains period value(a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/92)
1997 $ 9.81 $.51 $ .35 $(.51) $ -- $ 10.16 8.90%
1996 10.01 .51 (.19) (.52) -- 9.81 3.18
1995 9.68 .52 .33 (.52) -- 10.01 9.25
1994 10.04 .53 (.33) (.53) (.03) 9.68 1.92
1993(c) 9.58 .37 .46 (.37) 10.04 11.72+
Class B (2/97)
1997(c) 10.24 .12 (.10) (.11) -- 10.15 .18
Class C (2/97)
1997(c) 10.23 .12 (.08) (.11) -- 10.16 .43
Class R (2/97)
1997(c) 10.23 .14 (.07) (.13) -- 10.17 .71
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship New Mexico.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by the Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
24
<PAGE>
Nuveen Municipal Bond Funds
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- ---------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment (b) ment (b) rate
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$50,807 1.08% 4.76% .77% 5.07% 43%
51,173 1.09 4.69 .68 5.10 57
52,150 1.17 4.98 .67 5.48 38
51,167 1.14 4.50 .40 5.24 39
31,499 1.37+ 4.05+ .14+ 5.28+ 36
657 1.68+ 4.05+ 1.54+ 4.19+ 43
155 1.48+ 4.26+ 1.34+ 4.40+ 43
362 .73+ 5.04+ .59+ 5.18+ 43
- ---------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship New Mexico Municipal Bond Fund:
We have audited the accompanying statements of net assets of the Nuveen Flagship
New Mexico Municipal Bond Fund including the portfolio of investments, as of May
31, 1997, the related statement of operations for the period then ended and the
statement of changes in net assets, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the Funds' custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Flagship
New Mexico Municipal Bond Fund at May 31, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
26
<PAGE>
Shareholder Meeting Report
Flagship New Mexico
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Advisory Agreement For 4,224,972
Against 80,529
Abstain 64,757
---------------------------
Total 4,370,258
================================================================================
Broker Non Votes 172,922
================================================================================
Reorganization For 2,673,749
Against 41,725
Abstain 81,833
---------------------------
Total 2,797,307
================================================================================
Broker Non Votes 1,745,873
================================================================================
Investment Objective For 2,763,204
Against 99,462
Abstain 37,340
---------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Investment Assets For 2,751,738
Against 99,462
Abstain 48,806
---------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Type of Securities For 2,767,359
Against 101,057
Abstain 31,590
---------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Borrowing For 2,766,499
Against 99,462
Abstain 34,045
---------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Pledges For 2,761,243
Against 99,462
Abstain 39,301
---------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
---------------------------
</TABLE>
27
<PAGE>
Shareholder Meeting Report
Flagship New Mexico -- continued
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Securities For 2,767,654
Against 99,462
Abstain 32,890
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Underwriting For 2,758,617
Against 101,057
Abstain 40,332
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Real Estate For 2,758,348
Against 101,057
Abstain 40,601
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Commodities For 2,757,488
Against 108,473
Abstain 34,045
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Loans For 2,764,838
Against 99,462
Abstain 35,706
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Short Sales/Margin Purchases For 2,752,969
Against 114,055
Abstain 32,982
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
================================================================================
Put and Call Options For 2,751,833
Against 111,797
Abstain 36,376
------------------------------------------------
Total 2,900,006
================================================================================
Broker Non Votes 1,643,174
------------------------------------------------
</TABLE>
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A Shares
- -------------------------------------------------------------------------
<S> <C> <C>
Industry Concentration For 2,766,821
Against 101,595
Abstain 31,590
-----------------------------------------
Total 2,900,006
=========================================================================
Broker Non Votes 1,643,174
=========================================================================
Affiliate Purchases For 2,760,398
Against 106,987
Abstain 32,621
-----------------------------------------
Total 2,900,006
=========================================================================
Broker Non Votes 1,643,174
=========================================================================
Investment Companies For 2,758,192
Against 108,924
Abstain 32,890
-----------------------------------------
Total 2,900,006
=========================================================================
Broker Non Votes 1,643,174
=========================================================================
12b-1 Fees For 4,141,433
Against 96,932
Abstain 131,891
-----------------------------------------
Total 4,370,256
=========================================================================
Broker Non Votes 172,924
-----------------------------------------
</TABLE>
29
<PAGE>
Shareholder Meeting Report
Flagship New Mexico--continued
<TABLE>
<CAPTION>
A Shares
- ------------------------------------------------------------------------
Directors
========================================================================
<S> <C> <C>
Bremner For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
========================================================================
Brown For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
========================================================================
Dean For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
========================================================================
Impellizzeri For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
========================================================================
Rosenheim For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
========================================================================
Sawers For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
- ------------------------------------------------------------------------
Schneider For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
========================================================================
Schwertfeger For 4,448,907
Withhold 94,273
------------------------------------------------
Total 4,543,180
------------------------------------------------
</TABLE>
30
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
31
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
32
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
VAN-NM 5-97
