<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1997.
1933 ACT REGISTRATION NO. 333-16617
1940 ACT REGISTRATION NO. 811-07747
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 3 [X]
</TABLE>
(Check appropriate box or boxes)
----------------
NUVEEN FLAGSHIP MULTISTATE TRUST I
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, 60606
Illinois
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 917-7700
With a copy to:
Gifford R. Zimmerman, Esq.--Vice Thomas A. Harman
President and Assistant Secretary
333 West Wacker Drive Fried, Frank, Harris, Shriver &
Chicago, Illinois 60606 Jacobson
(Name and Address of Agent for Service) 1001 Pennsylvania Ave., NW
Suite 800
Washington, D.C. 20004
APPROXIMATE DATE OF PROPOSED OFFERING: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Reg. (S) 270.24f-2 under the Investment Company Act of 1940,
Registrant hereby declares that an indefinite number or amount of shares are
being registered under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-16617
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-07747
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Cross-Reference Sheet
Part A-The Prospectus
Part B-The Statement of Additional Information
Copy of Annual Reports and Semi-Annual Reports to
Shareholders (the financial statements from which are
incorporated by reference into the Statement of Additional
Information)
Part C-Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST I
----------------
CROSS REFERENCE SHEET
PART A--PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN
PART A
OF FORM N-
1A PROSPECTUS LOCATION
---------- -------------------
<S> <C>
1 Cover Page Cover Page
2 Synopsis Expense Information
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Fund Strategies
5 Management of the Fund General Information
5A Management's Discussion of Fund Incorporated by Reference to Annual and
Performance Semi-Annual Reports to Shareholders; Taxes
and Tax Reporting
6 Capital Stock and Other How to Select a Purchase Option; Taxes and
Securities Tax Reporting
7 Purchase of Securities Being Investing in the Funds
Offered
8 Redemption or Repurchase How to Sell Fund Shares
9 Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM IN
PART B
OF FORM N- LOCATION IN STATEMENT
1A OF ADDITIONAL INFORMATION
---------- -------------------------
<S> <C>
10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History Not Applicable
13 Investment Objectives and Investment Policies and Investment
Policies Portfolio
14 Management of the Fund Management
15 Control Persons and Principal Management
Holders of Securities
16 Investment Advisory and Other Investment Adviser and Investment
Services Management Agreement; Portfolio
Transactions Distribution and Service Plan;
Independent Public Accountants and
Custodian
17 Brokerage Allocation and Other Portfolio Transactions
Practices
18 Capital Stock and Other See "How to Select a Purchase Option" and
Securities "Taxes and Tax Reporting" in the Prospectus
19 Purchase, Redemption and Pricing Additional Information on the Purchase and
of Securities Redemption of Fund Shares; Net Asset Value
20 Tax Status Tax Matters
21 Underwriters Additional Information on the Purchase and
Redemption of Fund Shares; See "Investing
in the Funds" and "Fund Service Providers"
in the Prospectus
22 Calculation of Performance Data Performance Information
23 Financial Statements Incorporated by Reference to Annual and
Semi-Annual Reports to Shareholders
</TABLE>
<PAGE>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MULTISTATE TRUST I
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
Prospectus
[PHOTO OF WOMAN APPEARS HERE]
[LOGO OF NUVEEN]
Municipal
Mutual
Funds
Dependable, tax-free income to help you keep more of what you earn.
Maryland
Pennsylvania
Virginia
February 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
INVESTING IN NUVEEN MUTUAL FUNDS
Since our founding in 1898, John Nuveen & Co. has been synonymous with invest-
ments that withstand the test of time. Today, we offer a range of equity and
fixed-income mutual funds designed to suit the unique circumstances and finan-
cial planning needs of mature investors. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value-investing -- purchasing securities of strong companies and communities
at an attractive price -- is the cornerstone of Nuveen's investment philoso-
phy. A long-term strategy that offers the potential for above average returns
over time with moderated risk, successful value-investing begins with in-depth
research and a discerning eye for value. Our team of investment professionals
is backed by the discipline, resources and expertise of Nuveen's almost a
century of investment experience, including one of the most recognized
research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
- --------------------------------------------------------------------------------
OVERVIEW
The funds listed above are part of the Nuveen Flagship Multistate Trust I, an
open-end investment company. Each fund seeks to provide high double or triple
tax-free income and preservation of capital through investments in diversified
portfolios of quality municipal bonds whose income is exempt from regular
federal, state and, in some cases, local income taxes.
Each fund offers a set of flexible purchase options which permit you to
purchase fund shares in the way that is best suited to your individual circum-
stances and investment needs. For detailed information about these flexible
purchase options, please refer to "How to Select a Purchase Option" later in
this prospectus.
This prospectus contains important information you should know before invest-
ing. Please read it carefully and keep it for future reference. You can find
more detailed information about each fund in the statement of additional infor-
mation which is part of this prospectus by reference. For a free copy, write to
Nuveen or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY. SHARES OF THE FUNDS
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
OVERVIEW 1
FUND SUMMARIES AND FINANCIAL HIGHLIGHTS 2
FUND STRATEGIES
Investment Objective 8
How the Funds Select Investments 8
Risk Reduction Strategies 9
INVESTING IN THE FUNDS
How to Buy Fund Shares 10
How to Select a Purchase Option 10
How to Sell Fund Shares 11
Exchanging Shares 12
Optional Features and Services 13
DIVIDENDS AND TAXES
How the Funds Pay Dividends 14
Taxes and Tax Reporting 14
Taxable Equivalent Yields 16
GENERAL INFORMATION
How to Contact Nuveen 16
Fund Service Providers 16
How the Funds Report Performance 17
How Fund Shares are Priced 17
Organization 18
APPENDIX
Special State Considerations 18
</TABLE>
FEBRUARY 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Maryland Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
December 13, 1991
NET ASSETS:
$55.8 million
Information as of 7/31/96 See Notes on Next Page z
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 1.07% 5.50% 0.74% 4.71% 5.74%
INCEPTION 5.49% 6.53% 5.60% 5.78% 6.80%
- -----------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A and C
total returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class R performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class B total returns reflect Class R performance for all periods,
adjusted for the differences in sales charges and fees between the classes. See
Overview of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE:
Average Maturity 19.9
Average Modified Duration 6.8
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE:]
AAA (59%)
AA (22%)
A (10%)
BBB (2%)
NR (7%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE:]
Housing Facilities (22%)
General Obligation (15%)
Health Care Facilities (14%)
Escrowed Bonds (13%)
Transportation (10%)
Other (26%)
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER 0.32% 0.32% 0.32% 0.32%
- -------------------------------------------------------------------------------------------------
TOTAL (GROSS) 1.07% 1.82% 1.62% 0.87%
WAIVERS/
REIMBURSEMENTS (0.12%) (0.12%) (0.12%) (0.12%)
- -------------------------------------------------------------------------------------------------
TOTAL (NET) 0.95% 1.70% 1.50% 0.75%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 51 $ 57 $ 15 $ 8
3 YEARS $ 71 $ 85 $ 47 $24
5 YEARS $ 92 $104 $ 82 $42
10 YEARS $154 $181 $179 $93
</TABLE>
- --------------------------------------------------------------------------------
PAGE 2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Arthur Andersen LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
- -------------------------------------------- ---------------------------------
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
January 31, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
CLASS A (9/94)
1997(e) $10.430 $.254 $ (.281) $(.243) $ -- $10.160
- -------------------------------------------------------------------------------------
1996 9.600 .483 .844 (.497) -- 10.430
- -------------------------------------------------------------------------------------
1995(d) 9.840 .198 (.229) (.207) (.002) 9.600
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997(e) 10.420 .211 (.277) (.204) -- 10.150
- -------------------------------------------------------------------------------------
1996 9.590 .409 .842 (.421) -- 10.420
- -------------------------------------------------------------------------------------
1995(d) 9.750 .160 (.153) (.167) -- 9.590
- -------------------------------------------------------------------------------------
CLASS R (12/91)
1997(e) 10.440 .258 (.273) (.255) -- 10.170
- -------------------------------------------------------------------------------------
1996 9.610 .513 .838 (.521) -- 10.440
- -------------------------------------------------------------------------------------
1995 10.620 .513 (1.008) (.513) (.002) 9.610
- -------------------------------------------------------------------------------------
1994 9.910 .509 .727 (.503) (.023) 10.620
- -------------------------------------------------------------------------------------
1993(d) 9.525 .442 .395 (.442) (.010) 9.910
- -------------------------------------------------------------------------------------
1992 9.525 -- -- -- -- 9.525
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
January 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
CLASS A (9/94)
1997(e) (.24)% $ 9.3 1.00%+ 4.86%+ 4%
- -------------------------------------------------------------------------------------
1996 14.07 6.9 1.00 4.74 17
- -------------------------------------------------------------------------------------
1995(d) (.26) 1.6 1.00+ 5.26+ 35
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997(e) (.62) 1.7 1.75+ 4.11+ 4
- -------------------------------------------------------------------------------------
1996 13.24 1.4 1.75 4.04 17
- -------------------------------------------------------------------------------------
1995(d) .12 .9 1.75+ 4.55+ 35
- -------------------------------------------------------------------------------------
CLASS R (12/91)
1997(e) (.12) 44.7 .75+ 5.12+ 4
- -------------------------------------------------------------------------------------
1996 14.33 47.4 .75 5.07 17
- -------------------------------------------------------------------------------------
1995 (4.58) 42.7 .75 5.28 35
- -------------------------------------------------------------------------------------
1994 12.71 47.8 .75 4.85 4
- -------------------------------------------------------------------------------------
1993(d) 8.96 28.3 .75+ 4.96+ 20
- -------------------------------------------------------------------------------------
1992 -- 15 -- -- --
- -------------------------------------------------------------------------------------
</TABLE>
+Annualized.
(a)Net of any applicable taxes.
(b)Total returns are calculated on net asset value and are not annualized.
(c)After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d)From commencement of class operations as noted.
(e)For the six months ending July 31, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) Reflects sales charge in effect February 1, 1997. The sales charge may be
reduced or waived based on the amount of purchase or for certain eligible
categories of investors. A CDSC of 1% is imposed on redemptions of certain
purchases of $1 million or more within 18 months of purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the funds reduced the service fee on Class A
and C shares from 0.25% to 0.20% and reduced the distribution fee on Class
C shares from 0.75% to 0.55%. These lower expenses
are reflected in the table and are expected to reduce total operating
expenses on Class A from 1.00% to 0.95% and on Class C from 1.75% to 1.50%,
as reflected in the table. Long-term holders of Class B and C shares may
pay more in distribution fees and CDSCs than the maximum initial sales
charge permitted under National Association of Securities Dealers (NASD)
Rules of Fair Practice. Nuveen Advisory has voluntarily agreed through July
31, 1997 to waive fees or reimburse expenses so that the total operating
expenses (not counting distribution and service fees) for the fund do not
exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
- -------------------------------------------------------------------------------
Nuveen Flagship Pennsylvania Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
October 29, 1986
NET ASSETS:
$50.1 million
Information as of 11/30/96 See Notes on Next Page
- -------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.88% 5.30% 0.75% 4.73% 5.30%
5 YEARS 6.51% 7.43% 6.69% 6.89% 7.43%
10 YEARS 6.79% 7.24% 6.78% 6.68% 7.24%
INCEPTION 6.88% 7.33% 6.87% 6.76% 7.33%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C
total returns reflect actual performance for periods since class inception
(see "Financial Highlights" for dates), and Class A performance for periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes. Class B and R total returns reflect Class A perfor-
mance for all periods, adjusted for the differences in sales charges (and for
Class B, fees) between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies in the prospectus for further information.
- -------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE:
Average Maturity 20.5
Averaged Modified Duration 7.3
- -------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE:
AA (6%)
A (21%)
BBB (29%)
NR (4%)
AAA (40%)
- -------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE:
Housing/Single Family (10%)
Pre-refunded (9%)
Education (9%)
Other (29%)
Hospitals (25%)
Industrial Development & Pollution Control (18%)]
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
- -------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER 0.16% 0.16% 0.16% 0.16%
- ---------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.91% 1.66% 1.46% 0.71%
- ---------------------------------------------------------------------------------------------
WAIVERS/
REIMBURSEMENTS (0.25%) (0.25%) (0.25%) (0.25%)
- ---------------------------------------------------------------------------------------------
TOTAL (NET) 0.66% 1.41% 1.21% 0.46%
</TABLE>
- -------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 48 $ 54 $ 12 $ 5
3 YEARS $ 62 $ 77 $ 38 $15
5 YEARS $ 77 $ 89 $ 67 $26
10 YEARS $121 $149 $147 $58
</TABLE>
- -------------------------------------------------------------------------------
PAGE 4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
- -------------------------------------------- ---------------------------------
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (10/86)
1997(d) $10.00 $.28 $.34 $(.29) $ -- $10.33
- -------------------------------------------------------------------------------------
1996 10.21 .59 (.20) (.60) -- 10.00
- -------------------------------------------------------------------------------------
1995 10.06 .60 .16 (.61) -- 10.21
- -------------------------------------------------------------------------------------
1994 10.38 .61 (.32) (.61) -- 10.06
- -------------------------------------------------------------------------------------
1993 9.90 .62 .47 (.61) -- 10.38
- -------------------------------------------------------------------------------------
1992 9.60 .63 .30 (.63) -- 9.90
- -------------------------------------------------------------------------------------
1991 9.39 .62 .22 (.63) -- 9.60
- -------------------------------------------------------------------------------------
1990 9.49 .63 (.10) (.63) -- 9.39
- -------------------------------------------------------------------------------------
1989 9.01 .64 .48 (.64) -- 9.49
- -------------------------------------------------------------------------------------
1988 8.83 .65 .18 (.65) -- 9.01
- -------------------------------------------------------------------------------------
1987(e) 9.58 .35 (.75) (.35) -- 8.83
- -------------------------------------------------------------------------------------
CLASS C (2/94)
1997(d) 9.99 .25 .35 (.26) -- 10.33
- -------------------------------------------------------------------------------------
1996 10.21 .53 (.21) (.54) -- 9.99
- -------------------------------------------------------------------------------------
1995 10.06 .54 .16 (.55) -- 10.21
- -------------------------------------------------------------------------------------
1994(e) 10.71 .16 (.64) (.17) -- 10.06
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A (10/86)
1997(d) 12.47%+ $44.8 .84%+ 5.57%+ 21%
- -------------------------------------------------------------------------------------
1996 3.83 44.4 .79 5.76 65
- -------------------------------------------------------------------------------------
1995 7.90 42.6 .89 6.08 50
- -------------------------------------------------------------------------------------
1994 2.70 42.2 .91 5.80 21
- -------------------------------------------------------------------------------------
1993 11.34 40.7 .92 6.07 23
- -------------------------------------------------------------------------------------
1992 9.98 36.9 .83 6.47 41
- -------------------------------------------------------------------------------------
1991 9.26 35.4 .91 6.63 23
- -------------------------------------------------------------------------------------
1990 5.70 35.6 .92 6.65 30
- -------------------------------------------------------------------------------------
1989 12.79 33.5 .98 6.84 23
- -------------------------------------------------------------------------------------
1988 9.70 33.8 .72 7.28 52
- -------------------------------------------------------------------------------------
1987(e) (7.77) 29.0 .69+ 6.29+ 63
- -------------------------------------------------------------------------------------
CLASS C (2/94)
1997(d) 12.11+ 5.4 1.38+ 5.00+ 21
- -------------------------------------------------------------------------------------
1996 3.16 4.4 1.34 5.19 65
- -------------------------------------------------------------------------------------
1995 7.31 3.1 1.39 5.50 50
- -------------------------------------------------------------------------------------
1994(e) (13.46) 1.7 1.41+ 4.91+ 21
- -------------------------------------------------------------------------------------
</TABLE>
+Annualized.
(a)Net of any applicable taxes.
(b)Total returns are calculated on net asset value and are annualized in the
first year after commencement of class operations.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d)For the six months ending November 30, 1996.
(e)From commencement of class operations as noted.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 0.86% to 0.66%
and on Class C from 1.41% to 1.21%, as reflected in the table. Long-term
holders of Class B and C shares may pay more in distribution fees and CDSCs
than the maximum initial sales charge permitted under National Association
of Securities Dealers (NASD) Rules of Fair Practice. The
waiver/reimbursement levels shown reflect Nuveen's current undertaking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers--Investment Adviser," to continue Flagship's
general dividend-setting practices. Nuveen Advisory also has voluntarily
agreed through July 31, 1997 to waive fees or reimburse expenses so that
the total operating expenses (not counting distribution and service fees)
for the fund do not exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Virginia Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
March 27, 1986
NET ASSETS:
$131.0 million
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.92% 5.34% 0.77% 4.86% 5.34%
5 YEARS 6.59% 7.51% 6.77% 6.90% 7.51%
10 YEARS 6.96% 7.42% 6.95% 6.82% 7.42%
INCEPTION 7.24% 7.68% 7.24% 7.07% 7.68%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class B and R total returns reflect Class A performance for all
periods, adjusted for the differences in sales charges (and for Class B, fees)
between the classes. See Overview of Fund Operating Expenses and Shareholder
Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 20.4
Average Modified Duration 7.4
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA (23%)
AA (26%)
A (30%)
BBB (13%)
NR (8%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Hospitals (15%)
Industrial Development and Pollution Control (14%)
Municipal Appropriation Obligations (13%)
Education (13%)
State/Territorial General Obligations (8%)
Other (37%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER 0.12% 0.12% 0.12% 0.12%
- ---------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.87% 1.62% 1.42% 0.67%
WAIVERS/
REIMBURSEMENTS (0.10%) (0.10%) (0.10%) (0.10%)
- ---------------------------------------------------------------------------------------------
TOTAL (NET) 0.77% 1.52% 1.32% 0.57%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 50 $ 55 $ 13 $ 6
3 YEARS $ 66 $ 80 $ 42 $18
5 YEARS $ 83 $ 94 $ 72 $32
10 YEARS $133 $161 $159 $71
</TABLE>
- --------------------------------------------------------------------------------
PAGE 6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
---------------- ------------------------------------------------------------------
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
CLASS A (3/86)
1997(e) $10.40 $.29 $.33 $(.29) $ -- $10.73
- -------------------------------------------------------------------------------------
1996 10.56 .57 (.15) (.58) -- 10.40
- -------------------------------------------------------------------------------------
1995 10.36 .59 .20 (.59) -- 10.56
- -------------------------------------------------------------------------------------
1994 10.82 .60 (.31) (.60) (.15) 10.36
- -------------------------------------------------------------------------------------
1993 10.24 .62 .62 (.62) (.04) 10.82
- -------------------------------------------------------------------------------------
1992 9.97 .63 .27 (.63) -- 10.24
- -------------------------------------------------------------------------------------
1991 9.70 .63 .28 (.64) -- 9.97
- -------------------------------------------------------------------------------------
1990 9.76 .64 (.06) (.64) -- 9.70
- -------------------------------------------------------------------------------------
1989 9.29 .64 .46 (.63) -- 9.76
- -------------------------------------------------------------------------------------
1988 9.09 .64 .19 (.63) -- 9.29
- -------------------------------------------------------------------------------------
1987 9.25 .63 (.16) (.63) -- 9.09
- -------------------------------------------------------------------------------------
1986(d) 9.58 .09 (.33) (.09) -- 9.25
- -------------------------------------------------------------------------------------
CLASS C (10/93)
1997(e) 10.39 .26 .34 (.26) -- 10.73
- -------------------------------------------------------------------------------------
1996 10.56 .51 (.16) (.52) -- 10.39
- -------------------------------------------------------------------------------------
1995 10.36 .53 .20 (.53) -- 10.56
- -------------------------------------------------------------------------------------
1994(d) 11.24 .34 (.78) (.34) (.10) 10.36
- -------------------------------------------------------------------------------------
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
CLASS A (3/86)
1997(e) 11.99%+ $118.5 .80%+ 5.41%+ 12%
- -------------------------------------------------------------------------------------
1996 4.03 117.7 .83 5.41 17
- -------------------------------------------------------------------------------------
1995 7.99 112.6 .79 5.81 50
- -------------------------------------------------------------------------------------
1994 2.62 107.5 .64 5.53 17
- -------------------------------------------------------------------------------------
1993 12.41 96.1 .68 5.82 30
- -------------------------------------------------------------------------------------
1992 9.37 64.6 .75 6.28 27
- -------------------------------------------------------------------------------------
1991 9.72 48.1 .91 6.48 22
- -------------------------------------------------------------------------------------
1990 6.14 41.6 .91 6.54 35
- -------------------------------------------------------------------------------------
1989 12.25 37.2 .97 6.69 18
- -------------------------------------------------------------------------------------
1988 9.73 31.7 .88 6.95 75
- -------------------------------------------------------------------------------------
1987 5.03 32.7 .68 6.54 75
- -------------------------------------------------------------------------------------
1986(d) (33.49) 12.6 .70+ 5.25+ 9
- -------------------------------------------------------------------------------------
CLASS C (10/93)
1997(e) 11.61+ 12.5 1.35+ 4.84+ 12
- -------------------------------------------------------------------------------------
1996 3.37 11.0 1.38 4.84 17
- -------------------------------------------------------------------------------------
1995 7.40 6.5 1.34 5.24 50
- -------------------------------------------------------------------------------------
1994(d) (7.13) 4.8 1.14+ 4.85+ 17
- -------------------------------------------------------------------------------------
</TABLE>
+Annualized.
(a)Net of any applicable taxes.
(b)Total returns are calculated on net asset value and are annualized in the
first year after commencement of class operations.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d)From commencement of class operations as noted.
(e)For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 0.97% to 0.77%
and on Class C from 1.52% to 1.32%, as reflected in the table. Long-term
holders of Class C shares may pay more in distribution fees and CDSCs than
the maximum initial sales charge permitted under National Association of
Securities Dealers (NASD) Rules of Fair Practice. The waiver/reimbursement
levels shown reflect Nuveen's current undertaking, made in connection with
its acquisition of Flagship Resources as described in "Fund Service Provid-
ers--Investment Adviser," to continue Flagship's general dividend-setting
practices. Nuveen Advisory also has voluntarily agreed through July 31,
1997 to waive fees or reimburse expenses so that the total operating
expenses (not counting distribution and service fees) for the fund do not
exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 7
<PAGE>
FUND STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital. There is no
assurance that the funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401k plan;
. Avoid fluctuations in share price.
- --------------------------------------------------------------------------------
HOW THE FUNDS SELECT
INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds from a specific state that pay interest that is exempt from regular
federal, state and, in some cases, local income taxes. Income from these bonds
may be subject to the federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by the
full faith and credit, or taxing authority, of the issuer and may be repaid
from any revenue source; revenue bonds may be repaid only from the revenues of
a specific facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds focus on quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal bonds
of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes. The funds may not invest more
than 20% of their net assets in these territorial municipal bonds.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase leases where the issuer has a strong
incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not iden-
tical--S&P and Fitch consider bonds rated BBB to have adequate capacity to pay
principal and interest; Moody's considers bonds rated Baa to have some specula-
tive characteristics. Bond ratings represent the opinions of the ratings agen-
cies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The adviser
then monitors each fund's portfolio to assure that municipal bonds purchased
continue to represent over time, in its opinion, the best values available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an invest-
ment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
- --------------------------------------------------------------------------------
PAGE 8
<PAGE>
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is sold
and replaced with new securities during a year is known as the fund's portfolio
turnover rate. The funds intend to keep portfolio turnover relatively low
in order to reduce trading costs and the realization of taxable capital gains.
Each fund, however, may make limited short-term trades to take advantage of
market opportunities and reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of risk
because no interest accrues on the bonds prior to settlement and, since securi-
ties are subject to market fluctuation, the value of the bonds at time of
delivery may be less (or more) than cost.
- --------------------------------------------------------------------------------
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is the
risk that changes in market interest rates will affect the value of a fund's
investment portfolio. In general, the value of a municipal bond falls when
interest rates rise, and increases when interest rates fall. Credit risk is the
risk that an issuer of a municipal bond is unable to meet its obligation to
make interest and principal payments. In general, lower rated municipal bonds
are perceived to carry a greater degree of risk in the issuer's ability to make
interest and principal payments. Municipal bonds with longer maturities (dura-
tions) or lower ratings generally provide higher current income, but are
subject to greater price fluctuation due to changes in market conditions than
bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. These risks may be
greater for the funds because they are "non-diversified" funds which authorizes
them to concentrate their investments in municipal bonds of certain issuers to
a greater extent than diversified funds.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund
assets) designed to limit your investment risk and maintain portfolio diversi-
fication. Each fund may not have more than:
. 25% in any one industry sector, such as electric utilities or health care;
. 10% in borrowings (33% if used to meet redemptions).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities that
are exempt from regular federal income tax, although the funds may invest up to
100% as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have a
maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds" and "Risk Reduction Strategies" are funda-
mental and may not be changed without the approval of a majority of the share-
holders of each fund.
- --------------------------------------------------------------------------------
PAGE 9
<PAGE>
INVESTING IN THE FUNDS
- -------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
You may open an account with $3,000 and make additional investments at any
time with as little as $50. Reinvestment of Nuveen unit trust distributions
have no purchase minimums. The share price you pay will depend on when Nuveen
receives your order: orders received before the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern time) will receive
that day's share price; otherwise you will receive the next business day's
share price.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial
advisers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments
continue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can
refer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to
the appropriate fund) to the address listed under "How to Contact Nuveen."
Sales charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or
increase minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
- -------------------------------------------------------------------------------
HOW TO SELECT A PURCHASE
OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your
investment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of
purchase. The price you pay will equal the Class A NAV (net asset value) plus
a sales charge based upon the amount of your purchase. Class A shares also
bear a 0.20% annual service fee which compensates your financial adviser for
providing you with ongoing service.
The following Class A sales charges and commissions apply to all funds
described in this prospectus:
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------ ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over --(1) -- --(1)
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commis-
sion, you may be assessed a contingent deferred sales charge (CDSC) of 1%
if you redeem any of your shares within 18 months of purchase. The CDSC is
calculated on the lower of your purchase price or redemption proceeds.
- -------------------------------------------------------------------------------
PAGE 10
<PAGE>
Nuveen periodically undertakes sales promotion programs with authorized
dealers and may pay them the full applicable sales charge as a commission. In
addition, Nuveen may provide support at its own expense to authorized dealers
in connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain
circumstances, Nuveen also will share with authorized dealers up to half the
costs of advertising that features the products and services of both parties.
The statement of additional information contains further information about
these programs.
- -------------------------------------------------------------------------------
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
SALES CHARGE REDUCTIONS
.Rights of Accumulation
.Letter of Intent (LOI)
.Group Purchase
SALES CHARGE WAIVERS
. Unit Trust Reinvestment
. Purchases using Redemptions from Unrelated Funds
. Fee-Based Programs
. Bank Trust Departments
. Certain Employees of Nuveen or Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of
purchase. The price you pay will equal the Class B NAV. There is no initial
sales charge, but Class B shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your finan-
cial adviser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after
purchase. Class B shares will convert only if the fund is assured that the
conversion does not generate tax consequences for investors, based upon the
opinion of outside counsel or the written assurance of the IRS.
- -------------------------------------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be
assessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
<TABLE>
<CAPTION>
DURING YEAR
---------------------------
1 2 3 4 5 6 7+
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of
purchase. The price you pay will equal the Class C NAV. There is no initial
sales charge, Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55%
annual distribution fee which compensates Nuveen for paying your financial
adviser for the sale, including a 1% commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you are investing at least $1 million or would otherwise
qualify to purchase Class A shares without a sales charge as described under
"Other Sales Charge Discounts" above. There are no sales charges or ongoing
fees. Class R Shares have lower ongoing expenses than Class A Shares.
- -------------------------------------------------------------------------------
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the
- -------------------------------------------------------------------------------
PAGE 11
<PAGE>
necessary documentation. Your financial adviser may charge you for this serv-
ice.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on
record. If you have established electronic funds transfer privileges on your
account, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your
request by having your redemption proceeds wired directly into your bank
account.
Nuveen, Shareholder Services, Inc. ("SSI"), and Boston Financial Data Services
("Boston Financial") will be liable for losses resulting from unauthorized
telephone redemptions only if they do not follow reasonable procedures
designed to verify the identity of the caller. You should immediately verify
your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
. The address you want your redemption proceeds sent to, if other than to the
address of record;
. Any certificates you have for the shares; and
. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than
15 days prior to your request, the fund will not mail your redemption proceeds
until the check for your purchase has cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that
represent an increase in the value of your fund account due to capital appre-
ciation, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as
described in the statement of additional information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
- -------------------------------------------------------------------------------
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in
another Nuveen mutual fund that is available within your state. You may
exchange fund shares by calling (800) 621-7227 or by mailing your written
request to Nuveen at the address listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are
exchanging. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of deter-
mining any future CDSC. You may not
- -------------------------------------------------------------------------------
PAGE 12
<PAGE>
exchange Class B shares for shares of a Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on fund
shareholders. In order to limit excessive exchange activity and in other
circumstances where the funds' investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges, or
reject any exchange. You will be notified in the event this happens to the
extent required by law.
- --------------------------------------------------------------------------------
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund
Direct--Electronic Funds Transfer" below), or directly from your paycheck. To
invest regularly from your bank account, simply complete the appropriate
section of the account application. To invest regularly from your paycheck,
call Nuveen for a Payroll Direct Deposit Enrollment form. If you need addi-
tional copies of these forms, or would like assistance completing them, contact
your financial adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to
continue investing in declining as well as rising markets before deciding to
invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
(CHART APPEARS HERE)
<TABLE>
<CAPTION>
ACCOUNT VALUES FOR TOTAL RETURNS OF
AMOUNT -----------------------------------
YEAR INVESTED 4.00% 5.00% 6.00%
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
0 $ 2,874 $ 2,874 $ 2,874 $ 2,874
5 8,622 9,861 10,203 10,561
10 14,370 18,391 19,610 20,929
15 20,118 28,807 31,681 34,913
20 25,866 41,525 47,173 53,779
</TABLE>
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly or semi-annually, and may choose to receive a
check, have the monies transferred directly into your bank account (see "Fund
Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must
complete the appropriate section of the account application to participate in
the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares on which you paid an initial sales charge or contin-
gent deferred sales charge (CDSC), you may reinvest all or part of your redemp-
tion proceeds up to one year later without incurring any additional charge. You
may only reinvest into the same class of shares you redeemed and will receive
the share price next deter-mined after Nuveen receives your reinvestment
request. You may exercise this privilege only once per redemption request.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of
exercising your reinstatement privilege.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation. If you need additional copies of this form, or would like assistance
completing it, contact your financial adviser or call Nuveen at (800) 621-
7227. You may use Fund Direct to quickly and conveniently purchase or sell
shares by telephone, systematically invest or withdraw funds, or send dividend
payments directly to your bank account.
If you have established electronic funds transfer privileges on your account,
you may request that redemption proceeds of $1,000 or more be wired directly
into your bank account. While you will generally receive your redemption
proceeds more quickly than a regular telephone redemption, the fund may charge
you a fee for this expedited service.
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends or
about on the ninth of each month and generally pay dividends on the first
business day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares unless you request otherwise. You may request to have your dividends
paid to you by check, deposited directly into your bank account, paid to a
third party, sent to an address other than your address of record or rein-
vested in shares of another Nuveen mutual fund. If you wish to do so, complete
the appropriate section of the account application, contact your financial
adviser or call Nuveen at (800) 621-7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
- -------------------------------------------------------------------------------
TAXES AND TAX REPORTING
The discussion below and the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in municipal bonds from a specific state or in
municipal bonds whose income is otherwise exempt from regular federal, state
and local income taxes. Consequently, the regular
- -------------------------------------------------------------------------------
PAGE 14
<PAGE>
monthly dividends you receive will be exempt from regular federal, state and,
in some cases, local income taxes. All or a portion of these dividends,
however, may be subject to the federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of its
investment income by state and the portion of its income that is subject to
AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a
portion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or
exchange fund shares shortly before the record date for a tax-exempt dividend,
a portion of the price you receive may be treated as a taxable capital gain
even though it reflects tax-free income earned but not yet distributed by the
fund.
TAX CONSEQUENCES OF PRIVATE ACTIVITY BONDS
Because each fund may invest in private activity bonds, the portion of your
regular monthly dividends derived from the income earned on these bonds that
would otherwise be tax-exempt will be treated as taxable income if:
. you are subject to the AMT (including corporate shareholders);
. you are a "substantial user" of a facility financed by these bonds; or
. you are a "related person" of a substantial user.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months and
you recognized a short-term capital loss when you redeemed your shares, the
loss you can claim will be reduced by the amount of tax-free dividends paid to
you on those shares. Any remaining short-term capital loss will be treated as
long-term capital loss to the extent you also received capital gain dividends
on those shares. You should consult your tax adviser for complete information
about these rules. Please consider the tax consequences carefully when contem-
plating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be taxable
as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you have
not provided the fund with your correct taxpayer identification number (nor-
mally your social security number), or if you are otherwise subject to back-up
withholding.
If you receive social security benefits, you should be aware that tax-free
income is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on that
loan. Under I.R.S. rules, fund shares may be treated as having been bought with
borrowed money even if the purchase cannot be traced directly to borrowed
money.
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
<TABLE>
<CAPTION>
TAX-FREE YIELD
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or
conduct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
Nuveen Mutual Funds
c/o Shareholder Services Inc.
P.O. Box 5330
Denver, CO 80217-5330
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the Fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are
opening a new account; if you are adding to an existing account, Nuveen will
assume you wish to buy more shares of the class you already own.
- -------------------------------------------------------------------------------
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The activities of Nuveen
Advisory, which also include managing the funds' business affairs and
providing certain clerical, bookkeeping and other administrative services, are
overseen by the funds' Board of Trustees. Established in 1976, Nuveen Advisory
is a wholly-owned subsidiary of John Nuveen & Co. Incorporated, which itself
is approximately 78% owned by the St. Paul Companies, Inc. Effective January
1, 1997, The John Nuveen Company acquired Flagship Resources Inc., and as part
of that acquisition, Flagship Financial, the adviser to the Flagship Funds,
was merged with Nuveen Advisory.
- -------------------------------------------------------------------------------
PAGE 16
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and port-
folio managers of Nuveen Advisory and meets regularly to review economic
conditions, the outlook for the financial markets in general and the status of
the municipal markets in particular. Day-to-day operation of each fund and the
execution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Edward F. Neild IV is an Assistant Vice President of Nuveen Advisory and the
portfolio manager of the Maryland Fund. Mr. Neild has managed the fund since
February 1992 and joined Nuveen Advisory in February 1992. Richard Huber is
the portfolio manager for the Pennsylvania Fund. Mr. Huber has managed the
fund since 1995 as a Vice President of Flagship Financial Inc., the fund's
prior investment adviser, until becoming a Vice President of Nuveen Advisory
upon the acquisition of Flagship Resources Inc. by The John Nuveen Company in
January 1997. Richard Huber also is the portfolio manager for the Virginia
Fund. Mr. Huber has managed the fund since 1992.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor
of the funds' shares. In this capacity, Nuveen manages the offering of the
funds' shares and is responsible for all sales and promotional activities. In
order to reimburse Nuveen for its costs in connection with these activities,
including compensation paid to authorized dealers, each fund has adopted a
distribution and service plan under Rule 12b-1 of the Investment Company Act
of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at the time of sale on
sales of Class B and Class C shares, Nuveen retains the first year's service
fee on sales of Class B shares and all Class B distribution fees; and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of record. The statement of
additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder
accounts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330,
currently serves as transfer agent for the Maryland Fund. Boston Financial,
P.O. Box 8509, Boston, MA 02266-8509, currently serves as transfer agent for
the Pennsylvania and Virginia Funds. The funds intend to consolidate transfer
agent activities with a single firm in the future.
- -------------------------------------------------------------------------------
HOW THE FUNDS REPORT
PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar
investment objectives. Comparative performance information may include data
from Lipper Analytical Services, Inc., Morningstar, Inc. and other industry
publications. See the statement of additional information for a more detailed
discussion.
- -------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets,
subtracting any liabilities or other debts, and dividing by the total number
of its shares outstanding.
- -------------------------------------------------------------------------------
PAGE 17
<PAGE>
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised 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.
- -------------------------------------------------------------------------------
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same port-
folio of investments and the shares of each class have equal rights as to
voting, redemption, dividends and liquidation. However, each class bears
different sales charges and service fees. B shares convert to A shares after 8
years. C shares purchased before February 1, 1997 convert to A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
The Pennsylvania and Virginia Funds were formed as a result of mergers between
existing Nuveen and Flagship funds. The performance and the financial informa-
tion of each fund reflects that of the predecessor Flagship fund.
APPENDIX
- -------------------------------------------------------------------------------
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering
statements of these issuers and has not been independently verified by the
funds. The discussion includes general state tax information related to an
investment in fund shares. Because tax laws are complex and often change, you
should consult your tax adviser about the state tax consequences of a specific
fund investment. See the statement of additional information for further
information.
MARYLAND
Maryland's rate of economic growth has slowed in the 1990's after a period of
rapid expansion in the decade before. Indicators such as income growth, unem-
ployment and retail sales levels have trailed the national average. Services,
wholesale and retail trade, government and manufacturing account for most of
the State's employment. Unlike in most states, government employment surpasses
manufacturing employment in Maryland. The manufacturing sector consists
chiefly of printing and publishing, food products, industrial machinery, elec-
tronics and chemicals.
The State's unemployment rate fell to 4.7% by August 1996 from 5.0% a year
earlier. Both times, it ranked below the national average. Maryland residents'
personal income per capita ranks fifth in the nation. Per capita income rose
4.3% in 1995 to reach $25,927.
The State Constitution mandates a balanced budget forcing the Governor to
reduce 1993 appropriations to offset a 1992 deficit. State expenditures
totaled $11.8 billion and $12.4 billion in 1993 and 1994. The State estimated
1995 expenditures at $13.4 billion leaving a $49.5 million surplus. Reserves
totaled some $223.6 million at the end of fiscal 1995. As of February 9, 1996,
Moody's gives the State's general obligation debt an Aaa rating while S&P
gives it an AAA rating.
Tax Treatment.
The Maryland Fund's regular monthly dividends will not be subject to Maryland
personal income taxes to the extent they are paid out of income earned on
Maryland municipal bonds or U.S. government securities. You will be subject to
Maryland personal
- -------------------------------------------------------------------------------
PAGE 18
<PAGE>
income taxes, however, to the extent the Maryland Fund distributes any taxable
income, or if you sell or exchange Maryland Fund shares and realize a capital
gain on the transaction.
The treatment of corporate shareholders is similar to that described above.
PENNSYLVANIA
Both Pennsylvania and its largest city, Philadelphia, have experienced diffi-
cult budget shortfalls in recent years. The industrial composition of the
Commonwealth has diversified from its peak as heavy-industry cluster for coal
and steel production, especially with
the advent of foreign competition in the last decade. Manufacturing employment
has fallen behind that of the service and trade sectors. New growth emanates
from the service sectors, especially trade, medical and health services,
educational and financial institutions. Agriculture remains an important
component of the economic structure while food-related industries support even
more activity.
Pennsylvania's unemployment rate has approximated the national average in the
past year, falling to 5.0% in August 1996 from 5.6% in August 1995. Per capita
income rose 4.9% in 1995 to reach $23,279.
The Governor must submit a balanced operating budget by law and while the
General Assembly may change items, the Governor retains a line-item veto
power. Total appropriations cannot exceed estimated revenues, also taking into
account any deficit or surplus remaining from the previous year. The govern-
ment was forced to enact significant cuts and tax increases to deal with
severe shortfalls in 1990-2. The financial situation improved in 1993 and 1994
leading to surpluses. The 1995 budget also projected surplus of some $4
million. As of February 9, 1996, Moody's gives the State's general obligation
debt an A1 rating while S&P gives it an AA- rating.
Tax Treatment.
The Pennsylvania Fund's regular monthly dividends will not be subject to the
Pennsylvania individual income tax to the extent they are paid out of income
earned on Pennsylvania municipal bonds or U.S. government securities. You will
be subject to Pennsylvania personal income tax, however, to the extent the
Pennsylvania Fund distributes any taxable income or realized capital gains, or
if you sell or exchange Pennsylvania Fund shares and realize a capital gain on
the transaction.
The treatment of corporate shareholders of the Pennsylvania Fund is similar to
that described above.
VIRGINIA
The Virginia economy is broad-based and includes manufacturing, tourism, agri-
culture, ports, mining and fisheries. Export diversification is an encouraging
sign of growth. Manufacturing, while significant, ranks behind services, trade
and government in share of employment. The federal government is a major
employer given the proximity of Washington, D.C. and the large numbers of
workers employed at Hampton Roads, the nation's largest concentration of mili-
tary installations. Civilian defense employment has dropped and further cuts
are likely in the wake of reductions in defense spending. Still, Virginia's
economy has recovered gradually from the nationwide recession. Non-agricul-
tural employment also tends to mirror that of the nation.
Virginia's unemployment rate was a low 4.1% in August 1996 having dropped
further from the previous year's rate of 4.6%. Per capita income rose 4.9% in
1995 to reach $23,597.
Virginia's Constitution requires a balanced biennial budget. Beyond that, the
Commonwealth historically operates on a fiscally conservative basis and
produced undesignated surpluses in 1992, 1993 and 1994. As of February 9,
1996, Moody's gives the State's general obligation debt an Aaa rating while
S&P gives it an AAA rating.
Tax Treatment.
The Virginia Fund's regular monthly dividends will not be subject to Virginia
personal income taxes to the extent they are paid out of income earned on
Virginia municipal bonds or U.S. government securities. You will be subject to
Virginia personal income taxes, however, to the extent the Virginia Fund
distributes any taxable income, or if you sell or exchange Virginia Fund
shares and realize a capital gain on the transaction.
The treatment of corporate shareholders is similar to that described above.
- -------------------------------------------------------------------------------
PAGE 19
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety of funds designed to help
you reach your financial goals. The funds below are grouped by
investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
Notes
1. Long-term, insured long-term, intermediate-term and limited-term
portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
VPR-MS1
<PAGE>
Prospectus
[PHOTO OF WOMAN APPEARS HERE]
[LOGO OF NUVEEN]
Municipal
Mutual
Funds
Dependable, tax-free income to help you keep more of what you earn.
Florida
February 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
INVESTING IN NUVEEN MUTUAL FUNDS
Since our founding in 1898, John Nuveen & Co. has been synonymous with invest-
ments that withstand the test of time. Today, we offer a range of equity and
fixed-income mutual funds designed to suit the unique circumstances and finan-
cial planning needs of mature investors. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value-investing -- purchasing securities of strong companies and communities
at an attractive price -- is the cornerstone of Nuveen's investment philoso-
phy. A long-term strategy that offers the potential for above average returns
over time with moderated risk, successful value-investing begins with in-depth
research and a discerning eye for value. Our team of investment professionals
is backed by the discipline, resources and expertise of Nuveen's almost a
century of investment experience, including one of the most recognized
research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
OVERVIEW
The funds listed above are part of the Nuveen Flagship Multistate Trust I, an
open-end investment company. Each fund seeks to provide high double or triple
tax-free income and preservation of capital through investments in diversified
portfolios of quality municipal bonds whose income is exempt from regular
federal, state and, in some cases, local income taxes.
Each fund offers a set of flexible purchase options which permit you to
purchase fund shares in the way that is best suited to your individual circum-
stances and investment needs. For detailed information about these flexible
purchase options, please refer to "How to Select a Purchase Option" later in
this prospectus.
This prospectus contains important information you should know before invest-
ing. Please read it carefully and keep it for future reference. You can find
more detailed information about each fund in the statement of additional infor-
mation which is part of this prospectus by reference. For a free copy, write to
Nuveen or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY. SHARES OF THE FUNDS
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
OVERVIEW 1
FUND SUMMARIES AND FINANCIAL HIGHLIGHTS 2
FUND STRATEGIES
Investment Objective 6
How the Funds Select Investments 6
Risk Reduction Strategies 7
INVESTING IN THE FUNDS
How to Buy Fund Shares 8
How to Select a Purchase Option 8
How to Sell Fund Shares 10
Exchanging Shares 11
Optional Features and Services 11
DIVIDENDS AND TAXES
How the Funds Pay Dividends 13
Taxes and Tax Reporting 13
Taxable Equivalent Yields 14
GENERAL INFORMATION
How to Contact Nuveen 15
Fund Service Providers 15
How the Funds Report Performance 16
How Fund Shares are Priced 16
Organization 16
APPENDIX
Special State Considerations 17
</TABLE>
FEBRUARY 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Florida Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
June 15, 1990
NET ASSETS:
$314.7 million
Information as of 11/30/96
See Notes on Next Page
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.00% 4.38% (0.15%) 3.92% 4.38%
5 YEARS 6.56% 7.48% 6.74% 6.65% 7.48%
INCEPTION 7.30% 8.02% 7.42% 7.24% 8.02%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class B and R total returns reflect Class A performance for all
periods, adjusted for the differences in sales charges (and for Class B, fees)
between the classes. See Overview of Fund Operating Expenses and Shareholder
Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 21.4
Average Modified Duration 8.3
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA (65%)
AA (11%)
A (11%)
BBB (11%)
NR (2%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Hospitals (17%)
Industrial Development
and Polution Control (12%)
Pre-refunded (10%)
Special Tax Revenue (9%)
Housing/Single Family (8%)
Other (44%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
TRANSACTION EXPENSE CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
FUND EXPENSE CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.54% 0.54% 0.54% 0.54%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER 0.11% 0.11% 0.11% 0.11%
- -------------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.85% 1.60% 1.40% 0.65%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
WAIVERS/
REIMBURSEMENTS -- -- -- --
- ------------------------------------------------------------------------------------------------------
TOTAL (NET) 0.85% 1.60% 1.40% 0.65%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 50 $ 56 $ 14 $ 7
3 YEARS $ 68 $ 82 $ 44 $21
5 YEARS $ 87 $ 99 $ 77 $36
10 YEARS $142 $170 $168 $81
</TABLE>
- --------------------------------------------------------------------------------
PAGE 2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
---------------- ------------------------------------------------------------------
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
CLASS A (6/90)
1997(e) $10.39 $.28 $ .35 $(.28) $ -- $10.74
- -------------------------------------------------------------------------------------
1996 10.63 .57 (.24) (.57) -- 10.39
- -------------------------------------------------------------------------------------
1995 10.38 .58 .26 (.59) -- 10.63
- -------------------------------------------------------------------------------------
1994 10.76 .60 (.38) (.60) -- 10.38
- -------------------------------------------------------------------------------------
1993 10.18 .63 .61 (.64) (.02) 10.76
- -------------------------------------------------------------------------------------
1992 9.87 .66 .33 (.67) (.01) 10.18
- -------------------------------------------------------------------------------------
1991(d) 9.58 .64 .29 (.64) -- 9.87
- -------------------------------------------------------------------------------------
CLASS C (9/95)
1997(e) 10.39 .25 .36 (.25) -- 10.75
- -------------------------------------------------------------------------------------
1996(d) 10.65 .35 (.26) (.35) -- 10.39
- -------------------------------------------------------------------------------------
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
CLASS A (6/90)
1997(e) 12.31%+ $312.0 .87%+ 5.32%+ 31%
- -------------------------------------------------------------------------------------
1996 3.14 318.5 .83 5.36 94
- -------------------------------------------------------------------------------------
1995 8.43 341.4 .73 5.71 53
- -------------------------------------------------------------------------------------
1994 2.00 372.1 .58 5.51 32
- -------------------------------------------------------------------------------------
1993 12.49 369.1 .45 6.01 23
- -------------------------------------------------------------------------------------
1992 10.32 276.8 .26 6.59 50
- -------------------------------------------------------------------------------------
1991(d) 9.81 136.5 .19+ 6.86+ 152
- -------------------------------------------------------------------------------------
CLASS C (9/95)
1997(e) 11.93+ 2.6 1.40+ 4.69+ 31
- -------------------------------------------------------------------------------------
1996(d) 1.30 1.2 1.38+ 4.59+ 94
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value and are annualized for
periods of less than 12 months.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 1.05% to 0.85%
and on Class C from 1.60% to 1.40%, as reflected in the table. Long-term
holders of Class B and C shares may pay more in distribution fees and CDSCs
than the maximum initial sales charge permitted under National Association
of Securities Dealers (NASD) Rules of Fair Prac-tice. The
waiver/reimbursement levels shown reflect Nuveen's current under-taking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers - Investment Adviser," to continue Flag-ship's
general dividend-setting practices. Nuveen Advisory also has volun-tarily
agreed through July 31, 1997 to waive fees or reimburse expenses so that
the total operating expenses (not counting distribution and service fees)
for the fund do not exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Florida Intermediate Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
February 1, 1994
NET ASSETS:
$8.8 million
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS C CLASS R
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 1.68% 4.82% 4.25% 4.82%
INCEPTION 5.32% 6.46% 5.90% 6.46%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class R total returns reflect Class A performance for all periods,
adjusted for the differences in sales charges between the classes. See Overview
of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 9.6
Average Modified Duration 6.6
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
BBB (8%)
A (14%)
AA (11)
AAA (67%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Special Tax Revenue (23%)
Non-State General Obligations (11%)
State/Territorial General Obligations (11%)
Municipal Revenue/Water & Sewer (10%)
Municipal Revenue/Transportation (10%)
Other (35%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES CHARGE ON PURCHASES 3.00%(1) -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 1%(2) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (3)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- ------------------------------------------
<S> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.75% --
OTHER 1.03% 1.03% 1.03%
- ------------------------------------------
TOTAL (GROSS) 1.78% 2.33% 1.58%
WAIVERS/
REIMBURSEMENTS (1.08%) (1.08%) (1.08%)
- ------------------------------------------
TOTAL (NET) 0.70% 1.25% 0.50%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (4)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR $ 37 $ 13 $ 5
3 YEARS $ 52 $ 40 $16
5 YEARS $ 68 $ 69 $28
10 YEARS $114 $151 $63
</TABLE>
- --------------------------------------------------------------------------------
PAGE 4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
--------------- ------------------------------------------------------------------
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION
DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
--------------- --------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (2/94)
1997(e) $ 9.88 $.23 $ .34 $(.23) $ -- $10.22
- ------------------------------------------------------------------------------------
1996 10.05 .46 (.12) (.46) (.05) 9.88
- ------------------------------------------------------------------------------------
1995 9.66 .46 .33 (.40) -- 10.05
- ------------------------------------------------------------------------------------
1994(d) 9.70 .12 (.04) (.12) -- 9.66
- ------------------------------------------------------------------------------------
CLASS C (2/94)
1997(e) 9.88 .21 .33 (.20) -- 10.22
- ------------------------------------------------------------------------------------
1996 10.05 .40 (.11) (.41) (.05) 9.88
- ------------------------------------------------------------------------------------
1995 9.66 .40 .33 (.34) -- 10.05
- ------------------------------------------------------------------------------------
1994(d) 9.70 .11 (.06) (.09) -- 9.66
- ------------------------------------------------------------------------------------
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION
DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ----------------- --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A (2/94)
1997(e) 11.73%+ $5.5 .75+ 4.64%+ 18%
- ------------------------------------------------------------------------------------
1996 3.41 5.0 .76 4.48 66
- ------------------------------------------------------------------------------------
1995 8.42 3.9 .67 4.74 105
- ------------------------------------------------------------------------------------
1994(d) 1.75 1.0 .29+ 3.79+ 28
- ------------------------------------------------------------------------------------
CLASS C (2/94)
1997(e) 11.15+ 3.2 1.30+ 4.09+ 18
- ------------------------------------------------------------------------------------
1996 2.88 3.1 1.34 3.88 66
- ------------------------------------------------------------------------------------
1995 7.80 1.8 1.19 4.19 105
- ------------------------------------------------------------------------------------
1994(d) 1.33 1.1 .68+ 3.42+ 28
- ------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value and are annualized for
periods of less than 12 months.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) Imposed only on redemptions within 12 months of purchase.
(3) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 0.90% to 0.70%
and on Class C from 1.45% to 1.25%, as reflected in the table. Long-term
holders of Class C shares may pay more in distribution fees and CDSCs than
the maximum initial sales charge permitted under National Association of
Securities Dealers (NASD) Rules of Fair Practice. The waiver/reimbursement
levels shown reflect Nuveen's current undertaking, made in connection with
its acquisition of Flagship Resources as described in "Fund Service Provid-
ers--Investment Adviser," to continue Flagship's general dividend-setting
practices.
(4) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
FUND STRATEGIES
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level
of current interest income exempt from regular federal income taxes as is
consistent with preservation of capital. The shares of each fund also will be
exempt from the Florida intangible personal property tax. There is no assur-
ance that the funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401k plan;
. Avoid fluctuations in share price.
- -------------------------------------------------------------------------------
HOW THE FUNDS SELECT
INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal income taxes and
which enable fund shares to be exempt from the Florida intangibles tax. Income
from these bonds may be subject to the federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by
the full faith and credit, or taxing authority, of the issuer and may be
repaid from any revenue source; revenue bonds may be repaid only from the
revenues of a specific facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds focus on quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds are not available at reason-
able prices and yields, a fund may invest in municipal bonds of U.S. territo-
ries (such as Puerto Rico and Guam) which are exempt from regular federal,
state, and local income taxes. The Florida Fund may not invest more than 20%
of its net assets in these territorial municipal bonds.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to
reduce this risk, the funds will only purchase leases where the issuer has a
strong incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not
identical--S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the
ratings agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value
in terms of current yield, price, credit quality and future prospects. The
adviser then monitors each fund's portfolio to assure that municipal bonds
purchased continue to represent over time, in its opinion, the best values
available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an
investment portfolio with an overall weighted average maturity within a
defined range. The Florida Intermediate Fund normally maintains a weighted
average portfolio maturity of 5 to 10 years. The Florida Fund is a long-term
fund and normally maintains a weighted average portfolio maturity of 15 to 30
years. See "Defensive Investment Strategies" below for further information.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is
- -------------------------------------------------------------------------------
PAGE 6
<PAGE>
known as the fund's portfolio turnover rate. The funds intend to keep portfolio
turnover relatively low in order to reduce trading costs and the realization of
taxable capital gains. Each fund, however, may make limited short-term trades
to take advantage of market opportunities and reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of risk
because no interest accrues on the bonds prior to settlement and, since securi-
ties are subject to market fluctuation, the value of the bonds at time of
delivery may be less (or more) than cost.
- --------------------------------------------------------------------------------
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is the
risk that changes in market interest rates will affect the value of a fund's
investment portfolio. In general, the value of a municipal bond falls when
interest rates rise, and increases when interest rates fall. Credit risk is the
risk that an issuer of a municipal bond is unable to meet its obligation to
make interest and principal payments. In general, lower rated municipal bonds
are perceived to carry a greater degree of risk in the issuer's ability to make
interest and principal payments. Municipal bonds with longer maturities (dura-
tions) or lower ratings generally provide higher current income, but are
subject to greater price fluctuation due to changes in market conditions than
bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from Florida, each fund
also bears investment risk from the economic, political or regulatory changes
that could adversely affect municipal bond issuers in the state and therefore
the value of the fund's investment portfolio. These risks may be greater for
the Florida Intermediate Fund, which as a "non-diversified" fund may concen-
trate its investments in municipal bonds of certain issuers to a greater extent
than the Florida Fund described in this prospectus, which is a diversified
fund.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund
assets) designed to limit your investment risk and maintain portfolio diversi-
fication. Each fund may not have more than:
. 25% in any one industry sector, such as electric utilities or health care;
. 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Florida Fund also may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of the fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities that
are exempt from regular federal income tax, although the funds may invest up to
100% as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have a
maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds" and "Risk Reduction Strategies" are funda-
mental and may not be changed without the approval of a majority of the share-
holders of each fund.
- --------------------------------------------------------------------------------
PAGE 7
<PAGE>
INVESTING IN THE FUNDS
- -------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
You may open an account with $3,000 and make additional investments at any
time with as little as $50. Reinvestment of Nuveen unit trust distributions
have no purchase minimums. The share price you pay will depend on when Nuveen
receives your order: orders received before the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern time) will receive
that day's share price; otherwise you will receive the next business day's
share price.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial
advisers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments
continue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can
refer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to
the appropriate fund) to the address listed under "How to Contact Nuveen."
Sales charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or
increase minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
- -------------------------------------------------------------------------------
HOW TO SELECT A
PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your
investment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of
purchase. The price you pay will equal the Class A NAV (net asset value) plus
a sales charge based upon the amount of your purchase. Class A shares also
bear a 0.20% annual service fee which compensates your financial adviser for
providing you with ongoing service.
The following Class A sales charges and commissions apply to the Florida
Municipal Bond Fund:
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------ ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over --(1) -- --(1)
</TABLE>
- -------------------------------------------------------------------------------
PAGE 8
<PAGE>
The following Class A sales charges and commissions apply to the Florida Inter-
mediate Municipal Bond Fund:
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------ ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 3.00% 3.09% 2.50%
$50,000-100,000 2.50 2.56 2.00
$100,000-250,000 2.00 2.04 1.50
$250,000-500,000 1.50 1.52 1.25
$500,000-1,000,000 1.25 1.27 1.00
$1,000,000 and over --(1) -- --(1)
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commission,
you may be assessed a contingent deferred sales charge (CDSC) of 1% if you
redeem any of your shares within 18 months of purchase. The CDSC is calcu-
lated on the lower of your purchase price or redemption proceeds.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in connec-
tion with sales meetings, seminars, prospecting seminars and other events at
which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of adver-
tising that features the products and services of both parties. The statement
of additional information contains further information about these programs.
- --------------------------------------------------------------------------------
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
SALES CHARGE REDUCTIONS
. Rights of Accumulation
. Letter of Intent (LOI)
. Group Purchase
SALES CHARGE WAIVERS
. Unit Trust Reinvestment
. Purchases using Redemptions from Unrelated Funds
. Fee-Based Programs
. Bank Trust Departments
. Certain Employees of Nuveen or Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen about
your eligibility for any sales charge reduction or waiver at the time of each
purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of
purchase. The price you pay will equal the Class B NAV. There is no initial
sales charge, but Class B shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your finan-
cial adviser a 4% commission at the time of purchase. The Florida Intermediate
Municipal Bond Fund does not currently offer Class B shares.
Class B shares convert automatically to Class A shares eight years after
purchase. Class B shares will convert only if the fund is assured that the
conversion does not generate tax consequences for investors, based upon the
opinion of outside counsel or the written assurance of the IRS.
- --------------------------------------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be assessed
a contingent deferred sales charge (CDSC) based upon the following schedule:
<TABLE>
<CAPTION>
DURING YEAR
---------------------------
1 2 3 4 5 6 7+
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of
purchase. The price you pay will equal the Class C NAV. There is no initial
sales charge, Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55%
annual distribution fee which compensates Nuveen for paying your financial
adviser for the sale, including a 1% commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
- --------------------------------------------------------------------------------
PAGE 9
<PAGE>
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you are investing at least $1 million or would otherwise
qualify to purchase Class A shares without a sales charge as described under
"Other Sales Charge Discounts" above. There are no sales charges or ongoing
fees. Class R Shares have lower ongoing expenses than Class A Shares.
- -------------------------------------------------------------------------------
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on
record. If you have established electronic funds transfer privileges on your
account, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your
request by having your redemption proceeds wired directly into your bank
account.
Nuveen and Boston Financial Data Services ("Boston Financial") will be liable
for losses resulting from unauthorized telephone redemptions only if they do
not follow reasonable procedures designed to verify the identity of the
caller. You should immediately verify your trade confirmations when you
receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
. The address you want your redemption proceeds sent to, if other than to the
address of record;
. Any certificates you have for the shares; and
. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that
represent an increase in the value of your fund account due to capital appre-
ciation, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived
- -------------------------------------------------------------------------------
PAGE 10
<PAGE>
under certain special circumstances as described in the statement of additional
information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an involun-
tary redemption.
- --------------------------------------------------------------------------------
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in
another Nuveen mutual fund that is available within your state. You may
exchange fund shares by calling (800) 621-7227 or by mailing your written
request to Nuveen at the address listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are
exchanging. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of deter-
mining any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on fund
shareholders. In order to limit excessive exchange activity and in other
circumstances where the funds' investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges, or
reject any exchange. You will be notified in the event this happens to the
extent required by law.
- --------------------------------------------------------------------------------
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund
Direct--Electronic Funds Transfer" below), or directly from your paycheck. To
invest regularly from your bank account, simply complete the appropriate
section of the account application. To invest regularly from your paycheck,
call Nuveen for a Payroll Direct Deposit Enrollment form. If you need addi-
tional copies of these forms, or would like assistance completing them, contact
your financial adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to
continue investing in declining as well as rising markets before deciding to
invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
- --------------------------------------------------------------------------------
PAGE 11
<PAGE>
SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
(CHART APPEARS HERE)
<TABLE>
<CAPTION>
ACCOUNT VALUES FOR TOTAL RETURNS OF
AMOUNT -----------------------------------
YEAR INVESTED 4.00% 5.00% 6.00%
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
0 $ 2,874 $ 2,874 $ 2,874 $ 2,874
5 8,622 9,861 10,203 10,561
10 14,370 18,391 19,610 20,929
15 20,118 28,807 31,681 34,913
20 25,866 41,525 47,173 53,779
</TABLE>
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to
receive payments monthly, quarterly or semi-annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Fund Direct--Electronic Funds Transfer" below), paid to a third party or
sent payable to you at an address other than your address of record. You must
complete the appropriate section of the account application to participate in
the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares on which you paid an initial sales charge or contin-
gent deferred sales charge (CDSC), you may reinvest all or part of your
redemption proceeds up to one year later without incurring any additional
charge. You may only reinvest into the same class of shares you redeemed and
will receive the share price next determined after Nuveen receives your rein-
vestment request. You may exercise this privilege only once per redemption
request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of
exercising your reinstatement privilege.
FUND DIRECT-ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation. If you need additional copies of this form, or would like assistance
completing it, contact your financial adviser or call Nuveen at (800) 621-
7227. You may use Fund Direct to quickly and conveniently purchase or sell
shares by telephone, systematically invest or withdraw funds, or send dividend
payments directly to your bank account.
If you have established electronic funds transfer privileges on your account,
you may request that redemption proceeds of $1,000 or more be wired directly
into your bank account. While you will generally receive your redemption
proceeds more quickly than a regular telephone redemption, the fund may charge
you a fee for this expedited service.
- -------------------------------------------------------------------------------
PAGE 12
<PAGE>
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or other
distributions once a year in December. The funds declare dividends on or about
the ninth of each month and generally pay dividends on the first business day
of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares unless you request otherwise. You may request to have your dividends
paid to you by check, deposited directly into your bank account, paid to a
third party, sent to an address other than your address of record or reinvested
in shares of another Nuveen mutual fund. If you wish to do so, complete the
appropriate section of the account application, contact your financial adviser
or call Nuveen at (800) 621-7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
- --------------------------------------------------------------------------------
TAXES AND TAX REPORTING
The discussion below and the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in Florida municipal bonds or in municipal bonds
whose income is otherwise exempt from regular federal income taxes and which
enable fund shares to be exempt from the Florida intangibles tax. Consequently,
the regular monthly dividends you receive will be exempt from regular federal
income taxes. All or a portion of these dividends, however, may be subject to
the federal alternative minimum tax (AMT). More specific state tax information
can be found below in the Appendix.
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of its
investment income by state and the portion of its income that is subject to
AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a
portion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or
exchange fund shares shortly before the record date for a tax-exempt dividend,
a portion of the price you receive may be treated as a taxable capital gain
even though it reflects tax-free income earned but not yet distributed by the
fund.
TAX CONSEQUENCES OF PRIVATE ACTIVITY BONDS
Because each fund may invest in private activity bonds, the portion of your
regular monthly dividends derived from the income earned on these bonds that
would otherwise be tax-exempt will be treated as taxable income if:
. you are subject to the AMT (including corporate shareholders);
. you are a "substantial user" of a facility financed by these bonds; or
. you are a "related person" of a substantial user.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be
taxable as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free
income is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
<TABLE>
<CAPTION>
TAX-FREE YIELD
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
- -------------------------------------------------------------------------------
PAGE 14
<PAGE>
GENERAL INFORMATION
- -------------------------------------------------------------------------------
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or
conduct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
Nuveen Mutual Funds
P.O. Box 8509
Boston, MA 02266-8509
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the Fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are
opening a new account; if you are adding to an existing account, Nuveen will
assume you wish to buy more shares of the class you already own.
- -------------------------------------------------------------------------------
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The activities of Nuveen
Advisory, which also include managing the funds' business affairs and
providing certain clerical, bookkeeping and other administrative services, are
overseen by the funds' Board of Trustees. Established in 1976, Nuveen Advisory
is a wholly-owned subsidiary of John Nuveen & Co. Incorporated, which itself
is approximately 78% owned by the St. Paul Companies, Inc. Effective January
1, 1997, The John Nuveen Company acquired Flagship Resources, Inc., and as
part of that acquisition, Flagship Financial, the adviser to the Flagship
Funds, was merged with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and port-
folio managers of Nuveen Advisory and meets regularly to review economic
conditions, the outlook for the financial markets in general and the status of
the municipal markets in particular. Day-to-day operation of each fund and the
execution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Michael S. Davern is the portfolio manager for the Florida Fund. Mr. Davern
has managed the Florida Fund since 1995, and since 1991 had been a Vice Presi-
dent of Flagship Financial Inc., the funds' prior investment adviser, until
becoming a Vice President of Nuveen Advisory upon the acquisition of Flagship
Resources by The John Nuveen Company in January 1997. Paul Brennan has managed
or co-managed the Florida Intermediate Fund since 1995, and since 1991 had
been an employee of Flagship Financial Inc. until becoming an Assistant Vice
President of Nuveen Advisory in January 1997.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor
of the funds' shares. In this capacity, Nuveen manages the offering of the
funds' shares and is responsible for all sales and promotional activities. In
order to reimburse Nuveen for its costs in connection with these activities,
including compensation paid to authorized dealers, each fund has adopted a
distribution and service plan under Rule 12b-1 of the Investment Company Act
of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and
- -------------------------------------------------------------------------------
PAGE 15
<PAGE>
annual distribution fees of 0.75% and 0.55%, respectively, on the average
daily net assets of Class B and C shares outstanding. In order to help compen-
sate Nuveen for the sales commission paid to financial advisers at the time of
sale on sales of Class B and Class C shares, Nuveen retains the first year's
service fee on sales of Class B shares and all Class B distribution fees; and
retains the first year's service and distribution fees on sales of Class C
shares. Otherwise, Nuveen pays these fees to the broker of record. The state-
ment of additional information contains a detailed description of the plan and
its provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder
accounts. Boston Financial, P.O. Box 8509, Boston, MA 02266-8509, currently
serves as transfer agent for each fund.
- -------------------------------------------------------------------------------
HOW THE FUNDS REPORT
PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar
investment objectives. Comparative performance information may include data
from Lipper Analytical Services, Inc., Morningstar, Inc. and other industry
publications. See the statement of additional information for a more detailed
discussion.
- -------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets,
subtracting any liabilities or other debts, and dividing by the total number
of its shares
outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised 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.
- -------------------------------------------------------------------------------
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of two or more funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same port-
folio of investments and the shares of each class have equal rights as to
voting, redemption, dividends and liquidation. However, each class bears
different sales charges and service fees. B shares convert to A shares after 8
years. C shares purchased before February 1, 1997 convert to A share six years
after purchase, but only if you request conversion. You must submit your
request to the transfer agent no later than the last business day of the 71st
month following the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
The Florida Fund was formed as a result of a merger between existing Nuveen
and Flagship funds. The performance and the financial information of the fund
reflects that of the predecessor Flagship fund.
- -------------------------------------------------------------------------------
PAGE 16
<PAGE>
APPENDIX
- -------------------------------------------------------------------------------
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase Florida municipal bonds, each fund also
bears investment risk from economic, political or regulatory changes that
could adversely affect municipal bond issuers in that state and therefore the
value of the fund's investment portfolio. The following discussion of special
state considerations was obtained from official offering statements of these
issuers and has not been independently verified by the funds. The discussion
includes general state tax information related to an investment in fund
shares. Because tax laws are complex and often change, you should consult your
tax adviser about the state tax consequences of a specific fund investment.
See the statement of additional information for further information.
FLORIDA
Florida's trade and service sectors have driven the State's economic growth in
recent years and account for half of non-agricultural employment. In general,
the State's economy tracked the national economy through the recent recession
and subsequent recovery. Florida historically enjoys a strong job growth rate,
but it slowed to a projected 3.3% in 1995-6. The crucial tourism sector did
not expand in 1995 in part due to crime concerns, product maturity, higher
prices and competition from other resort areas. In the past, the State's
economy depended heavily on construction activity and the sector remains
important despite decreased dependence on it for overall growth.
Florida's unemployment rate of 5.4% stood slightly above the national average
of 5.1% in August 1996. Per capita income rose 5.8% in 1995 to reach $22,916.
Florida voters approved a Constitutional amendment in 1995 which limits the
rate of growth of state revenues to the growth rate of personal income in the
State. The State's 1995 general fund revenues were $13.89 billion against
expenditures of $11.87 billion. The State estimates that 1966 revenues will
rise by 2.7% and expenditures 3.5% over 1995 levels. As of February 9, 1996,
Moody's gives the State's general obligation debt an Aa rating while S&P gives
it an AA rating.
Tax treatment.
Shares of the Florida funds will not be subject to the Florida intangible
personal property tax if on January 1 of the taxable year, the funds hold only
Florida municipal bonds and U.S. securities. If the funds hold any other types
of assets on that date, then the entire value of the funds' shares (except for
the portion of the value of the shares attributable to U.S. securities) will
be subject to such tax.
Corporate shareholders of the Florida Fund also may be subject to the Florida
corporate income tax. Corporate shareholders should refer to the statement of
additional information for more detailed information.
- -------------------------------------------------------------------------------
PAGE 17
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety of funds designed to help
you reach your financial goals. The funds below are grouped by
investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
Notes
1. Long-term, insured long-term, intermediate-term and limited-term
portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
VPR-FL
<PAGE>
Prospectus
[PHOTO OF WOMAN APPEARS HERE]
[LOGO OF NUVEEN]
Municipal
Mutual
Funds
Dependable, tax-free income to help you keep more of what you earn.
Arizona
Colorado
New Mexico
February 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
INVESTING IN NUVEEN MUTUAL FUNDS
Since our founding in 1898, John Nuveen & Co. has been synonymous with invest-
ments that withstand the test of time. Today, we offer a range of equity and
fixed-income mutual funds designed to suit the unique circumstances and finan-
cial planning needs of mature investors. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value-investing -- purchasing securities of strong companies and communities
at an attractive price -- is the cornerstone of Nuveen's investment philoso-
phy. A long-term strategy that offers the potential for above average returns
over time with moderated risk, successful value-investing begins with in-depth
research and a discerning eye for value. Our team of investment professionals
is backed by the discipline, resources and expertise of Nuveen's almost a
century of investment experience, including one of the most recognized
research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
- --------------------------------------------------------------------------------
OVERVIEW
The funds listed above are part of the Nuveen Flagship Multistate Trust I, an
open-end investment company. Each fund seeks to provide high double or triple
tax-free income and preservation of capital through investments in diversified
portfolios of quality municipal bonds whose income is exempt from regular
federal, state and, in some cases, local income taxes.
Each fund offers a set of flexible purchase options which permit you to
purchase fund shares in the way that is best suited to your individual circum-
stances and investment needs. For detailed information about these flexible
purchase options, please refer to "How to Select a Purchase Option" later in
this prospectus.
This prospectus contains important information you should know before invest-
ing. Please read it carefully and keep it for future reference. You can find
more detailed information about each fund in the statement of additional infor-
mation which is part of this prospectus by reference. For a free copy, write to
Nuveen or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY. SHARES OF THE FUNDS
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
OVERVIEW 1
FUND SUMMARIES AND FINANCIAL HIGHLIGHTS 2
FUND STRATEGIES
Investment Objective 8
How the Funds Select Investments 8
Risk Reduction Strategies 9
INVESTING IN THE FUNDS
How to Buy Fund Shares 10
How to Select a Purchase Option 10
How to Sell Fund Shares 11
Exchanging Shares 12
Optional Features and Services 13
DIVIDENDS AND TAXES
How the Funds Pay Dividends 14
Taxes and Tax Reporting 14
Taxable Equivalent Yields 15
GENERAL INFORMATION
How to Contact Nuveen 16
Fund Service Providers 16
How the Funds Report Performance 17
How Fund Shares are Priced 17
Organization 17
APPENDIX
Special State Considerations 18
</TABLE>
FEBRUARY 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Arizona Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
October 29, 1986
NET ASSETS:
$83.5 million
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.53% 4.94% 0.38% 4.38% 4.94%
5 YEARS 7.36% 8.29% 7.55% 7.91% 8.29%
10 YEARS 7.29% 7.75% 7.28% 7.26% 7.75%
INCEPTION 7.47% 7.93% 7.46% 7.44% 7.93%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class B and R total returns reflect Class A performance for all
periods, adjusted for the differences in sales charges (and for Class B, fees)
between the classes. See Overview of Fund Operating Expenses and Shareholder
Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE:]
Average Maturity 15.0
Average Modified Duration 8.2
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE:]
AAA (74%)
AA (4%)
A (12%)
BBB (8%)
NR (2%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE:]
Non-State General Obligations (31%)
Pre-refunded (16%)
Escrowed to Maturity (12%)
Hospitals (8%)
Special Tax Revenue (8%)
Other (25%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.17% 0.17% 0.17% 0.17%
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES (GROSS) 0.92% 1.67% 1.47% 0.72%
WAIVERS/
REIMBURSEMENTS (0.04%) (0.04%) (0.04%) (0.04%)
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES (NET) 0.88% 1.63% 1.43% 0.68%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 51 $ 56 $ 15 $ 7
3 YEARS $ 69 $ 83 $ 45 $22
5 YEARS $ 89 $100 $ 78 $38
10 YEARS $146 $173 $171 $85
</TABLE>
- --------------------------------------------------------------------------------
PAGE 2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
------------- --------- ---------- -------------- ---------- --------- ---------
CLASS A
(10/86)
1997(e) $10.73 $.28 $.40 $(.28) $ -- $11.13
- -------------------------------------------------------------------------------------
1996 10.85 .57 (.12) (.57) -- 10.73
- -------------------------------------------------------------------------------------
1995 10.43 .58 .42 (.58) -- 10.85
- -------------------------------------------------------------------------------------
1994 10.81 .60 (.38) (.60) -- 10.43
- -------------------------------------------------------------------------------------
1993 10.13 .63 .69 (.64) -- 10.81
- -------------------------------------------------------------------------------------
1992 9.81 .65 .32 (.65) -- 10.13
- -------------------------------------------------------------------------------------
1991 9.60 .64 .21 (.64) -- 9.81
- -------------------------------------------------------------------------------------
1990 9.72 .64 (.12) (.64) -- 9.60
- -------------------------------------------------------------------------------------
1989 9.12 .64 .60 (.64) -- 9.72
- -------------------------------------------------------------------------------------
1988 9.12 .64 -- (.64) -- 9.12
- -------------------------------------------------------------------------------------
1987(d) 9.58 .35 (.47) (.34) -- 9.12
- -------------------------------------------------------------------------------------
CLASS C
(2/94)
1997(e) 10.73 .25 .40 (.25) -- 11.13
- -------------------------------------------------------------------------------------
1996 10.84 .51 (.11) (.51) -- 10.73
- -------------------------------------------------------------------------------------
1995 10.43 .52 .41 (.52) -- 10.84
- -------------------------------------------------------------------------------------
1994(d) 11.22 .14 (.79) (.14) -- 10.43
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------ --------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
CLASS A
(10/86)
1997(e) 12.78%+ $81.1 .83%+ 5.11%+ 19%
- -------------------------------------------------------------------------------------
1996 4.21 80.1 .69 5.20 38
- -------------------------------------------------------------------------------------
1995 10.03 80.4 .82 5.59 27
- -------------------------------------------------------------------------------------
1994 1.92 82.7 .64 5.48 21
- -------------------------------------------------------------------------------------
1993 13.37 72.8 .44 6.03 20
- -------------------------------------------------------------------------------------
1992 10.25 51.1 .44 6.55 34
- -------------------------------------------------------------------------------------
1991 9.19 38.9 .78 6.62 18
- -------------------------------------------------------------------------------------
1990 5.53 32.1 .85 6.63 37
- -------------------------------------------------------------------------------------
1989 14.04 29.4 .92 6.85 37
- -------------------------------------------------------------------------------------
1988 7.45 33.7 .86 6.96 68
- -------------------------------------------------------------------------------------
1987(d) (2.67) 31.7 .84+ 6.17+ 40
- -------------------------------------------------------------------------------------
CLASS C
(2/94)
1997(e) 12.23+ 2.5 1.38+ 4.55+ 19
- -------------------------------------------------------------------------------------
1996 3.75 2.0 1.23 4.64 38
- -------------------------------------------------------------------------------------
1995 9.32 1.6 1.36 5.01 27
- -------------------------------------------------------------------------------------
1994(d) (16.61) 1.1 1.20+ 4.36+ 21
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value and are annualized for
periods of less than 12 months.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 1.08% to 0.88%
and on Class C from 1.63% to 1.43%, as reflected in the table. Long-term
holders of Class B and C shares may pay more in distribution fees and CDSCs
than the maximum initial sales charge permitted under National Association
of Securities Dealers (NASD) Rules of Fair Practice. The
waiver/reimbursement levels shown reflect Nuveen's current undertaking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers - Investment Adviser," to continue Flagship's
general dividend-setting practices. Nuveen Advisory also has voluntarily
agreed through July 31, 1997 to waive fees or reimburse expenses so that
the total operating expenses (not counting distri-bution and service fees)
for the fund do not exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Colorado Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
May 4, 1987
NET ASSETS:
$32.7 million
Information as of 11/30/96 See Notes on Next Page z
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 1.77% 6.24% 1.66% 5.87% 6.24%
5 YEARS 7.13% 8.06% 6.65% 7.68% 8.06%
INCEPTION 6.88% 7.36% 6.87% 6.99% 7.36%
</TABLE>
Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect Class A performance for all periods, adjusted for
the differences in sales charges (and for Class B and C, fees) between the
classes. See Overview of Fund Operating Expenses and Shareholder Transaction
Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BARCHART APPEARS HERE:]
Average Maturity 17.1
Average Modified 9.9
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE:]
AAA (59%)
AA (7%)
A (15%)
BBB (10%)
NR (9%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE:
Escrowed to
Maturity (31%)
Pre-refunded (12%)
Municipal Revenue/
Transportation (11%)
Special Tax
Revenue (9%)
Non-State General
Obligations (8%)
Other (29%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES(4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.28% 0.28% 0.28% 0.28%
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES (GROSS) 1.03% 1.78% 1.58% 0.83%
WAIVERS/
REIMBURSEMENTS (0.45%) (0.45%) (0.45%) (0.45%)
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES (NET) 0.58% 1.33% 1.13% 0.38%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES(5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 48 $ 53 $ 12 $ 4
3 YEARS $ 60 $ 74 $ 36 $12
5 YEARS $ 73 $ 85 $ 62 $21
10 YEARS $112 $140 $137 $48
</TABLE>
- --------------------------------------------------------------------------------
PAGE 4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (5/87)
1997(d) $ 9.79 $.26 $ .45 $(.26) $ -- $10.24
- -------------------------------------------------------------------------------------
1996 9.93 .54 (.13) (.55) -- 9.79
- -------------------------------------------------------------------------------------
1995 9.62 .57 .30 (.56) -- 9.93
- -------------------------------------------------------------------------------------
1994 10.04 .58 (.37) (.58) (.05) 9.62
- -------------------------------------------------------------------------------------
1993 9.56 .60 .55 (.60) (.07) 10.04
- -------------------------------------------------------------------------------------
1992 9.29 .61 .27 (.61) -- 9.56
- -------------------------------------------------------------------------------------
1991 9.13 .60 .17 (.61) -- 9.29
- -------------------------------------------------------------------------------------
1990 9.24 .62 (.12) (.61) -- 9.13
- -------------------------------------------------------------------------------------
1989 8.78 .63 .46 (.63) -- 9.24
- -------------------------------------------------------------------------------------
1988 9.27 .62 (.46) (.65) -- 8.78
- -------------------------------------------------------------------------------------
1987(e) 9.58 .10 (.41) -- -- 9.27
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A (5/87)
1997(d) 14.73%+ $32.7 .70%+ 5.30%+ 12%
- -------------------------------------------------------------------------------------
1996 4.14 33.6 .55 5.41 70
- -------------------------------------------------------------------------------------
1995 9.54 34.9 .50 5.99 38
- -------------------------------------------------------------------------------------
1994 2.03 35.8 .37 5.71 42
- -------------------------------------------------------------------------------------
1993 12.41 26.7 .41 6.05 30
- -------------------------------------------------------------------------------------
1992 9.80 15.7 .49 6.42 39
- -------------------------------------------------------------------------------------
1991 8.75 9.1 .84 6.62 29
- -------------------------------------------------------------------------------------
1990 5.59 7.4 .87 6.70 16
- -------------------------------------------------------------------------------------
1989 12.83 7.5 .67 7.04 19
- -------------------------------------------------------------------------------------
1988 2.13 7.6 .55 7.03 138
- -------------------------------------------------------------------------------------
1987(e) (43.74) 1.6 .03+ 13.96+ 114
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value and are annualized for
periods of less than 12 months.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) For the six months ending November 30, 1996.
(e) From commencement of class operations as noted.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 0.78% to 0.58%
and on Class C from 1.33% to 1.13%, as reflected in the table. Long-term
holders of Class B and C shares may pay more in distribution fees and CDSCs
than the maximum initial sales charge permitted under National Association
of Securities Dealers (NASD) Rules of Fair Practice. The
waiver/reimbursement levels shown reflect Nuveen's current undertaking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers--Investment Adviser," to continue Flagship's
general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship New Mexico Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
September 16, 1992
NET ASSETS:
$52.0 million
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 1.33% 5.77% 1.19% 5.40% 5.77%
INCEPTION 5.97% 7.05% 6.27% 6.68% 7.05%
</TABLE>
Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect Class A performance for all periods, adjusted for
the differences in sales charges (and for Class B and C, fees) between the
classes. See Overview of Fund Operating Expenses and Shareholder Transaction
Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- ------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHARTS APPEARS HERE:]
Average Maturity 20.0
Average Modified Duration 8.9
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE:]
AAA (50%)
AA (15%)
A (17%)
BBB (17%)
NR (1%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
[PIE CHART APPEARS HERE:]
Housing/Single Family (8%)
Special Tax Revenue (29%)
Other (29%)
Municipal Revenue/Utility (13%)
Student Loan Revenue Bonds (10%)
Education (11%)
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
TRANSACTION EXPENSE CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (3)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.24% 0.24% 0.24% 0.24%
- --------------------------------------------------------------------------------------
TOTAL EXPENSE (GROSS) 0.99% 1.74% 1.54% 0.79%
WAIVERS/
REIMBURSEMENTS (0.10%) (0.10%) (0.10%) (0.10%)
- --------------------------------------------------------------------------------------
TOTAL EXPENSES (NET) 0.89% 1.64% 1.44% 0.69%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (4)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 51 $ 56 $ 15 $ 7
3 YEARS $ 69 $ 84 $ 46 $22
5 YEARS $ 89 $101 $ 79 $38
10 YEARS $147 $174 $172 $86
</TABLE>
- --------------------------------------------------------------------------------
PAGE 6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
- ------------------------------------------------------------------------------------
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
- ---------------- --------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(e) $ 9.81 $.25 $ .43 $(.25) $-- $10.24
- ------------------------------------------------------------------------------------
1996 10.01 .51 (.19) (.52) -- 9.81
- ------------------------------------------------------------------------------------
1995 9.68 .52 .33 (.52) -- 10.01
- ------------------------------------------------------------------------------------
1994 10.04 .53 (.33) (.53) (.03) 9.68
- ------------------------------------------------------------------------------------
1993(d) 9.58 .37 .46 (.37) -- 10.04
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Ratio of Net
Expenses Investment
to Income to
Ending Average Average Portfolio
Year Ending Total Net Assets Net Net Turnover
May 31, Return(b) (millions) Assets(c) Assets(c) Rate
- ----------------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(e) 14.08%+ $52.0 .77%+ 5.09%+ 20%
- ------------------------------------------------------------------------------------
1996 3.18 51.2 .68 5.10 57
- ------------------------------------------------------------------------------------
1995 9.25 52.2 .67 5.48 38
- ------------------------------------------------------------------------------------
1994 1.92 51.2 .40 5.24 39
- ------------------------------------------------------------------------------------
1993(d) 11.72 31.5 .14+ 5.28+ 36
- ------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value and are annualized for
periods of less than 12 months.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 1.09% to 0.89%
and on Class C from 1.64% to 1.44%, as reflected in the table. Long-term
holders of Class C shares may pay more in distribution fees and CDSCs than
the maximum initial sales charge permitted under National Association of
Securities Dealers (NASD) Rules of Fair Practice. The waiver/reimbursement
levels shown reflect Nuveen's current undertaking, made in connection with
its acquisition of Flagship Resources as described in "Fund Service
Providers--Investment Advis-er," to continue Flagship's general dividend-
setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
PAGE 7------------------------------------------------------------------------
<PAGE>
FUND STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital. There is no
assurance that the funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401k plan;
. Avoid fluctuations in share price.
- --------------------------------------------------------------------------------
HOW THE FUNDS SELECT
INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds from a specific state that pay interest that is exempt from regular
federal, state and, in some cases, local income taxes. Income from these bonds,
however, may be subject to the federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by the
full faith and credit, or taxing authority, of the issuer and may be repaid
from any revenue source; revenue bonds may be repaid only from the revenues of
a specific facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds focus on quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal bonds
of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes. The Arizona Fund may not invest
more than 20% of its net assets in these territorial municipal bonds.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase leases where the issuer has a strong
incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not iden-
tical--S&P and Fitch consider bonds rated BBB to have adequate capacity to pay
principal and interest; Moody's considers bonds rated Baa to have some specula-
tive characteristics. Bond ratings represent the opinions of the ratings agen-
cies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The adviser
then monitors each fund's portfolio to assure that municipal bonds purchased
continue to represent over time, in its opinion, the best values available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an invest-
ment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
- --------------------------------------------------------------------------------
PAGE 8
<PAGE>
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is sold
and replaced with new securities during a year is known as the fund's portfolio
turnover rate. The funds intend to keep portfolio turnover relatively low in
order to reduce trading costs and the realization of taxable capital gains.
Each fund, however, may make limited short-term trades to take advantage of
market opportunities and reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of risk
because no interest accrues on the bonds prior to settlement and, since securi-
ties are subject to market fluctuation, the value of the bonds at time of
delivery may be less (or more) than cost.
- --------------------------------------------------------------------------------
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is the
risk that changes in market interest rates will affect the value of a fund's
investment portfolio. In general, the value of a municipal bond falls when
interest rates rise, and increases when interest rates fall. Credit risk is the
risk that an issuer of a municipal bond is unable to meet its obligation to
make interest and principal payments. In general, lower rated municipal bonds
are perceived to carry a greater degree of risk in the issuer's ability to make
interest and principal payments. Municipal bonds with longer maturities (dura-
tions) or lower ratings generally provide higher current income, but are
subject to greater price fluctuation due to changes in market conditions than
bonds with shorter maturities or higher ratings,
respectively.
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. These risks may be
greater for the Colorado and New Mexico Funds, which as "non-diversified" funds
may concentrate their investments in municipal bonds of certain issuers to a
greater extent than the Arizona Fund described in this prospectus, which is a
diversified fund.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund
assets) designed to limit your investment risk and maintain portfolio diversi-
fication. Each fund may not have more than:
. 25% in any one industry sector, such as electric utilities or health care;
. 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Arizona Fund also may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of the fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities that
are exempt from regular federal income tax, although the funds may invest up to
100% as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have a
maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds" and "Risk Reduction Strategies" are funda-
mental and may not be changed without the approval of a majority of the share-
holders of each fund.
- --------------------------------------------------------------------------------
PAGE 9
<PAGE>
INVESTING IN THE FUNDS
- -------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
You may open an account with $3,000 and make additional investments at any
time with as little as $50. Reinvestment of Nuveen unit trust distributions
have no purchase minimums. The share price you pay will depend on when Nuveen
receives your order: orders received before the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern time) will receive
that day's share price; otherwise you will receive the next business day's
share price.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial
advisers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments
continue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can
refer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to
the appropriate fund) to the address listed under "How to Contact Nuveen."
Sales charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or
increase minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
- -------------------------------------------------------------------------------
HOW TO SELECT A
PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your
investment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of
purchase. The price you pay will equal the Class A NAV (net asset value) plus
a sales charge based upon the amount of your purchase. Class A shares also
bear a 0.20% annual service fee which compensates your financial adviser for
providing you with ongoing service.
The following Class A sales charges and commissions apply to all funds
described in this prospectus:
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over --(1) -- --(1)
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commis-
sion, you may be assessed a contingent deferred sales charge (CDSC) of 1%
if you redeem any of your shares within 18 months of purchase. The CDSC is
calculated on the lower of your purchase price or redemption proceeds.
- -------------------------------------------------------------------------------
PAGE 10
<PAGE>
Nuveen periodically undertakes sales promotion programs with authorized
dealers and may pay them the full applicable sales charge as a commission. In
addition, Nuveen may provide support at its own expense to authorized dealers
in connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain
circumstances, Nuveen also will share with authorized dealers up to half the
costs of advertising that features the products and services of both parties.
The statement of additional information contains further information about
these programs.
- -------------------------------------------------------------------------------
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
SALES CHARGE REDUCTIONS
. Rights of Accumulation
. Letter of Intent (LOI)
. Group Purchase
SALES CHARGE WAIVERS
. Unit Trust Reinvestment
. Purchases using Redemptions from Unrelated Funds
. Fee-Based Programs
. Bank Trust Departments
. Certain Employees of Nuveen or Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of
purchase. The price you pay will equal the Class B NAV. There is no initial
sales charge, but Class B shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your finan-
cial adviser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after
purchase. Class B shares will convert only if the fund is assured that the
conversion does not generate tax consequences for investors, based upon the
opinion of outside counsel or the written assurance of the IRS.
- -------------------------------------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be
assessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
<TABLE>
<CAPTION>
DURING YEAR
---------------------------
1 2 3 4 5 6 7+
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of
purchase. The price you pay will equal the Class C NAV. There is no initial
sales charge, Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55%
annual distribution fee which compensates Nuveen for paying your financial
adviser for the sale, including a 1% commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you are investing at least $1 million or would otherwise
qualify to purchase Class A shares without a sales charge as described under
"Other Sales Charge Discounts" above. There are no sales charges or ongoing
fees. Class R Shares have lower ongoing expenses than Class A Shares.
- -------------------------------------------------------------------------------
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the
- -------------------------------------------------------------------------------
PAGE 11
<PAGE>
necessary documentation. Your financial adviser may charge you for this serv-
ice.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on
record. If you have established electronic funds transfer privileges on your
account, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your
request by having your redemption proceeds wired directly into your bank
account.
Nuveen and Boston Financial Data Services ("Boston Financial") will be liable
for losses resulting from unauthorized telephone redemptions only if they do
not follow reasonable procedures designed to verify the identity of the
caller. You should immediately verify your trade confirmations when you
receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
. The address you want your redemption proceeds sent to, if other than to the
address of record;
. Any certificates you have for the shares; and
. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that
represent an increase in the value of your fund account due to capital appre-
ciation, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as
described in the statement of additional information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
- -------------------------------------------------------------------------------
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in
another Nuveen mutual fund that is available within your state. You may
exchange fund shares by calling (800) 621-7227 or by mailing your written
request to Nuveen at the address listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are
exchanging. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of deter-
mining any future CDSC. You may not
- -------------------------------------------------------------------------------
PAGE 12
<PAGE>
exchange Class B shares for shares of a Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on fund
shareholders. In order to limit excessive exchange activity and in other
circumstances where the funds' investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges, or
reject any exchange. You will be notified in the event this happens to the
extent required by law.
- --------------------------------------------------------------------------------
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account, or directly
from your paycheck. To invest regularly from your bank account, (see "Fund
Direct--Electronic Funds Transfer") below), simply complete the appropriate
section of the account application. To invest regularly from your paycheck,
call Nuveen for a Payroll Direct Deposit Enrollment form. If you need addi-
tional copies of these forms, or would like assistance completing them, contact
your financial adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to
continue investing in declining as well as rising markets before deciding to
invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
(CHART APPEARS HERE)
<TABLE>
<CAPTION>
ACCOUNT VALUES FOR TOTAL RETURNS OF
AMOUNT -----------------------------------
YEAR INVESTED 4.00% 5.00% 6.00%
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
0 $ 2,874 $ 2,874 $ 2,874 $ 2,874
5 8,622 9,861 10,203 10,561
10 14,370 18,391 19,610 20,929
15 20,118 28,807 31,681 34,913
20 25,866 41,525 47,173 53,779
</TABLE>
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly or semi-annually, and may choose to receive a
check, have the monies transferred directly into your bank account (see "Fund
Direct--Electronic Funds Transfer") below), paid to a third party or sent
payable to you at an address other than your address of record. You must
complete the appropriate section of the account application to participate in
the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
REINSTATEMENT PRIVILEGE
If you redeem fund shares on which you paid an initial sales charge or contin-
gent deferred sales charge (CDSC), you may reinvest all or part of your
redemption proceeds up to one year later without incurring any additional
charge. You may only reinvest into the same class of shares you redeemed and
will receive the share price next determined after Nuveen receives your rein-
vestment request. You may exercise this privilege only once per redemption
request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of
exercising your reinstatement privilege.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation. If your need additional copies of this form, or would like assistance
completing it, contact your financial adviser or call Nuveen at (800) 621-
7227. You may use Fund Direct to quickly and conveniently purchase or sell
shares by telephone, systematically invest or withdraw funds, or send dividend
payments directly to your bank account.
If you have established electronic funds transfer privileges on your account,
you may request that redemption proceeds of $1,000 or more be wired directly
into your bank account. While you will generally receive your redemption
proceeds more quickly than a regular telephone redemption, the fund may charge
you a fee for this expedited service.
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends on or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares unless you request otherwise. You may request to have your dividends
paid to you by check, deposited directly into your bank account, paid to a
third party, sent to an address other than your address of record or rein-
vested in shares of another Nuveen mutual fund. If you wish to do so, complete
the appropriate section of the account application, contact your financial
adviser or call Nuveen at (800) 621-7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more
stable monthly dividend, each
fund may sometimes distribute
less or more than the amount of
net income earned in a partic-
ular period as a result of fluc-
tuations in a fund's net income.
Undistributed net income is
included in the fund's share
price; similarly, distributions
from previously undistributed
net income reduce the fund's
share price. This dividend
policy is not expected to affect
the management of a fund's port-
folio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
- -------------------------------------------------------------------------------
TAXES AND TAX REPORTING
The discussion below and the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in municipal bonds from a specific state or in
municipal bonds whose income is otherwise exempt from regular federal, state
and local income taxes. Consequently, the regular monthly dividends you
receive will be exempt from regular federal, state and, in some cases, local
income
- -------------------------------------------------------------------------------
PAGE 14
<PAGE>
taxes. All or a portion of these dividends, however, may be subject to the
federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of its
investment income by state and the portion of its income that is subject to
AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a
portion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or
exchange fund shares shortly before the record date for a tax-exempt dividend,
a portion of the price you receive may be treated as a taxable capital gain
even though it reflects tax-free income earned but not yet distributed by the
fund.
TAX CONSEQUENCES OF PRIVATE ACTIVITY BONDS
Because each fund may invest in private activity bonds, the portion of your
regular monthly dividends derived from the income earned on these bonds that
would otherwise be tax-exempt will be treated as taxable income if:
. you are subject to the AMT (including corporate shareholders);
. you are a "substantial user" of a facility financed by these bonds; or
. you are a "related person" of a substantial user.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months and
you recognized a short-term capital loss when you redeemed your shares, the
loss you can claim will be reduced by the amount of tax-free dividends paid to
you on those shares. Any remaining short-term capital loss will be treated as
long-term capital loss to the extent you also received capital gain dividends
on those shares. You should consult your tax adviser for complete information
about these rules. Please consider the tax consequences carefully when contem-
plating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be taxable
as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you have
not provided the fund with your correct taxpayer identification number (nor-
mally your social security number), or if you are otherwise subject to back-up
withholding.
If you receive social security benefits, you should be aware that tax-free
income is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on that
loan. Under I.R.S. rules, fund shares may be treated as having been bought with
borrowed money even if the purchase cannot be traced directly to borrowed
money.
- --------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like the
funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
- --------------------------------------------------------------------------------
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
<TABLE>
<CAPTION>
TAX-FREE YIELD
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- -------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
GENERAL INFORMATION
- -------------------------------------------------------------------------------
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or
conduct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
Nuveen Mutual Funds
P.O. Box 8509
Boston, MA 02266-8509
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the Fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are
opening a new account; if you are adding to an existing account, Nuveen will
assume you wish to buy more shares of the class you already own.
- -------------------------------------------------------------------------------
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The activities of Nuveen
Advisory, which also include managing the funds' business affairs and
providing certain clerical, bookkeeping and other administrative services, are
overseen by the funds' Board of Trustees. Established in 1976, Nuveen Advisory
is a wholly-owned subsidiary of John Nuveen & Co. Incorporated, which itself
is approximately 78% owned by the St. Paul Companies, Inc. Effective December
31, 1996, The John Nuveen Company acquired Flagship Resources, Inc., and as
part of that acquisition, Flagship Financial, the adviser to the Flagship
Funds, was merged with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- ---------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and port-
folio managers of Nuveen Advisory and meets regularly to review economic
conditions, the outlook for the financial markets in general and the status of
the municipal markets in particular. Day-to-day operation of each fund and the
execution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Jan Terbruggen is the portfolio manager for the Arizona, Colorado, and New
Mexico Funds. Mr. Terbruggen has managed the funds since 1992 and since 1992
had been a Vice President of Flagship Financial Inc., the funds' prior invest-
ment adviser, until becoming a Vice President of Nuveen Advisory upon the
acquisition of Flagship Resources Inc. by The John Nuveen Company in January
1997.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor
of the funds' shares. In this capacity, Nuveen manages the offering of the
funds' shares and is responsible for all sales and promotional activities. In
order to reimburse Nuveen for its costs in connection with these activities,
including compensation paid to authorized dealers, each fund has adopted a
distribution and service plan under Rule 12b-1 of the Investment Company Act
of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at the time of sale on
sales of Class B and
Class C shares, Nuveen retains the first year's service
- -------------------------------------------------------------------------------
PAGE 16
<PAGE>
fee on sales of Class B shares and all Class B distribution fees; and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of record. The statement of
additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder
accounts. Boston Financial, P.O. Box 8509, Boston, MA 02266-8509, currently
serves as transfer agent for each fund.
- -------------------------------------------------------------------------------
HOW THE FUNDS REPORT
PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar
investment objectives. Comparative performance information may include data
from Lipper Analytical Services, Inc., Morningstar, Inc. and other industry
publications. See the statement of additional information for a more detailed
discussion.
- -------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets,
subtracting any liabilities or other debts, and dividing by the total number
of its shares outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised 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.
- -------------------------------------------------------------------------------
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same port-
folio of investments and the shares of each class have equal rights as to
voting, redemption, dividends and liquidation. However, each class bears
different sales charges and service fees. B shares convert to A shares after 8
years. C shares purchased before February 1, 1997 convert to A shares six
years after purchase, but only if you request conversion. You must submit your
request to the transfer agent no later than the last business day of the 71st
month following the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
The Arizona Fund was formed as a result of a merger between existing Nuveen
and Flagship funds. The performance and the financial information of the fund
reflects that of the predecessor Flagship fund.
- -------------------------------------------------------------------------------
PAGE 17
<PAGE>
APPENDIX
- -------------------------------------------------------------------------------
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering
statements of these issuers and has not been independently verified by the
funds. The discussion includes general state tax information related to an
investment in fund shares. Because tax laws are complex and often change, you
should consult your tax adviser about the state tax consequences of a specific
fund investment. See the statement of additional information for further
information.
ARIZONA
Arizona's economy is primarily based on services, tourism and high-tech manu-
facturing as well as the military. Agriculture and mining of primary metals
still play a role. The state experienced rapid population growth and a
construction boom in the 1980's which has slowed somewhat in the first half of
this decade. The service and trade sectors account for over half of employ-
ment.
Statewide the unemployment rate was 5.8% at the end of August 1996 while unem-
ployment in the State's two largest metropolitan areas, Phoenix-Mesa and
Tucson, were a very low 3.8% and 3.6%. Personal income growth in Arizona
ranked 2nd in the nation in 1995, rising to $20,421 per capita from $19,153 in
1994.
The Arizona Constitution restricts the legislature's power to raise revenues
by increasing property taxes. The State has also enacted limits on annual
spending. 1995 general fund revenues were $4.23 billion against expenditures
of $4.43 billion. Arizona does not issue general obligation bonds but relies
on capital outlays, revenue bonds and other methods to finance projects. Each
project is individually rated for its independent creditworthiness.
Tax Treatment.
The Arizona Fund's regular monthly dividends will not be subject to the
Arizona individual income tax to the extent they are paid out of income earned
on Arizona municipal bonds or U.S. government securities. You will be subject
to Arizona personal income tax, however, to the extent the Arizona Fund
distributes any taxable income or realized capital gains, or if you sell or
exchange Arizona Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Arizona Fund is similar to that
described above.
COLORADO
Colorado's trade and service sectors represent over half of non-agricultural
employment in the State's economy and have expanded in the past years. Manu-
facturing employment is comparatively small and continues to shrink due to the
concentration in defense production. The trade and services sectors, led by a
healthy tourist industry, helped pull the State out of a recession in the late
1980's which had been caused by contractions in the energy, high technology
and construction industries. The State's economic activity tends to mimic that
of the nation as a whole albeit less severely according to Colorado's Office
of State Planning and Budgeting.
Colorado's unemployment rate was a very low 3.9% in August 1996, below the
national average of 5.1%. Job growth increased 2.3% in the year ending August
1995. Meanwhile, per capita personal income grew to $23,449 in 1995.
1995 general fund revenues were $5.96 billion against expenditures of $5.17
billion. There is no outstanding general obligation debt, but outstanding
lease obligations are rated A by Moody's and AAA by Standard & Poor's.
Tax Treatment.
The Colorado Fund's regular monthly dividends will not be subject to Colorado
personal income taxes to the extent they are paid out of income earned on
Colorado municipal bonds or U.S. government securities. You will be subject to
Colorado personal income taxes, however, to the extent the Colorado fund
distributes any taxable income, or if you sell or exchange Colorado Fund
shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Colorado Fund is similar to
that described above.
NEW MEXICO
New Mexico's major industries include energy resources, tourism, services,
crafts, agribusiness, manufacturing and mining. Energy resource production,
including crude petroleum, natural gas, uranium and coal, was approximately
$4.28 billion in 1993. Nonfuel mineral production represented $914 million in
1994. The economy also benefits from the employment and technology base
supplied by federal government scientific research facilities at Los Alamos,
Albuquerque and White Sands. Tourism generated about $2.3 billion for the
state according to a 1991 estimate, a trend that should continue given the
large number of state and federal park lands in the State.
- -------------------------------------------------------------------------------
PAGE 18
<PAGE>
Finally, crop and livestock production remains diverse given the State's
variety of climactic conditions and will also remain a major part of the econ-
omy.
New Mexico's unemployment rate rose from 6.4% in August 1995 to 7.2% in August
1996, surpassing the respective national averages of 5.6% and 5.1%. At the
same time, per capita income rose 6.1% in 1995 to reach $18,055, the ninth
largest increase in the country.
A state Board consisting of the Governor, Lt.-Governor, Treasurer and four
appointees maintains general supervisory authority over the fiscal affairs of
the state as the Constitution limits meetings of the Legislature to 90
calendar days every two years. The executive branch's Department of Finance
and Administration holds the annual budget hearings. The Governor may exercise
a line-item veto over appropriations measures. 1995 unaudited general fund
revenues were $2.75 billion against expenditures of $2.78 billion.
1996 projected revenues are $2.824 billion. As of February 9, 1996, Moody's
gives the State's general obligation debt an Aa rating while S&P gives it an
AA+ rating.
Tax Treatment.
The New Mexico Fund's regular monthly dividends will not be subject to the New
Mexico personal income tax to the extent they are paid out of income earned on
New Mexico municipal obligations or U.S. government securities. You will be
subject to New Mexico personal income tax, however, to the extent the New
Mexico Fund distributes any taxable income or realized capital gains, or if
you sell or exchange New Mexico Fund shares and realize a capital gain on the
transaction.
The treatment of corporate shareholders of the New Mexico Fund is similar to
that described above.
- -------------------------------------------------------------------------------
PAGE 19
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety of funds designed to help
you reach your financial goals. The funds below are grouped by
investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
Notes
1. Long-term, insured long-term, intermediate-term and limited-term
portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
VPR-MS2
<PAGE>
FEBRUARY 1, 1997
NUVEEN FLAGSHIP MULTISTATE TRUST I
NUVEEN FLAGSHIP ARIZONA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP COLORADO MUNICIPAL BOND FUND
NUVEEN FLAGSHIP FLORIDA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
NUVEEN MARYLAND MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NEW MEXICO MUNICIPAL BOND FUND
NUVEEN OKLAHOMA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP PENNSYLVANIA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP VIRGINIA MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectus of
the Nuveen Flagship Multistate Trust I dated February 1, 1997. The Prospectus
may be obtained without charge from certain securities representatives, banks,
and other financial institutions that have entered into sales agreements with
John Nuveen & Co. Incorporated, or from the Funds, by mailing a written request
to the Funds, c/o John Nuveen & Co. Incorporated, 333 West Wacker Drive,
Chicago, Illinois 60606 or by calling (800) 414-7447.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-10
Investment Adviser and Investment Management Agreement..................... S-15
Portfolio Transactions..................................................... S-16
Net Asset Value............................................................ S-16
Tax Matters................................................................ S-17
Performance Information.................................................... S-23
Additional Information on the Purchase and Redemption of Fund Shares....... S-31
Distribution and Service Plan.............................................. S-35
Independent Public Accountants and Custodian............................... S-36
Financial Statements....................................................... S-36
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports and the unaudited financial statements for
the most recent semi-annual period for each Fund appear in the Funds' Semi-
Annual Reports; each is included herein by reference. The Semi-Annual Reports
accompany this Statement of Additional Information.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of that Fund:
(1) Invest in securities other than Municipal Obligations and temporary
investments, as those terms are defined in the Prospectus.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the Arizona Municipal Bond Fund and the
Florida Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a
privately owned or operated hospital, if the security is backed only by the
assets and revenues of the non-governmental user, then such non-governmental
user would be deemed to be the sole issuer. Where a security is also backed by
the
S-2
<PAGE>
enforceable obligation of a superior or unrelated governmental entity or other
entity (other than a bond insurer), it shall also be included in the
computation of securities owned that are issued by such governmental or other
entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end
diversified management series investment company organized as a Massachusetts
business trust on July 1, 1996. Each of the Funds is an open-end management
investment company organized as a series of the Nuveen Flagship Multistate
Trust I. The Trust is an open-end management series company under SEC Rule 18f-
2. Each Fund is a separate series issuing its own shares. The Trust currently
has nine series: the Nuveen Flagship Arizona Municipal Bond Fund (formerly the
Flagship Arizona Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Colorado Municipal Bond Fund (formerly the
Flagship Colorado Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Florida Municipal Bond Fund (formerly the
Flagship Florida Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Florida Intermediate Municipal Bond Fund
(formerly the Flagship Florida Intermediate Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); the Nuveen Maryland Municipal Bond Fund
(formerly the Nuveen Maryland Tax-Free Value Fund, a series of the Nuveen
Multistate Tax-Free Trust); the Nuveen Flagship New Mexico Municipal Bond Fund
(formerly the Flagship New Mexico Double Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); the Nuveen Oklahoma Municipal Bond Fund
(formerly the Flagship Oklahoma Double Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); the Nuveen Flagship Pennsylvania Municipal
Bond Fund (formerly the Flagship Pennsylvania Triple Tax Exempt Fund, a series
of the Flagship Tax Exempt Funds Trust); and the Nuveen Flagship Virginia
Municipal Bond Fund (formerly the Flagship Virginia Double Tax Exempt Fund, a
series of the Flagship Tax Exempt Funds Trust). The Nuveen Oklahoma Municipal
Bond Fund has issued no shares to date. Certain matters under the Investment
Company Act of 1940 which must be submitted to a vote of the holders of the
outstanding voting securities of a series company shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each series affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds invests primarily in a
portfolio of Municipal Obligations free from regular federal and state income
tax in each Fund's respective state, which generally will be Municipal
Obligations issued within the Fund's respective state. In general, Municipal
Obligations include debt obligations issued by states, cities and local
authorities to obtain funds for various public purposes, including construction
of a wide range of public facilities such as airports, bridges, highways,
hospitals, housing, mass transportation, schools, streets and water and sewer
works. Industrial development bonds and pollution control bonds that are issued
by or on behalf of public authorities to finance various privately-rated
facilities are included within the term Municipal Obligations if the interest
paid thereon is exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in
S-3
<PAGE>
the opinion of Nuveen Advisory, have credit characteristics equivalent to bonds
rated within the four highest grades by Moody's, S&P or Fitch, except that the
Fund may not invest more than 20% of its net assets in unrated bonds and (3)
temporary investments as described below, the income from which may be subject
to state income tax or to both federal and state income taxes. See Appendix A
for more information about ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
nonappropriation leases where Nuveen Advisory has determined that the issuer
has a strong incentive to continue making appropriations and timely payment
until the security's maturity. Some lease obligations may be illiquid under
certain circumstances. Lease obligations normally provide a premium interest
rate which along with regular amortization of the principal may make them
attractive for a portion of the assets of the Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
PORFOLIO TRADING AND TURNOVER
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with its investment objective. Securities may be
sold in anticipation of market decline or purchased in anticipation of market
rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage
of what Nuveen Advisory believes to be a temporary disparity in the normal
yield relationship between the two securities. Each Fund may make changes in
its investment portfolio in order to limit its exposure to changing market
conditions. Changes in a Fund's investments are known as "portfolio turnover."
While it is impossible to predict future portfolio turnover rates, the annual
portfolio turnover rate for each of the Funds is generally not expected to
exceed 75%. However, each Fund reserves the right to make changes in its
investments whenever it deems such action advisable and, therefore, a Fund's
annual portfolio turnover rate may exceed 75% in particular years depending
upon market conditions.
The portfolio turnover rates for the Funds, for the fiscal year-end of the Fund
as a series of its predecessor entity (described above), as indicated, were:
<TABLE>
<CAPTION>
FISCAL
YEAR
1995 1996
---- ----
<S> <C> <C>
Arizona Municipal Bond Fund (5/31)............................. 27% 38%
Colorado Municipal Bond Fund (5/31)............................ 38% 70%
Florida Municipal Bond Fund (5/31)............................. 53% 94%
Florida Intermediate Municipal Bond Fund (5/31)................ 105% 66%
Maryland Municipal Bond Fund (1/31)............................ 35% 17%
New Mexico Municipal Bond Fund (5/31).......................... 38% 57%
Pennsylvania Municipal Bond Fund (5/31)........................ 50% 65%
Virginia Municipal Bond Fund (5/31)............................ 50% 17%
</TABLE>
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a
S-4
<PAGE>
delayed delivery commitment are ignored in calculating net asset value so long
as the commitment remains in effect. The Funds will maintain designated readily
marketable assets at least equal in value to commitments to purchase when-
issued or delayed delivery securities, such assets to be segregated by the
Custodian specifically for the settlement of such commitments. The Funds will
only make commitments to purchase Municipal Obligations on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
but the Fund reserves the right to sell these securities before the settlement
date if it is deemed advisable. If a when-issued security is sold before
delivery any gain or loss would not be tax-exempt. The Funds commonly engage in
when-issued transactions in order to purchase or sell newly-issued Municipal
Obligations, and may engage in delayed delivery transactions in order to manage
its operations more effectively.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES
As described in the Prospectus, except for investments in temporary
investments, each of the Funds will invest primarily all of its net assets in
municipal bonds that are exempt from federal and state tax in that state
("Municipal Obligations"), generally Municipal Obligations issued in its
respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public authorities in the
states of currently offered Funds. This information was obtained from official
statements of issuers located in the respective states as well as from other
publicly available official documents and statements. The Funds have not
independently verified any of the information contained in such statements and
documents. The information below is intended only as a general summary, and is
not intended as a discussion of any specific factor that may affect any
particular obligation or issuer.
FACTORS PERTAINING TO ARIZONA
Arizona's economy is primarily based on services, tourism and high-tech
manufacturing as well as the military. Agriculture and mining of primary metals
still play a role. The state experienced rapid population growth and a
construction boom in the 1980's which has slowed somewhat in the first half of
this decade. The service and trade sectors account for over half of employment.
Statewide the unemployment rate was 5.8% at the end of August 1996 while
unemployment in the State's two largest metropolitan areas, Phoenix-Mesa and
Tucson, were a very low 3.8% and 3.6%. Personal income growth in Arizona ranked
2nd in the nation in 1995, rising to $20,421 per capita from $19,153 in 1994.
The Arizona Constitution restricts the legislature's power to raise revenues
by increasing property taxes. The State has also enacted limits on annual
spending. 1995 general fund revenues were $4.23 billion against expenditures of
$4.43 billion. Arizona does not issue general obligation bonds but relies on
capital outlays, revenue bonds and other methods to finance projects. Each
project is individually rated for its independent creditworthiness.
FACTORS PERTAINING TO COLORADO
Colorado's trade and service sectors represent over half of non-agricultural
employment in the State's economy and have expanded in the past years.
Manufacturing employment is comparatively small and continues to shrink due to
the concentration in defense production. The trade and services sectors, led by
a healthy tourist industry, helped pull the State out of a recession in the
late 1980's which had been caused by contractions in the energy, high
technology and construction industries. The State's economic activity tends to
mimic that of the nation as a whole albeit less severely according to
Colorado's Office of State Planning and Budgeting.
Colorado's unemployment rate was a very low 3.9% in August 1996, below the
national average of 5.1%. Job growth increased 2.3% in the year ending August
1995. Meanwhile, per capita personal income grew to $23,449 in 1995.
1995 general fund revenues were $5.96 billion against expenditures of $5.17
billion. There is no outstanding general obligation debt, but outstanding base
obligations are rated A by Moody's and AAA by Standard & Poor's.
FACTORS PERTAINING TO FLORIDA
Florida's trade and service sectors have driven the state's economic growth
in recent years and account for half of non-agricultural employment. In
general, the state's economy tracked the national economy through the recent
recession and subsequent recovery. Florida historically enjoys a strong job
growth rate, but it is slowed to a projected 3.3% in 1995-6. The crucial
tourism sector did not expand in 1995 in part due to crime concerns, product
maturity, higher prices and competition from other resort areas. In the past,
the state's economy depended heavily on construction activity and the sector
remains important despite decreased dependence on it for overall growth.
Florida's unemployment rate of 5.4% stood slightly above the national average
of 5.1% in August 1996. Per capita income rose 5.8% in 1995 to reach $22,916.
Florida voters approved a Constitutional amendment in 1995 which limits the
rate of growth of state revenues to the growth rate of personal income in the
state. 1995 general fund revenues were $13.89 billion against expenditures of
S-5
<PAGE>
$11.87 billion. The state estimates that 1996 revenues will rise by 2.7% and
expenditures 3.5% over 1995 levels. As of February 9, 1996, Moody's gives the
state's general obligation debt an Aa rating while S&P gives it an AA rating.
FACTORS PERTAINING TO MARYLAND
Maryland's rate of economic growth has slowed in the 1990's after a period of
rapid expansion in the decade before. Indicators such as income growth,
unemployment and retail sales levels have trailed the national average.
Services, wholesale and retail trade, government and manufacturing account for
most of the state's employment. Unlike in most states, government employment
surpasses manufacturing employment in Maryland. The manufacturing sector
consists chiefly of printing and publishing, food products, industrial
machinery, electronics and chemicals.
The state's unemployment rate fell to 4.7% by August 1996 from 5.0% a year
earlier. Both times, it ranked below the national average. Maryland residents'
personal income per capita ranks fifth in the nation. Per capita income rose
4.3% in 1995 to reach $25,927.
The state constitution mandates a balanced budget forcing the Governor to
reduce 1993 appropriations to offset a 1992 deficit. State expenditures totaled
$11.8 billion and $12.4 billion in 1993 and 1994. The state estimated 1995
expenditures at $13.4 billion leaving a $49.5 million surplus. Reserves totaled
some 223.6 million at the end of fiscal 1995. As of February 9, 1996, Moody's
gives the state's general obligation debt an Aaa rating while S&P gives it an
AAA rating.
FACTORS PERTAINING TO NEW MEXICO
New Mexico's major industries include energy resources, tourism, services,
crafts, agribusiness, manufacturing and mining. Energy resource production,
including crude petroleum, natural gas, uranium and coal, was approximately
$4.28 million in 1993. Nonfuel mineral production represented $914 million in
1994. The economy also benefits from the employment and technology base
supplied by federal government scientific research facilities at Los Alamos,
Albuquerque and White Sands. Tourism generated about $2.3 billion for the state
according to a 1991 estimate, a trend that should continue given the large
number of state and federal park lands in the state. Finally, crop and
livestock production remains diverse given the state's variety of climactic
conditions and will also remain a major part of the economy.
New Mexico's unemployment rate rose from 6.4% in August 1995 to 7.2% in
August 1996, surpassing the respective national averages of 5.6% and 5.1%. At
the same time, per capita income rose 6.1% in 1995 to reach $18,055, the ninth
largest increase in the country.
A state Board consisting of the Governor, Lt.-Governor, Treasurer and four
appointees maintains general supervisory authority over the fiscal affairs of
the state as the Constitution limits meetings of the Legislature to 90 calendar
days every two years. The executive branch's Department of Finance and
Administration holds the annual budget hearings. The Governor may exercise a
line-item veto over appropriations measures. The 1994 Legislature cut taxes
after the state's economic strength produced significant surpluses. 1995
unaudited general fund revenues were $2.75 billion against expenditures of
$2.78 billion. 1996 projected revenues are $2.824 billion. As of February 9,
1996, Moody's gives the state's general obligation debt an Aa1 rating while S&P
gives it an AA+ rating.
FACTORS PERTAINING TO OKLAHOMA
Oklahoma's principal industries include trade, manufacturing, mineral and
energy exploration and production and agriculture. Oklahoma is vulnerable to
cyclical fluctuations in oil and gas prices just like any other energy driven
economy. Nonfuel mineral represented $338 million in activity in 1994 while
tourists spent some $3 billion in the state during the same year.
Oklahoma's unemployment rate is low compared to the national average. It
stood at 3.9% in August 1996 and 4.2% in August 1995 compared to national
averages of 5.1% and 5.6%. Per capita income rose 3.1% in 1995 to reach
$18,152.
As of February 9, 1996, Moody's gives the state's general obligation debt an
Aa rating while S&P gives it an AA rating.
FACTORS PERTAINING TO PENNSYLVANIA
Both Pennsylvania and its largest city, Philadelphia, have experienced
difficult budget shortfalls in recent years. The industrial composition of the
Commonwealth has diversified from its peak as heavy-industry cluster for coal
and steel production, especially with the advent of foreign competition in the
last decade. Manufacturing employment has fallen behind that of the service and
trade sectors. New growth emanates from the service sectors especially trade,
medical and health services, educational and financial institutions.
Agriculture remains an important component of the economic structure while food
related industries support even more activity.
Pennsylvania's unemployment rate has approximated the national average in the
past year, falling to 5.0% in August 1996 from 5.6% in August 1995. Per capita
income rose 4.9% in 1995 to reach $23,279.
The Governor must submit a balanced operating budget by law and while the
General assembly may change items, the Governor retains a line-item veto power.
Total appropriations cannot exceed estimated revenues, also taking into account
any deficit or surplus remaining from the previous year. The government was
forced to enact significant cuts and tax increases to deal with severe
shortfalls in 1990-2. The financial situation improved in 1993 and 1994 leading
to
S-6
<PAGE>
surpluses. The 1995 budget also projected surplus of some $4 million. As of
February 9, 1996, Moody's gives the state's general obligation debt an A1
rating while S&P gives it an AA- rating.
FACTORS PERTAINING TO VIRGINIA
The Virginia economy is broad-based and includes manufacturing, tourism,
agriculture, ports, mining and fisheries. Export diversification is an
encouraging sign of growth. Manufacturing, while significant, ranks behind
services, trade and government in share of employment. The federal government
is a major employer given the proximity of Washington, D.C. and the large
numbers of workers employed at Hampton Roads, the nation's largest
concentration of military installations. Civilian defense employment has
dropped and further cuts are likely in wake of reductions in defense spending.
Still, Virginia's economy has recovered gradually from the nationwide
recession. Non-agricultural employment also tends to mirror that of the nation.
Virginia's unemployment rate was low 4.1% in August 1996 having dropped
further from the previous year's rate of 4.6%. Per capita income rose 4.9% in
1995 to reach $23,597.
Virginia's Constitution requires a balanced biennial budget. Beyond that, the
Commonwealth historically operates on a fiscally conservative basis and
produced undesignated surpluses in 1992, 1993 and 1994. [1995 and 96 budget] As
of February 9, 1996, Moody's gives the state's general obligation debt an Aaa
rating while S&P gives it an AAA rating.
HEDGING AND OTHER DEFENSIVE ACTIONS
Each Fund may periodically engage in hedging transactions. Hedging is a term
used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to hedging transactions will reduce yield. Net gains, if
any, from hedging and other portfolio transactions will be distributed as
taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
TEMPORARY INVESTMENTS
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable "temporary investments."
Temporary investments will not exceed 20% of a Fund's assets except when made
for defensive purposes. The Funds will invest only in taxable temporary
investments that are either U.S. Government securities or are rated within the
highest grade by Moody's, S&P, or Fitch and mature within one year from the
date of purchase or carry a variable or floating rate of interest. See Appendix
A for more information about ratings by Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal and interest on the BANs.
S-7
<PAGE>
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general
obligations of the issuer. A decline in the receipt of projected revenues,
such as anticipated revenues from another level of government, could
adversely affect an issuer's ability to meet its obligations on outstanding
RANs. In addition, the possibility that the revenues would, when received,
be used to meet other obligations could affect the ability of the issuer to
pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed
S-8
<PAGE>
upon by the parties. The agreed upon repurchase price determines the yield
during a Fund's holding period. Repurchase agreements are considered to be
loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-9
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has eight
trustees, two of whom are "interested persons" (as the term "interested
persons" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 47 Chairman and Chairman since July 1, 1996 of The John Nuveen
Schwertfeger* Trustee Company, John Nuveen & Co. Incorporated, Nuveen
333 West Wacker Drive Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp.; prior thereto Executive Vice President and
Director of The John Nuveen Company (since March
1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Anthony T. Dean* 51 President and President since July 1, 1996 of The John Nuveen
333 West Wacker Drive Trustee Company, John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory
Corp.; prior thereto, Executive Vice President and
Director of The John Nuveen Company (since March
1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Lawrence H. Brown 62 Trustee Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company.
Highwood, IL 60040
Robert P. Bremner 56 Trustee Private Investor and Management Consultant.
3725 Huntington
Street, N.W.
Washington, D.C. 20015
Anne E. Impellizzeri 64 Trustee President and Chief Executive Officer of Blanton-
3 West 29th Street Peale Institute (since December 1990); prior
New York, NY 10001 thereto, Vice President of New York City
Partnership (from 1987 to 1990).
Margaret K. Rosenheim 70 Trustee Helen Ross Professor of Social Welfare Policy,
969 East 60th Street School of Social Service Administration,
Chicago, IL 60637 University of Chicago.
Peter R. Sawers 63 Trustee Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct Professor,
Northfield, IL 60093 Lake Forest Graduate School of Management, Lake
Forest, Illinois (since January 1992); prior
thereto, Executive Director, Towers Perrin
Australia (management consultant); Chartered
Financial Analyst; Certified Management
Consultant.
William J. Schneider 52 Trustee Senior Partner, Miller-Valentine Partners, Vice
4000 Miller-Valentine president, Miller-Valentine Realty, Inc.
Ct.
P.O. Box 744
Dayton, OH 45401
Michael S. Davern 39 Vice President Vice President of Nuveen Advisory Corp. (since
One South Main Street January 1997); Vice President and Portfolio
Dayton, OH 45402 Manager (since September 1991) of Flagship
Financial.
William M. Fitzgerald 32 Vice President Vice President of Nuveen Advisory Corp. (since
333 West Wacker Drive December 1995); Assistant Vice President of Nuveen
Chicago, IL 60606 Advisory Corp. (from September 1992 to December
1995), prior thereto Assistant Portfolio Manager
of Nuveen Advisory Corp. (from June 1988 to
September 1992).
Kathleen M. Flanagan 49 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
J. Thomas 41 Vice President Vice President of Nuveen Advisory Corp.
Futrell
333 West
Wacker
Drive
Chicago, IL
60606
Richard A. 33 Vice President Vice President of Nuveen Advisory Corp. (since
Huber January 1997); Vice President and Portfolio
3450 Manager (since August 1985) of Flagship Financial.
Cassandra
Drive
Tipp City,
OH 45371
Anna R. 50 Vice President Vice President of John Nuveen & Co. Incorporated.
Kucinskis
333 West
Wacker
Drive
Chicago, IL
60606
Larry W. 45 Vice President Vice President (since September 1992), and
Martin Assistant Secretary and Assistant General Counsel
333 West of John Nuveen & Co. Incorporated; Vice President
Wacker (since May 1993) and Assistant Secretary of Nuveen
Drive Advisory Corp.; Vice President (since May 1993)
Chicago, IL and Assistant Secretary (since January 1992) of
60606 Nuveen Institutional Advisory Corp.; Assistant
Secretary of The John Nuveen Company (since
February 1993).
Edward F. 31 Vice President Vice President (since September 1996), previously
Neild, IV Assistant Vice President (since December 1993) of
One South Nuveen Advisory Corp., portfolio manager prior
Main Street thereto (since January 1992); Vice President
Dayton, OH (since September 1996), previously Assistant Vice
45402 President (since May 1995) of Nuveen Institutional
Advisory Corp., portfolio manager prior thereto
(since January 1992).
O. Walter 57 Vice President Vice President and Controller of The John Nuveen
Renfftlen Company (since March 1992), John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and Nuveen
Wacker Institutional Advisory Corp.
Drive
Chicago, IL
60606
H. William 62 Vice President Vice President and Treasurer of The John Nuveen
Stabenow Company (since March 1992), John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and Nuveen
Wacker Institutional Advisory Corp. (since January 1992).
Drive
Chicago, IL
60606
Jan E. 41 Vice President Vice President of Nuveen Advisory Corp. (since
Terbrueggen January 1997); Vice President and Portfolio
One South Manager (since January 1992) of Flagship
Main Street Financial).
Dayton, OH
45402
Gifford R. 40 Vice President Vice President (since September 1992), Assistant
Zimmerman and Assistant Secretary and Assistant General Counsel of John
333 West Secretary Nuveen & Co. Incorporated; Vice President (since
Wacker May 1993) and Assistant Secretary of Nuveen
Drive Advisory Corp.; Vice President (since May 1993)
Chicago, IL and Assistant Secretary (since January 1992) of
60606 Nuveen Institutional Advisory Corp.
</TABLE>
Anthony Dean, Margaret Rosenheim and Timothy Schwertfeger serve as members of
the Executive Committee of the Board of Trustees. The Executive Committee,
which meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are also directors or trustees, as the case may be,
of 35 other Nuveen open-end funds. Mr. Dean, Mr. Schwertfeger, Mr. Brown, Ms.
Impellizzeri, Ms. Rosenheim, and Mr. Sawers also are directors or trustees of
52 Nuveen closed-end funds.
The following table sets forth estimated compensation paid or accrued by the
Trust to each of the trustees of the Trust for the first full fiscal year and
the total compensation that all Nuveen Funds paid to each trustee during the
calendar year 1996. The Trust has no retirement or pension plans. The officers
and trustees affiliated with Nuveen serve without any compensation from the
Trust.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- ----------------
<S> <C> <C>
Robert P. Bremner........................ $3,477(3) $20,500(3)
Lawrence H. Brown........................ $3,237 $58,500
Anne E. Impellizzeri..................... $3,237 $58,500
Margaret K. Rosenheim.................... $3,579(2) $66,315(1)
Peter R. Sawers.......................... $3,237 $58,500
William J. Schneider..................... $3,700(3) $21,500(3)
</TABLE>
S-11
<PAGE>
- --------
(1) Includes $1,565 in interest accrued on deferred compensation from prior
years.
(2) Includes $324 in interest accrued on deferred compensation from prior
years.
(3) As a trustee of the Flagship Funds, for the 12 months ended May 31, 1996.
Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a
fee. The Trust requires no employees other than its officers, all of whom are
compensated by Nuveen.
The officers and directors of each Fund, in the aggregate, own less than 1%
of the shares of the Fund.
The following table sets forth the percentage ownership of each person, who,
as of January 3, 1997, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Arizona
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 22.33%
Class A Shares........... for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Arizona
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 30.11
Class C Shares........... for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Colorado
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 26.16
Class A Shares........... for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Florida
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 54.51
Class A Shares........... for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Florida
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 73.95
Class C Shares........... for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
PaineWebber for the benefit of 5.09
Robert L. Brumm TTEE
UAD 8-8-80
FBO Robert L. Brumm
14300 Passage Way
Seminole, FL 33776-1003
Clark E. McDonald 5.07
Sylvia K. McDonald JT Wros
Cypress Village #422A
4600 Middleton Park Cir. E.
Jacksonville, FL 32224-6623
Nuveen Flagship Florida
Intermediate Municipal Merrill Lynch, Pierce, Fenner & Smith 49.28
Bond Fund for the sole benefit of its customers
Class A Shares........... Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
NFSC FEBO #OCF-075582 19.16
Big Fork Holding Co.
A partnership
Mac A. Greco
600 Madison Street
Tampa, FL 33602-4017
Nuveen Flagship Florida
Intermediate Municipal Bond Merrill Lynch, Pierce, Fenner & Smith 82.43
Fund for the sole benefit of its customers
Class C Shares............. Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Maryland Municipal
Bond Fund NFSC FEBO # A1F-375349 16.48
Class A Shares............. Imelda J. Hall
4610 Col. Fenwick Place
Upper Marlboro, MD 20772
Merrill Lynch, Pierce, Fenner & Smith 7.55
for the sole benefit of its customers
Attn: Fund Administration #97E83
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Evelyn A. Thomas TR 5.12
UA April 10, 1991
Evelyn A. Thomas Trust
7215 Delfield St.
Chevy Chase, MD 20815-4045
Nuveen Maryland Municipal
Bond Fund NFSC FEBO # OC8-463639 42.27
Class C Shares............. Arnold P. Litman
15100 Carrolton Rd.
Rockville, MD 20853
Donaldson, Lufkin & Jenrette 5.64
Securities Corporation, Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Catherine Small & Robert N. Small 5.45%
JT Ten WROS Not TC
1039 Bay Front Ave.
North Beach, MD 20714-9751
Jessie L. & John L. Daniels & 5.12
Diane D. Cole & Lynne D. Mella TRS
UA Dec 21, 1992
Jessie L. Daniels Trust
9039 Rouen Ln.
Potomac, ND 20854-3135
Nuveen Maryland Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 6.24
Class R Shares............. for the sole benefit of its customers
Attn: Fund Admn/#979D5
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship New Mexico
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 38.18
Class A Shares............. for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Pennsylvania
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 48.95
Class A Shares............. for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Pennsylvania
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 61.87
Class C Shares............. for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Key Clearing Corp. 8.44
A/C 6028-2544
PO Box 93971
Cleveland, OH 44101-5971
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 30.20
Class A Shares............. for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 53.79
Class C Shares............. for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Charles Schwab & Co. Inc. 10.97%
Attn: Mutual Funds Dept.
101 Montgomery St.
San Francisco, CA 94104-4122
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 6.80
Class R Shares............. for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-14
<PAGE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE
- --------------------------------- --------------
<S> <C>
For the first $125 million....................................... .5500 of 1%
For the next $125 million........................................ .5375 of 1%
For the next $250 million........................................ .5250 of 1%
For the next $500 million........................................ .5125 of 1%
For the next $1 billion.......................................... .5000 of 1%
For assets over $2 billion....................................... .4750 of 1%
</TABLE>
For all Funds, except the Maryland Fund, Nuveen Advisory has committed
through at least 1998 to waive fees or reimburse expenses to the extent
necessary to maintain a dividend level competitive with that of similar funds,
and has also voluntarily agreed through July 31, 1997 to waive fees or
reimburse expenses for the Florida Fund, the Pennsylvania Fund, and the
Virginia Fund so that the total operating expenses (not counting distribution
and service fees, interest, taxes, fees incurred in acquiring and disposing of
portfolio securities and, to the extent permitted, extraordinary expenses) for
those funds do not exceed 0.75% of average daily net assets.
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO NUVEEN REIMBURSEMENTS
ADVISORY FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------------------------------
1/31/94 1/31/95 1/31/96 1/31/94 1/31/95 1/31/96
---------- --------------------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Maryland Municipal Bond
Fund................... $ 172,693 189,022 131,476 42,288 65,460 148,537
</TABLE>
For the last three fiscal years, the Arizona Municipal Bond Fund, the
Colorado Municipal Bond Fund, the Florida Municipal Bond Fund, the Florida
Intermediate Municipal Bond Fund, the New Mexico Municipal Bond Fund, the
Oklahoma Municipal Bond Fund, the Pennsylvania Municipal Bond Fund, and the
Virginia Municipal Bond Fund paid net management fees to Flagship Financial,
predecessor to Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE REIMBURSEMENT
PAID TO FLAGSHIP FEE WAIVERS AND EXPENSE
FINANCIAL FOR THE YEAR REIMBURSEMENTS
ENDED FOR THE YEAR ENDED
------------------------ ---------------------------
5/31/94 5/31/95 5/31/96 5/31/94 5/31/95 5/31/96
-------- ------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Arizona Municipal Bond
Fund..................... $ 43,162 122,032 82,113 377,569 277,079 337,926
Colorado Municipal Bond
Fund..................... $ -- -- -- 162,901 169,048 257,637
Florida Municipal Bond
Fund..................... $314,749 633,336 980,751 1,676,047 1,093,473 685,218
Florida Intermediate
Municipal Bond Fund...... $ -- -- -- 2,503 19,498 75,798
New Mexico Municipal Bond
Fund..................... $ -- 17,972 32,291 225,840 226,715 226,537
Oklahoma Municipal Bond
Fund..................... $ -- -- -- -- -- --
Pennsylvania Municipal
Bond Fund................ $104,513 58,095 65,517 111,454 164,423 167,757
Virginia Municipal Bond
Fund..................... $133,981 211,367 310,198 404,880 351,513 312,111
</TABLE>
As discussed in the Prospectus, in addition to the management fee of Nuveen
Advisory, each Fund pays all other costs and expenses of its operations and a
portion of the Trust's general administrative expenses allocated in proportion
to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. Founded in 1898,
Nuveen is the oldest and largest investment banking firm specializing in the
underwriting and distribution of tax-exempt securities and maintains the
largest research department in the investment banking community devoted
exclusively to the analysis of municipal securities. In 1961, Nuveen began
sponsoring the Nuveen Tax-Exempt Unit Trust and since that time has issued more
than $36 billion in tax-exempt unit trusts, including over $12 billion in tax-
exempt insured unit trusts. In addition, Nuveen open-end and closed-end funds
held
approximately $35 billion in tax-exempt securities under management as of the
date of this Statement. Over 1,000,000 individuals have invested to date in
Nuveen's tax-exempt funds and trusts. Nuveen is a subsidiary of The John Nuveen
Company which, in turn, is approximately 78% owned by The St. Paul Companies,
Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota and is
principally engaged in providing property-liability insurance through
subsidiaries. Effective
S-15
<PAGE>
January 1, 1997, The John Nuveen Company acquired Flagship Resources Inc., and
as part of that acquisition, Flagship Financial, the adviser to the Flagship
Funds, was merged with Nuveen Advisory.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to
pay any brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price. Given the
best price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers and general economic reports) and statistical and
other services to Nuveen Advisory. It is not possible to place a dollar value
on information and statistical and other services received from dealers. Since
it is only supplementary to Nuveen Advisory's own research efforts, the receipt
of research information is not expected to reduce significantly Nuveen
Advisory's expenses. While Nuveen Advisory will be primarily responsible for
the placement of the business of the Funds, the policies and practices of
Nuveen Advisory in this regard must be consistent with the foregoing and will,
at all times, be subject to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to a Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Fund's shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the New York Stock Exchange (the
"Exchange") is normally open for trading. The Exchange is not open for trading
on New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of a class of shares of a Fund will be computed by dividing the
value of the Fund's assets attributable to the class, less the liabilities
attributable to the class, by the number of shares of the class outstanding.
S-16
<PAGE>
In determining net asset value for the Funds, each Fund's custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. The pricing service values portfolio securities at the mean
between the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily
available (which constitute a majority of the securities held by the Funds) are
valued at fair value as determined by the pricing service using methods which
include consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Board of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities and (ii) certain options, futures, or forward
contracts (the "short-short test"). Third, a Fund must diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the value of its total assets is comprised of cash, cash items, United States
Government securities, securities of other regulated investment companies and
other securities limited in respect of any one issuer to an amount not greater
in value than 5% of the value of a Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the total assets is invested in the securities of any one
issuer (other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by a Fund and
engaged in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed capital gains included in the
shareholder's gross income. Each Fund intends to distribute at least annually
to its shareholders all or substantially all of its net tax-exempt interest and
any investment company taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will be excludable from federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that
S-17
<PAGE>
payments made by the insurer representing interest on "non-appropriation" lease
obligations will be excludable from gross income for federal income tax
purposes. See "Investment Policies and Investment Portfolio; Portfolio
Securities."
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will
be treated as taxable interest income to the extent such gain does not exceed
the market discount, and any gain realized in excess of the market discount
will be treated as capital gains. Any net long-term capital gains realized by a
Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital
gain dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Internal Revenue Code for the
dividends received deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, net capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) will be taxed at a maximum
marginal rate of 28%, while short-term capital gains and other ordinary income
will be taxed at a maximum marginal rate of 39.6%. Because of the limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective tax rate may be higher in certain
circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of a Fund if the shareholder purchases other shares of such Fund
(whether through reinvestment of distributions or otherwise) or the shareholder
acquires or enters into a contract or option to acquire securities that are
substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the
S-18
<PAGE>
redemption or exchange value), such a redemption could result in treatment of
the portion of the sales or redemption proceeds equal to the accrued tax-exempt
interest as taxable gain (to the extent the redemption or exchange price
exceeds the shareholder's tax basis in the shares disposed of) rather than tax-
exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Among the requirements that a Fund must meet in order to qualify under
Subchapter M in any year is that less than 30% of its gross income must be
derived from the sale or other disposition of securities and certain other
assets held for less than three months.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
STATE TAX MATTERS
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
S-19
<PAGE>
satisfy the conditions which will cause distributions to qualify as exempt-
interest dividends to shareholders when distributed as intended, and that each
Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax purposes. The tax discussion summarizes general state tax laws which
are currently in effect and are subject to change by legislative or
administrative action; any such changes may be retroactive with respect to the
applicable Fund's transactions. Investors should consult a tax adviser for more
detailed information about state taxes to which they may be subject.
MARYLAND
The following is a general, abbreviated summary of certain provisions of the
applicable Maryland tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Maryland
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Maryland Fund transactions.
The following is based on the assumptions that the Maryland Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Maryland Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Maryland Fund's shareholders.
The Maryland Fund will be subject to the Maryland corporate income tax only
if it has a sufficient nexus with Maryland. If it is subject to the Maryland
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Maryland Fund that are attributable to interest on or
gain from the sale or exchange of any obligation of Maryland or its political
subdivisions or to interest on obligations of the United States, its
territories, possessions, or instrumentalities that are exempt from state
taxation under federal law will not be subject to the Maryland individual
income tax or the Maryland corporate income tax. All remaining distributions to
shareholders will be subject to the Maryland individual and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Maryland
Fund will be subject to the Maryland individual and corporate income taxes.
Shares of the Maryland Fund may be subject to the Maryland estate tax if
owned by a Maryland decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Maryland state and local tax matters.
ARIZONA
The following is a general, abbreviated summary of certain provisions of the
applicable Arizona tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Arizona Fund.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Arizona Fund transactions.
The following is based on the assumptions that the Arizona Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
be registered as a diversified management company under (S)5 of the Federal
Investment Company Act of 1940, that it will satisfy the conditions which will
cause Arizona Fund distributions to qualify as exempt-interest dividends to
shareholders, and that it will distribute all interest and dividends it
receives to the Arizona Fund's shareholders.
The Arizona Fund is not subject to the Arizona corporate income tax.
Distributions by the Arizona Funds that are attributable to interest on any
obligation of Arizona and its political subdivision or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Arizona individual and corporate income taxes. All
remaining distributions, including distributions attributable to capital gains,
will be subject to the Arizona individual and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Arizona
fund will be subject to the Arizona individual and corporate income taxes.
Shares of the Arizona Fund may be subject to the Arizona estate tax if owned
by an Arizona decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Arizona state and local tax matters.
S-20
<PAGE>
COLORADO
The following is a general, abbreviated summary of certain provisions of the
applicable Colorado tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Colorado
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Arizona Fund transactions.
The following is based on the assumptions that the Colorado Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Colorado Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Colorado Fund's shareholders.
The Colorado Fund will be subject to the Colorado corporate income tax only
if it has a sufficient nexus with Colorado. If it is subject to the Colorado
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Colorado Fund that are attributable to interest earned
on any obligation of Colorado and its political subdivisions issued on or after
May 1, 1980 and certain such obligations issued before May 1, 1980 or to
interest on obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Colorado corporate income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
Colorado individual and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Colorado
Fund will be subject to the Colorado individual and corporate income taxes.
Shares of the Colorado Fund may be subject to the Colorado estate tax if
owned by an Colorado decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Colorado state and local tax matters.
FLORIDA
The following is a general, abbreviated summary of certain provisions of the
applicable Florida tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Florida
Funds. This summary does not address the taxation of other shareholders nor
does it discuss any local taxes that may be applicable. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to transactions of the Florida Funds.
The following is based on the assumptions that the Florida Funds will qualify
under Subchapter M of the Code as regulated investment companies, that they
will satisfy the conditions which will cause distributions of Florida Funds to
qualify as exempt-interest dividends to shareholders, and that they will
distribute all interest and dividends they receive to the Florida Funds'
shareholders.
The Florida Funds will be subject to the Florida corporate income tax only if
they have a sufficient nexus with Florida. If the Florida Funds are subject to
the Florida corporate income tax, they do not expect to pay a material amount
of such tax. The Florida Funds will not be subject to the Florida intangible
personal property tax.
Shares of the Florida Funds will not be subject to the Florida intangible
personal property tax if on January 1 of the taxable year, the Funds hold only
tax-exempt obligations of Florida and its political subdivisions or of the
United States, its territories, possessions or instrumentalities that are
exempt from state taxation under federal law ("Federal Obligations"). If the
Florida Funds hold any other types of assets on that date, then the entire
value of the Funds' shares (except for the portion of the value of the shares
attributable to Federal Obligations) will be subject to the Florida intangible
personal property tax.
All distributions by the Florida Funds to corporate shareholders, regardless
of source, will be subject to the Florida corporate income tax. Gain on the
sale, exchange, or other dispositions of shares of the Florida Funds will be
subject to the Florida corporate income tax.
Shares of the Florida Funds may be subject to the Florida estate tax if owned
by a Florida decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Florida state and local tax matters.
NEW MEXICO
The following is a general, abbreviated summary of certain provisions of the
applicable New Mexico tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the New Mexico
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to New Mexico Fund transactions.
S-21
<PAGE>
The following is based on the assumptions that the New Mexico Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause New Mexico Fund distributions
to qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the New Mexico Fund's
shareholders.
The New Mexico Fund will be subject to the New Mexico corporate franchise tax
and the New Mexico corporate income tax only if it has a sufficient nexus with
New Mexico. If the New Mexico Fund is subject to such taxes, it does not expect
to pay a material amount of either tax.
Distributions by the New Mexico Fund that are attributable to interest on any
obligation of New Mexico and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the New Mexico personal income tax or the New Mexico
corporate income tax. All other distributions, including distributions
attributable to capital gains, will be subject to the New Mexico personal and
corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the New Mexico
Fund will be subject to the New Mexico personal and corporate income taxes.
Shares of the New Mexico Fund may be subject to the New Mexico estate tax if
owned by a New Mexico decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New Mexico and local tax matters.
PENNSYLVANIA
The following is a general, abbreviated summary of certain provisions of the
applicable Pennsylvania tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the
Pennsylvania Fund. This summary does not address the taxation of other
shareholders not does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Pennsylvania Fund
transactions.
The following is based on the assumptions that the Pennsylvania Fund will
qualify under Subchapter M of the Code and under the Investment Company Act of
1940 as a regulated investment company, that it will satisfy the conditions
which will cause Pennsylvania Fund distributions to qualify as exempt-interest
dividends to shareholders, and that it will distribute all interest and
dividends it receives to the Pennsylvania Fund's shareholders.
The Pennsylvania Fund will not be subject to the Pennsylvania corporate net
income tax. The Pennsylvania Fund will be subject to the Pennsylvania franchise
tax only if it has a sufficient nexus with Pennsylvania. If it is subject to
the Pennsylvania franchise tax, it does not expect to pay a material amount of
such tax.
Distributions from the Pennsylvania Fund that are attributable to interest on
any obligation of Pennsylvania or its political subdivisions or to interest on
obligations of the United States, its territories, possessions, or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Pennsylvania personal income tax or the Pennsylvania
corporate net income tax. Distributions by the Pennsylvania Fund that are
attributable to interest on the obligations of states other than Pennsylvania
will not be subject to the Pennsylvania corporate net income tax unless they
are subject to federal income tax. All other distributions, including those
attributable to capital gains, will be subject to the Pennsylvania personal and
corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the
Pennsylvania Fund will be subject to the Pennsylvania personal and corporate
income taxes.
Shares of the Pennsylvania Fund may be subject to the Pennsylvania
inheritance tax and the Pennsylvania estate tax if held by a Pennsylvania
decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Pennsylvania and local tax matters.
VIRGINIA
The following is a general, abbreviated summary of certain provisions of the
applicable Virginia tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Virginia
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Virginia Fund transactions.
The following is based on the assumptions that the Virginia Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Virginia Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Virginia Fund's shareholders.
S-22
<PAGE>
The Virginia Fund will be subject to the Virginia corporate income tax only
if it has a sufficient nexus with Virginia. If it is subject to the Virginia
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Virginia Fund that are attributable to interest on any
obligation of Virginia and its political subdivisions and instrumentalities
("Virginia Obligations") or to interest on obligations of the United States and
its territories, possessions or instrumentalities that are exempt from state
taxation under federal law will not be subject to the Virginia personal income
tax or the Virginia corporate income tax. Distributions attributable to gain on
the sale or exchange of certain Virginia Obligations will be exempt from the
Virginia personal and corporate income taxes if the enabling statute
authorizing the particular obligation expressly exempts such gain from
taxation. All remaining distributions will be subject to the Virginia personal
and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Virginia
Fund will be subject to the Virginia personal and corporate income taxes.
If a shareholder receives a distribution consisting in part of taxable
income, then the entire distribution will be taxed unless the shareholder
substantiates the portion which is exempt from taxation.
Shares of the Virginia Fund may be subject to the Virginia estate tax if
owned by a Virginia decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Virginia state and local tax matters.
PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each
of which will be calculated separately for each class of shares.
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20% (3% for the
Florida Intermediate Fund).
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
S-23
<PAGE>
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column. None of the Funds had Class B Shares
outstanding as of the date of this Statement of Additional Information.
<TABLE>
<CAPTION>
AS OF JULY 31, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Maryland Municipal Bond Fund
Class A Shares............. 4.35% 42.50% 7.57%
Class C Shares............. 3.80% 42.50% 6.61%
Class R Shares............. 4.80% 42.50% 8.35%
<CAPTION>
AS OF NOVEMBER 30, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Arizona Municipal Bond Fund
Class A Shares............. 4.27% 43.00% 7.49%
Class C Shares............. 3.92% 43.00% 6.88%
Class R Shares............. N/A N/A N/A
Colorado Municipal Bond Fund
Class A Shares............. 4.94% 42.50% 8.59%
Class C Shares............. N/A N/A N/A
Class R Shares............. N/A N/A N/A
Florida Municipal Bond Fund
Class A Shares............. 4.71% 39.60% 7.80%
Class C Shares............. 4.36% 39.60% 7.22%
Class R Shares............. N/A N/A N/A
Florida Intermediate
Municipal Bond Fund
Class A Shares............. 4.10% 39.60% 6.79%
Class C Shares............. 3.68% 39.60% 6.09%
Class R Shares............. N/A N/A N/A
New Mexico Municipal Bond
Fund
Class A Shares............. 4.73% 44.50% 8.52%
Class C Shares............. N/A N/A N/A
Class R Shares............. N/A N/A N/A
Oklahoma Municipal Bond Fund
Class A Shares............. N/A N/A N/A
Class C Shares............. N/A N/A N/A
Class R Shares............. N/A N/A N/A
Pennsylvania Municipal Bond
Fund
Class A Shares............. 4.78% 41.50% 8.17%
Class C Shares............. 4.44% 41.50% 7.59%
Class R Shares............. N/A N/A N/A
Virginia Municipal Bond Fund
Class A Shares............. 4.76% 43.00% 8.35%
Class C Shares............. 4.42% 43.00% 7.75%
Class R Shares............. N/A N/A N/A
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
S-24
<PAGE>
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen UITs, or the maximum public
offering price). The distribution rate differs from yield and total return and
therefore is not intended to be a complete measure of performance. Distribution
rate may sometimes differ from yield because a Fund may be paying out more than
it is earning and because it may not include the effect of amortization of bond
premiums to the extent such premiums arise after the bonds were purchased.
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20% (3% for the Florida
Intermediate Fund), were as follows:
<TABLE>
<CAPTION>
JULY 31, 1996
-----------------------
DISTRIBUTION RATES
-----------------------
CLASS A CLASS C CLASS R
------- ------- -------
<S> <C> <C> <C>
Maryland Municipal Bond Fund...................... 4.58% 4.02% 5.01%
<CAPTION>
NOVEMBER 30, 1996
-----------------------
DISTRIBUTION RATES
-----------------------
CLASS A CLASS C CLASS R
------- ------- -------
<S> <C> <C> <C>
Arizona Municipal Bond Fund....................... 4.69% 4.37% N/A
Colorado Municipal Bond Fund...................... 4.80% N/A N/A
Florida Municipal Bond Fund ...................... 4.85% 4.54% N/A
Florida Intermediate Municipal Bond Fund.......... 4.34% 3.97% N/A
New Mexico Municipal Bond Fund.................... 4.64% N/A N/A
Oklahoma Municipal Bond Fund...................... N/A N/A N/A
Pennsylvania Municipal Bond Fund.................. 5.10% 4.79% N/A
Virginia Municipal Bond Fund...................... 5.01% 4.69% N/A
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Total returns for the oldest class of each fund reflect actual performance
for all periods. For other classes existing prior to February 1, 1997, total
returns reflect actual performance for periods since class inception, and the
oldest class's performance for periods prior to inception, adjusted for the
differences in sales charges and fees between the classes. For classes created
on February 1, 1997, total returns reflect the oldest class's performance for
all periods, adjusted for the differences in sales charges and fees between the
classes.
S-25
<PAGE>
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
Maryland Municipal Bond fund
Class A Shares............................................. September 6, 1994
Class B Shares............................................. February 1, 1997
Class C Shares............................................. September 6, 1994
Class R Shares............................................. July 26, 1991
Arizona Municipal Bond fund
Class A Shares............................................. October 29, 1986
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 7, 1994
Class R Shares............................................. February 1, 1997
Colorado Municipal Bond fund
Class A Shares............................................. May 4, 1987
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 1, 1997
Class R Shares............................................. February 1, 1997
Florida Municipal Bond fund
Class A Shares............................................. June 15, 1990
Class B Shares............................................. February 1, 1997
Class C Shares............................................. September 14, 1995
Class R Shares............................................. February 1, 1997
Florida Intermediate Municipal Bond fund
Class A Shares............................................. February 1, 1994
Class C Shares............................................. February 2, 1994
Class R Shares............................................. February 1, 1997
New Mexico Municipal Bond fund
Class A Shares............................................. September 16, 1992
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 1, 1997
Class R Shares............................................. February 1, 1997
Pennsylvania Municipal Bond fund
Class A Shares............................................. October 29, 1986
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 2, 1994
Class R Shares............................................. February 1, 1997
Virginia Municipal Bond fund
Class A Shares............................................. March 27, 1986
Class B Shares............................................. February 1, 1997
Class C Shares............................................. October 4, 1993
Class R Shares............................................. February 1, 1997
</TABLE>
The annual total return figures for the Maryland Municipal Bond Fund,
including the effect of the maximum sales charge for Class A shares, for the
one-year period ended July 31, 1996 and for the period from inception through
July 30, 1996, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
----------------------------
ONE YEAR FROM INCEPTION
ENDED THROUGH
JULY 31, 1996 JULY 31, 1996
------------- --------------
<S> <C> <C> <C>
Maryland Municipal Bond Fund
Class A Shares......................... 1.07% 5.49%
Class B Shares......................... 0.74% 5.60%
Class C Shares......................... 4.71% 5.78%
Class R Shares......................... 5.74% 6.80%
</TABLE>
S-26
<PAGE>
The annual total return figures for the Arizona Municipal Bond Fund, Colorado
Municipal Bond Fund, Florida Municipal Bond Fund, New Mexico Municipal Bond
Fund, Pennsylvania Municipal Bond Fund, and Virginia Municipal Bond Fund
including the effect of the maximum sales charge for Class A shares, for the
one-year and five-year periods (as applicable) ended August 31, 1996 and for
the period from inception through November 30, 1996, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------
TEN
YEARS
ONE YEAR FIVE YEARS ENDED FROM INCEPTION
ENDED ENDED NOVEMBER THROUGH
NOVEMBER 30, 1996 NOVEMBER 30, 1996 30, 1996 NOVEMBER 30, 1996
----------------- ----------------- -------- -----------------
<S> <C> <C> <C> <C>
Arizona Municipal Bond
Fund
Class A Shares........ 0.53% 7.36% 7.29% 7.47%
Class B Shares........ 0.38% 7.55% 7.28% 7.46%
Class C Shares........ 4.38% 7.91% 7.26% 7.44%
Class R Shares........ 4.94% 8.29% 7.75% 7.93%
Colorado Municipal Bond
Fund
Class A Shares........ 1.77% 7.13% N/A 6.88%
Class B Shares........ 1.66% 6.65% N/A 6.87%
Class C Shares........ 5.87% 7.68% N/A 6.99%
Class R Shares........ 6.24% 8.06% N/A 7.36%
Florida Municipal Bond
Fund
Class A Shares........ 0.00% 6.56% N/A 7.30%
Class B Shares........ (0.15%) 6.74% N/A 7.42%
Class C Shares........ 3.92% 6.65% N/A 7.24%
Class R Shares........ 4.38% 7.48% N/A 8.02%
New Mexico Municipal
Bond Fund
Class A Shares........ 1.33% N/A N/A 5.97%
Class B Shares........ 1.19% N/A N/A 6.27%
Class C Shares........ 5.40% N/A N/A 6.68%
Class R Shares........ 5.77% N/A N/A 7.05%
Pennsylvania Municipal
Bond Fund
Class A Shares........ 0.88% 6.51% 6.79% 6.88%
Class B Shares........ 0.75% 6.69% 6.78% 6.87%
Class C Shares........ 4.73% 6.89% 6.68% 6.76%
Class R Shares........ 5.30% 7.43% 7.24% 7.33%
Virginia Municipal Bond
Fund
Class A Shares........ 0.92% 6.59% 6.96% 7.24%
Class B Shares........ 0.77% 6.77% 6.95% 7.24%
Class C Shares........ 4.86% 6.90% 6.82% 7.07%
Class R Shares........ 5.34% 7.51% 7.42% 7.68%
</TABLE>
S-27
<PAGE>
The annual total return figures for the Florida Intermediate Bond Fund,
including the effect of the maximum sales charge for Class A shares, for the
one-year and five-year periods ended November 30, 1996 and for the period from
inception through November 30, 1996, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Florida Intermediate
Bond Fund
Class A Shares........ 1.68% N/A 5.32%
Class C Shares........ 4.25% N/A 5.90%
Class R Shares........ 4.82% N/A 6.46%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
The cumulative total return figures for the Maryland Municipal Bond Fund,
including the effect of the maximum sales charge for the Class A Shares, for
the one-year period ended July 31, 1996, and for the period since inception
through July 31, 1996, using the performance of the oldest class for periods
prior to the inception of the newer classes, as described above, were as
follows:
<TABLE>
<CAPTION>
FROM
CUMULATIVE TOTAL RETURN INCEPTION
----------------------- THROUGH
ONE YEAR ENDED JULY 31,
JULY 31, 1996 1996
----------------------- ---------
<S> <C> <C> <C>
Maryland Municipal Bond Fund
Class A Shares.................... 1.07% 26.68%
Class B Shares.................... 0.74% 27.23%
Class C Shares.................... 4.71% 28.21%
Class R Shares.................... 5.74% 33.76%
</TABLE>
S-28
<PAGE>
The cumulative total return figures for the Arizona Municipal Bond Fund,
Colorado Municipal Bond Fund, Florida Municipal Bond Fund, New Mexico Municipal
Bond Fund, Pennsylvania Municipal Bond Fund, and Virginia Municipal Bond Fund,
including the effect of the maximum sales charge for the Class A Shares, for
the one-year and five-year periods (as applicable) ended August 31, 1996, and
for the period since inception through November 30, 1996, using the performance
of the oldest class for periods prior to the inception of the newer classes, as
described above, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM
ENDED ENDED ENDED INCEPTION
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Arizona Municipal Bond
Fund
Class A Shares........ 0.53% 42.63% 102.04% 106.89%
Class B Shares........ 0.38% 43.87% 101.86% 106.72%
Class C Shares........ 4.38% 46.29% 101.63% 106.28%
Class R Shares........ 4.94% 48.89% 110.90% 115.96%
Colorado Municipal Bond
Fund
Class A Shares........ 1.77% 41.13% N/A 89.12%
Class B Shares........ 1.66% 37.97% N/A 88.95%
Class C Shares........ 5.87% 44.78% N/A 90.93%
Class R Shares........ 6.24% 47.32% N/A 97.41%
Florida Municipal Bond
Fund
Class A Shares........ 0.00% 37.40% N/A 57.67%
Class B Shares........ (0.15%) 38.56% N/A 58.83%
Class C Shares........ 3.92% 37.99% N/A 57.05%
Class R Shares........ 4.38% 43.42% N/A 64.58%
New Mexico Municipal
Bond Fund
Class A Shares........ 1.33% N/A N/A 27.60%
Class B Shares........ 1.19% N/A N/A 29.14%
Class C Shares........ 5.40% N/A N/A 31.24%
Class R Shares........ 5.77% N/A N/A 33.20%
Pennsylvania Municipal
Bond Fund
Class A Shares ....... 0.88% 37.10% 92.80% 95.62%
Class B Shares........ 0.75% 38.25% 92.63% 95.45%
Class C Shares........ 4.73% 39.50% 90.90% 93.51%
Class R Shares........ 5.30% 43.11% 101.26% 104.20%
Virginia Municipal Bond
Fund
Class A Shares ....... 0.92% 37.59% 95.93% 111.07%
Class B Shares........ 0.77% 38.75% 95.75% 110.89%
Class C Shares........ 4.86% 39.60% 93.42% 107.52%
Class R Shares........ 5.34% 43.62% 104.52% 120.32%
</TABLE>
S-29
<PAGE>
The cumulative total return figures for the Florida Intermediate Municipal
Bond Fund, including the effect of the maximum sales charge for the Class A
Shares, for the one-year period ended November 30, 1996, and for the period
since inception, through November 30, 1996, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Florida Intermediate Municipal
Bond Fund
Class A Shares................ 1.68% N/A 15.80%
Class C Shares................ 4.25% N/A 17.60%
Class R Shares................ 4.82% N/A 19.38%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 42.5% maximum marginal federal tax rate for 1997, the annual
taxable equivalent total return for the Maryland Municipal Bond Fund's shares
for the one-year period ended July 31, 1996 with respect to the Class R Shares
was 9.57%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Fund primarily invests in investment
S-30
<PAGE>
grade Municipal Obligations in pursuing their objective of as high a level of
current interest income which is exempt from federal and state income tax as is
consistent, in the view of the Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury
securities funds, corporate bond funds (either investment grade or high yield),
or Ginnie Mae funds. These types of funds, because of the character of their
underlying securities, differ from municipal bond funds in several respects.
The susceptibility of the price of treasury bonds to credit risk is far less
than that of municipal bonds, but the price of treasury bonds tends to be
slightly more susceptible to change resulting from changes in market interest
rates. The susceptibility of the price of investment grade corporate bonds and
municipal bonds to market interest rate changes and general credit changes is
similar. High yield bonds are subject to a greater degree of price volatility
than municipal bonds resulting from changes in market interest rates and are
particularly susceptible to volatility from credit changes. Ginnie Mae bonds
are generally subject to less price volatility than municipal bonds from credit
concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market
interest rate changes. In addition, the volatility of Ginnie Mae bonds due to
changes in market interest rates may differ from municipal bonds of comparable
coupon and maturity because bonds of the sensitivity of Ginnie Mae prepayment
experience to change in interest rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND
REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will shares expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES
Cumulative Discount. You may qualify for a reduced sales charge on a purchase
of Class A Shares of any Fund if the amount of your purchase, when added to the
value that day of all of your prior purchases of shares of any Fund or of
another Nuveen Municipal Mutual Fund, or units of a Nuveen unit trust, on which
an up-front sales charge or ongoing distribution fee is imposed, falls within
the amounts stated in the Class A Sales Charges and Commissions table in "How
to Select a Purchase Option" in the Prospectus. You or your financial adviser
must notify Nuveen or the Fund's transfer agent of any cumulative discount
whenever you plan to purchase Class A Shares of a Fund that you wish to qualify
for a reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How to
Select a Purchase Option" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A Shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Municipal
Mutual Fund that you already own on which you paid an up-front sales charge or
an ongoing distribution fee and any Class C Shares of a Nuveen Mutual Fund that
you purchase over the next 13 months towards completion of your investment
program, but you will receive a reduced sales charge only on new Class A Shares
you purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without
a sales charge through investment of distributions from a Nuveen Municipal
Mutual Fund or a Nuveen Unit Trust or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the
S-31
<PAGE>
sales charge specified in your Letter of Intent, you will receive this lower
sales charge retroactively, and the difference between it and the higher sales
charge paid will be used to purchase additional Class A Shares on your behalf.
If the total purchases, less redemptions, are less than the amount specified,
you must pay Nuveen an amount equal to the difference between the amounts paid
for these purchases and the amounts which would have been paid if the higher
sales charge had been applied. If you do not pay the additional amount within
20 days after written request by Nuveen or your financial adviser, Nuveen will
redeem an appropriate number of your escrowed Class A Shares to meet the
required payment. By establishing a Letter of Intent, you irrevocably appoint
Nuveen as attorney to give instructions to redeem any or all of your escrowed
shares, with full power of substitution in the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Unit Trust Distributions. You may purchase Class A
Shares without an up-front sales charge by reinvestment of distributions from
any of the various unit trusts sponsored by Nuveen. There is no initial or
subsequent minimum investment requirement for such reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Municipal Mutual Fund
at the reduced sales charge applicable to the group's purchases taken as a
whole. A "qualified group" is one which has been in existence for more than six
months, has a purpose other than investment, has five or more participating
members, has agreed to include Fund sales publications in mailings to members
and has agreed to comply with certain administrative requirements relating to
its group purchases.
Under any group purchase program, the minimum monthly investment in Class A
Shares of any particular Fund or portfolio by each participant is $25, and the
minimum monthly investment in Class A Shares of any particular Fund or
portfolio for all participants in the program combined is $1,000. No
certificates will be issued for any participant's account. All dividends and
other distributions by a Fund will be reinvested in additional Class A Shares
of the same Fund. No participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by checking the
applicable box on the enclosed Application Form or by calling Nuveen toll-free
(800) 621-7227.
Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also
purchase Class A Shares at net asset value without a sales charge if the
purchase takes place through a broker-dealer and represents the reinvestment of
the proceeds of the redemption of shares of one or more registered investment
companies not affiliated with Nuveen. You must provide appropriate
documentation that the redemption occurred not more than 60 days prior to the
reinvestment of the proceeds in Class A Shares, and that you either paid an up-
front sales charge or were subject to a contingent deferred sales charge in
respect of the redemption of such shares of such other investment company.
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and Class R Shares may be purchased, by
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. Holders of Class C Shares purchased after that date will not have
the option to convert those shares to Class A Shares.
S-32
<PAGE>
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, their parents, their children
and their grandchildren); or (3) all purchases made through a group purchase
program as described above.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 621-7227.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18
months of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, and then in the reverse order in which shares were
purchased, unless the shareholder specifies another order. No CDSC is charged
on shares purchased as a result of automatic reinvestment of dividends or
capital gains paid. In addition, no CDSC will be charged on exchanges of shares
into another Nuveen Mutual Fund or money market Fund. The holding period is
calculated on a monthly basis and begins the first day of the month in which
the order for investment is received. The CDSC is calculated based on the lower
of the redeemed shares' cost or net asset value at the time of the redemption
and is deducted from the redemption proceeds. Nuveen receives the amount of any
CDSC shareholders pay. If Class A or Class C shares subject to a CDSC are
exchanged for shares of a Nuveen money market fund, the CDSC would be imposed
on the subsequent redemption of those money market shares, and the period
during which the shareholder holds the money market fund shares would be
counted in determining the remaining duration of the CDSC. The Fund may elect
not to so count the period during which the shareholder held the money market
fund shares, in which event the amount of any applicable CDSC would be reduced
in accordance with applicable SEC rules by the amount of any 12b-1 plan
payments to which those money market funds shares may be subject.
The CDSC may be waived or reduced under the following six special
circumstances: 1) redemptions within one year following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended, of a shareholder; 2) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge; 4)
in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are
reinvested in shares of certain Funds within a specified number of days; 5) in
connection with the exercise of a Fund's right to redeem all shares in an
account that does not maintain a certain minimum balance or that the applicable
board has determined may have material adverse consequences to the shareholders
of such Fund; and 6) redemptions made pursuant to a Fund's automatic withdrawal
plan, up to specified amounts. If a Fund waives or reduces the CDSC, such
waiver or reduction would be uniformly applied to all Fund shares in the
particular category. In waiving or reducing a CDSC, the Funds will comply with
the requirements of Rule 22d-1 of the Investment Company Act of 1940, as
amended.
GENERAL MATTERS
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
S-33
<PAGE>
To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software or additional sales literature to promote the advantages of using the
Funds to meet these and other specific investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day. In addition, you may exchange Class R Shares of any Fund for
Class A Shares of the same Fund without a sales charge if the current net asset
value of those Class R Shares is at least $3,000 or you already own Class A
Shares of that Fund.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Fund
Shares" in the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Nuveen Flagship Multistate Trust I, dated February 1, 1997
("Distribution Agreement"). Pursuant to the Distribution Agreement, the Trust
appointed Nuveen to be its agent for the distribution of the Funds' shares on a
continuous offering basis. Nuveen sells shares to or through brokers, dealers,
banks or other qualified financial intermediaries (collectively referred to as
"Dealers"), or others, in a manner consistent with the then effective
registration statement of the Trust. Pursuant to the Distribution Agreement,
Nuveen, at its own expense, finances certain activities incident to the sale
and distribution of the Funds' shares, including printing and distributing of
prospectuses and statements of additional information to other than existing
shareholders, the printing and distributing of sales literature, advertising
and payment of compensation and giving of concessions to Dealers. Nuveen
receives for its services the excess, if any, of the sales price of the Funds'
shares less the net asset value of those shares, and reallows a majority or all
of such amounts to the Dealers who sold the shares; Nuveen may act as such a
Dealer. Nuveen also receives compensation pursuant to a distribution plan
adopted by the Trust pursuant to Rule 12b-1 and described herein under
"Distribution and Service Plan." Nuveen receives any CDSCs imposed on
redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Financial, Inc., which Nuveen acquired on
January 1, 1997) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1996 JANUARY 31, 1995 JANUARY 31, 1994
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Maryland Fund........... 160 26 216 38 474 61
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995 MAY 31, 1994
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund............ 194 26 227 31 744 85
Colorado Fund........... 98 13 95 13 327 44
Florida Fund............ 609 83 882 112 2,136 297
Florida Intermediate
Fund................... 23 4 23 3 24 0
New Mexico Fund......... 132 18 191 28 647 86
Oklahoma Fund........... 0 0 0 0 0 0
Pennsylvania Fund....... 107 14 119 15 174 20
Virginia Fund........... 311 26 381 50 678 89
</TABLE>
S-34
<PAGE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended January 31, 1996 with respect to the Maryland
Municipal Bond Fund and the fiscal year ended May 31, 1996 with respect to the
other Funds 100% of service fees and distribution fees were paid out as
compensation to Authorized Dealers. For such periods, the service fee for the
Maryland Municipal Bond Fund was .25% for both Class A and Class C Shares and
the distribution fee was .75% for Class C Shares. For such periods, the service
fee for the other Funds was .20% and the distribution fee was .40% for the
Class A Shares and .75% for the Class C Shares.
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1996
----------------------
<S> <C>
Arizona Municipal Bond Fund (5/31/96)
Class A................................................ $ 328,091
Class C................................................ $ 16,707
Colorado Municipal Bond Fund (5/31/96)
Class A................................................ $ 138,113
Class C................................................ N/A
Florida Municipal Bond Fund (5/31/96)
Class A................................................ $1,328,070
Class C................................................ $ 3,169
Florida Intermediate Municipal Bond Fund (5/31/96)
Class A................................................ $ 20,419
Class C................................................ 23,475
Maryland Municipal Bond Fund (1/31/96)
Class A................................................ $ 10,477
Class C................................................ $ 11,541
New Mexico Municipal Bond Fund (5/31/96)
Class A................................................ $ 206,501
Class C................................................ N/A
Oklahoma Municipal Bond Fund (5/31/96)
Class A................................................ N/A
Class C................................................ N/A
Pennsylvania Municipal Bond Fund (5/31/96)
Class A................................................ $ 170,972
Class C................................................ $ 35,903
Virginia Municipal Bond Fund (5/31/96)
Class A................................................ $ 464,378
Class C................................................ $ 75,853
</TABLE>
S-35
<PAGE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast in person at a meeting called for the
purpose of considering such amendments. During the continuance of the Plan, the
selection and nomination of the non-interested trustees of the Trust will be
committed to the discretion of the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Deloitte & Touche LLP, independent public accountants, 1700 Courthouse Plaza
N.E., Dayton, Ohio 45402 has been selected as auditors for all of the Funds. In
addition to audit services, the auditors will provide consultation and
assistance on accounting, internal control, tax and related matters. The
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for prior periods set forth under
"Financial Highlights" in the Prospectus have been audited by the respective
auditors as indicated in their respective reports with respect thereto, and are
included in reliance upon the authority of that firm in giving that report.
The custodian of the assets of the Funds is The Chase Manhattan Bank, 770
Broadway, New York, New York 10003. The custodian performs custodial, fund
accounting, portfolio accounting, shareholder, and transfer agency services.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports and the unaudited financial statements for
the most recent semi-annual period for each fund appear in the Fund's Semi-
Annual Reports, each is included herein by reference. The Annual Reports and
the Semi-annual Reports accompany this Statement of Additional Information.
S-36
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-1
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
FUTURES AND INDEX TRANSACTIONS
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to
B-1
<PAGE>
which two parties agree to take or make delivery of an amount of cash--rather
than any security--equal to specified dollar amount times the difference
between the index value at the close of the last trading day of the contract
and the price at which the index future was originally written. Thus, an index
future is similar to traditional financial futures except that settlement is
made in cash.
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
REPURCHASE AGREEMENTS
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-2
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
[Logo of Ship Art] Statement of Investments in Securities and Net Assets (Unaudited)
============================================================================================================================
<S> <C> <C> <C> <C>
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
-----------------------------------------------------------------------------------------------------------------
$ 1,370 University of Arizona Foundation Lease Revenue 7.750% 07/01/07 $ 1,427,540
Escrowed to Maturity
-----------------------------------------------------------------------------------------------------------------
395 Maricopa County, AZ Hospital Revenue - St. Luke's Hospital Medical Center 8.750 02/01/10 488,615
17,300 Maricopa County, AZ Industrial Development Authority - Single Family
Mortgage Revenue 0.000 02/01/16 5,824,045
500 Phoenix, AZ Street and Highway User Revenue - Series 1992 6.250 07/01/11 556,780
10,320 Tucson and Pima County, AZ Industrial Development Authority - Single Family
Mortgage Revenue - Series 1983 A 0.000 12/01/14 3,738,214
Health Care
-----------------------------------------------------------------------------------------------------------------
1,670 Cochise County, AZ Industrial Development Authority Revenue - Sierra Vista
Care Center - Series 1994 A 6.750 11/20/19 1,824,776
Hospitals
-----------------------------------------------------------------------------------------------------------------
1,250 Arizona Health Facilities Authority Revenue - Arizona Voluntary Hospital
Federation Pooled Loan Program - Series 1985 B 7.250 10/01/13 1,353,650
2,275 Maricopa County, AZ Industrial Development Authority Hospital Facility Revenue -
Samaritan Health Services - Series 1990 A 7.000 12/01/16 2,767,628
750 Maricopa County, AZ Industrial Development Authority Hospital Facility Revenue -
John C. Lincoln Hospital 7.500 12/01/13 843,008
500 Pima County, AZ Industrial Development Authority Revenue - Carondelet Health
Care Corporation - Series 1993 5.250 07/01/12 500,505
1,500 Scottsdale, AZ Industrial Development Authority Hospital Revenue -
Scottsdale Memorial Hospital - Series 1993 5.500 09/01/12 1,536,480
Housing/Multifamily
-----------------------------------------------------------------------------------------------------------------
425 Phoenix, AZ Industrial Development Authority Revenue - Chris Ridge Village -
Series 1992 6.800 11/01/25 442,552
Industrial Development and Pollution Control
-----------------------------------------------------------------------------------------------------------------
250 Casa Grande, AZ Industrial Development Authority Revenue - Frito-Lay/PepsiCo
Pollution Control Project - Series 1984 A 6.650 12/01/14 270,378
2,000 Coconino County, AZ Pollution Control Corporation - Pollution Control Revenue -
Nevada Power Company Project - Series 1996 6.375 10/01/36 2,027,160
1,000 Mesa, AZ Industrial Development Authority - TRW Vehicle Safety Systems, Inc. 7.250 10/15/04 1,057,680
500 Mohave County, AZ Industrial Development Authority Revenue - Citizens
Utility Company Project 7.150 02/01/26 531,845
195 Navajo County, AZ Pollution Control Revenue - Arizona Public Service Company -
Series 1993 5.875 08/15/28 192,522
Municipal Appropriation Obligations
-----------------------------------------------------------------------------------------------------------------
225 Arizona State Municipal Financing Program - Certificates of Participation -
Series 11 8.000 08/01/17 303,854
850 Tucson, AZ Certificates of Participation - Series 1994 6.375 07/01/09 914,124
4 Arizona
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
===========================================================================================================================
<S> <C> <C> <C> <C>
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Municipal Revenue/Other
----------------------------------------------------------------------------------------------------------------
$ 375 Salt River Pima-Maricopa Indian Community - Arizona Special Obligation
Revenue - Phoenix Cement Company 7.750% 02/15/97 $ 377,970
Municipal Revenue/Transportation
----------------------------------------------------------------------------------------------------------------
500 Phoenix, AZ Airport Revenue - Series 1994 D 6.400 07/01/12 546,285
500 Tucson, AZ Airport Authority Revenue - Series B 7.125 06/01/15 549,485
Municipal Revenue/Utility
----------------------------------------------------------------------------------------------------------------
500 Central Arizona Water Conservation District Revenue - Central Arizona Project -
Contract Revenue - Series 1993 A 5.500 11/01/10 513,710
5 Central Arizona Water Conservation District Revenue - Series 1991 B 6.500 11/01/11 5,418
500 Guam Power Authority Revenue - Series 1993 A 5.250 10/01/23 455,815
300 Commonwealth of Puerto Rico Electric Power Authority Revenue - Series 1995 Z 5.250 07/01/21 282,246
500 Salt River Project - Arizona Agricultural Improvement and Power District -
Electric System Refunding Revenue - Series 1993 A 5.750 01/01/10 529,265
Municipal Revenue/Water & Sewer
----------------------------------------------------------------------------------------------------------------
1,750 Chandler, AZ Water and Sewer Revenue 6.750 07/01/06 1,921,972
500 Cottonwood, AZ Sewer Revenue - Series 1992 6.900 07/01/03 551,130
100 Cottonwood, AZ Sewer Revenue - Series 1992 7.000 07/01/06 108,518
100 Cottonwood, AZ Sewer Revenue - Series 1992 7.000 07/01/07 108,015
540 Pima County, AZ Sewer Revenue - Series 1991 6.750 07/01/15 593,066
800 Sedona, AZ Sewer Revenue - Series 1992 7.000 07/01/12 864,416
500 Tucson, AZ Water System Revenue - Series 1991 6.700 07/01/12 547,595
1,000 Tucson, AZ Water System Revenue - Series 1993 5.500 07/01/10 1,029,910
Non-State General Obligations
----------------------------------------------------------------------------------------------------------------
800 Chandler, AZ General Obligation 7.000 07/01/12 887,168
250 Cochise County, AZ Unified School District Number 68 - Sierra - Series 1992 7.500 07/01/09 308,915
250 Coconino and Yavapai Counties, AZ Unified School District Number 9 -
Sedona-Oak Creek - Series 1992 A 6.700 07/01/06 267,412
1,000 Maricopa County, AZ Hospital District Number One - General Obligation -
Series 1996 6.500 06/01/17 1,044,480
750 Maricopa County, AZ School District Number 11 - Peoria - Series 1992 6.400 07/01/10 802,335
675 Maricopa County, AZ School District Number 11 - Peoria - Series 1992 0.000 07/01/06 418,810
4,000 Maricopa County, AZ School District Number 28 - Kyrene Elementary -
Series 1993 C 0.000 07/01/07 2,337,080
1,870 Maricopa County, AZ School District Number 28 - Kyrene Elementary -
Series 1993 C 0.000 01/01/09 988,912
3,805 Maricopa County, AZ School District Number 28 - Kyrene Elementary -
Series 1993 C 0.000 01/01/10 1,896,792
6,000 Maricopa County, AZ School District Number 28 - Kyrene Elementary -
Series 1993 C 0.000 01/01/11 2,808,960
1,750 Maricopa County, AZ Glendale Elementary School District Number 40 -
School Improvement - Series 1995 6.300 07/01/11 1,898,208
</TABLE>
Arizona 5
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
$ 500 Maricopa County, AZ Glendale Elementary School District Number 40 -
School Improvement - Series 1995 6.200% 07/01/09 $ 544,285
2,500 Maricopa County, AZ Glendale Elementary School District Number 40 -
School Improvement - Series 1995 6.250 07/01/10 2,712,200
2,000 Maricopa County, AZ Unified School District Number 41 - Gilbert - Series 1994 0.000 01/01/06 1,272,200
500 Maricopa County, AZ Unified School District Number 41 - Gilbert - 6.250 07/01/15 542,065
Series 1995 D
515 Maricopa County, AZ School District Number 68 - Alhambra Elementary -
Series 1994 A 6.750 07/01/14 585,050
500 Maricopa County, AZ School District Number 80 - Chandler - Series 1994 6.250 07/01/11 559,185
1,275 Maricopa County, AZ School District Number 98 - Fountain Hills - Series 1992 0.000 07/01/06 791,086
125 Navajo County, AZ Unified School District Number 2 - Joseph City -
Series 1992 A 6.800 07/01/01 134,892
375 Navajo County, AZ Unified School District Number 2 - Joseph City -
Series 1992 A 6.800 07/01/02 406,418
635 Navajo County, AZ Blue Ridge Unified School District Number 32 - School
Improvement - Series 1996 5.800 07/01/14 662,642
1,000 Pima County, AZ Unified School District Number 1 - Tucson - Series 1992 7.500 07/01/10 1,237,610
500 Pima County, AZ Unified School District Number 13 - Tanque Verde -
Series 1994 6.700 07/01/10 566,435
315 Scottsdale, AZ Mountain Community Facilities District - General Obligation -
Series 1993A 6.200 07/01/17 329,915
1,925 Tatum Ranch, AZ Community Facilities District - Phoenix, Arizona -
General Obligation - Series 1991 A 6.875 07/01/16 2,109,415
Pre-refunded
----------------------------------------------------------------------------------------------------------------
500 Arizona State Transportation Board - Highway Revenue - Series 1990 7.000 07/01/09 551,175
300 Arizona State University Revenues 7.000 07/01/15 340,611
1,000 Central Arizona Water Conservation District Revenue - Series 1991 B 6.500 11/01/11 1,103,840
135 Maricopa County, AZ Industrial Development Authority Hospital Facility Revenue -
Samaritan Health Services 12.000 01/01/08 143,325
1,250 Maricopa County, AZ Industrial Development Authority - Mercy Health
System Revenue 7.150 07/01/12 1,365,662
575 Maricopa County, AZ School District Number 214 - Tolleson Union High 6.500 07/01/09 624,559
300 Maricopa County, AZ School District Number 214 - Tolleson Union High 6.500 07/01/10 325,857
1,250 Northern Arizona University Revenue 7.500 06/01/08 1,350,712
700 Peoria, AZ Municipal Development Authority Facilities Revenue 7.000 07/01/10 762,839
650 Pima County, AZ Unified School District Number 1 - Tucson - Series 1990 7.200 07/01/09 718,530
460 Pima County, AZ Sewer Revenue - Series 1991 6.750 07/01/15 510,651
1,500 Price-Elliott Research Park, Incorporated - Arizona State University Research
Park Development - Series 1991 7.000 07/01/21 1,692,990
300 Salt River Project - Arizona Agricultural Improvement and Power District -
Electric System Revenue - Series A 7.500 01/01/27 307,014
100 Salt River Project - Arizona Agricultural Improvement and Power District -
Electric System Revenue - Series E 8.250 01/01/28 104,744
100 Salt River Project - Arizona Agricultural Improvement and Power District -
Electric System Revenue - Series E 8.250 01/01/13 104,744
1,000 Scottsdale, AZ Industrial Development Authority Hospital Revenue -
Scottsdale Memorial Hospital - 1987 A 8.500 09/01/17 1,055,600
</TABLE>
6 Arizona
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
============================================================================================================================
<S> <C> <C> <C> <C>
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
$ 1,085 University of Arizona Medical Center Corporation - Tucson, Arizona -
Hospital Revenue - Series 1986 8.100% 07/01/16 $ 1,132,805
1,000 University of Arizona Medical Center Corporation - Tucson, Arizona -
Hospital Revenue - Series 1987 8.100 07/01/16 1,045,330
Special Tax Revenue
-----------------------------------------------------------------------------------------------------------------
965 Bullhead City, AZ Parkway Improvement District 6.100 01/01/13 993,410
385 Flagstaff, AZ Junior Lien and Highway User Revenue - Series 1992 5.900 07/01/10 415,146
350 Nogales, AZ Street and Highway Users Revenue - Series 1993 5.500 07/01/11 337,736
365 Nogales, AZ Street and Highway Users Revenue - Series 1993 5.500 07/01/12 350,948
460 Peoria, AZ Improvement District Number 8801 - North Valley Power Center 7.300 01/01/13 503,134
1,500 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1996 Y and Z 5.500 07/01/26 1,463,535
2,575 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1996 Y and Z 5.500 07/01/36 2,514,024
Student Loan Revenue Bonds
-----------------------------------------------------------------------------------------------------------------
370 Arizona Educational Loan Revenue - Series B 7.000 03/01/05 392,907
1,000 Arizona Student Loan Acquisition Authority Revenue - Series 1994 B 6.600 05/01/10 1,069,370
Total Investments in Securities - Municipal Bonds (cost $76,390,362) - 99.5% 82,979,840
Excess of Other Assets over Liabilities - 0.5% 419,682
Total Net Assets - 100.0% $ 83,399,522
</TABLE>
See notes to financial statements.
Arizona 7
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art] Statement of Assets and Liabilities November 30, 1996 (Unaudited)
=============================================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $76,390,362) $ 82,979,840
Receivable for investments sold 458,655
Receivable for Fund shares sold 4,172
Interest receivable 1,415,807
Other 4,073
Total assets 84,862,547
LIABILITIES:
Bank borrowings (Note F) 825,028
Payable for Fund shares reacquired 222,852
Distributions payable 336,774
Accrued expenses 78,371
Total liabilities 1,463,025
NET ASSETS 83,399,522
Class A:
Applicable to 7,273,681 shares of beneficial interest issued and outstanding $ 80,940,274
Net asset value per share $ 11.13
Class C:
Applicable to 221,002 shares of beneficial interest issued and outstanding $ 2,459,248
Net asset value per share $ 11.13
For the six months ended November 30, 1996
[Logo of Ship Art] Statement of Operations (Unaudited)
[Logo of Rope art]
INVESTMENT INCOME - INTEREST EXPENSES: $ 2,458,732
Distribution fees-Class A (Note E) 161,263
Distribution fees-Class C (Note E) 10,629
Investment advisory fees (Note E) 207,211
Custody and accounting fees 40,705
Transfer agent's fees 33,230
Registration fees 4,117
Legal fees 732
Audit fees 7,320
Trustees' fees 1,281
Shareholder services fees (Note E) 4,575
Other 1,477
Advisory fees waived (Note E) (124,342)
Total expenses before credits 348,198
Custodian fee credit (Note B) (3,005)
Net expenses 345,193
Net investment income 2,113,539
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 310,930
Change in unrealized appreciation (depreciation) of investments 2,677,871
Net gain on investments 2,988,801
Net increase in net assets resulting from operations $ 5,102,340
</TABLE>
See notes to financial statements.
8 Arizona
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art] Statements of Changes in Net Assets
==========================================================================================================================
<S> <C> <C>
Six Months Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS November 30, 1996 May 31, 1996
Operations: (Unaudited)
Net investment income $ 2,113,539 $ 4,362,788
Net realized gain (loss) on security transactions 310,930 317,259
Change in unrealized appreciation (depreciation) of investments 2,677,871 (1,200,471)
Net increase in net assets resulting from operations 5,102,340 3,479,576
Distributions to Class A shareholders:
From net investment income (2,051,439) (4,301,398)
Distributions to Class C shareholders:
From net investment income (50,664) (82,198)
Net decrease in net assets from distributions to shareholders (2,102,103) (4,383,596)
Fund share transactions (Note C):
Proceeds from shares sold 4,554,105 11,832,617
Net asset value of shares issued in reinvestment of distributions 931,183 1,939,151
Cost of shares reacquired (7,150,413) (12,829,723)
Net (decrease) increase in net assets from Fund share transactions (1,665,125) 942,045
Total increase in net assets 1,335,112 38,025
NET ASSETS:
Beginning of period 82,064,410 82,026,385
End of period $ 83,399,522 $ 82,064,410
NET ASSETS CONSIST OF:
Paid-in surplus $ 76,366,988 $ 78,032,113
Undistributed net investment income 11,436
Accumulated net realized gain (loss) on security transactions 431,620 120,690
Unrealized appreciation (depreciation) of investments 6,589,478 3,911,607
$ 83,399,522 $ 82,064,410
</TABLE>
See notes to financial statements.
Arizona 9
<PAGE>
[Logo of Ship art]
Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Arizona Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on October 29, 1986. On
February 7, 1994, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C shares
are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a continuous
basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
ESTIMATES: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
SECURITY VALUATIONS: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
The Fund must maintain a diversified investment portfolio as a
registered investment company, however, the Fund's investments are primarily
in the securities of its state. Such concentration subjects the Fund to the
effects of economic changes occurring within that state.
FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute to its shareholders all of its tax exempt net investment income
and net realized gains on security transactions. Therefore, no federal income
tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
SECURITY TRANSACTIONS: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes original
issue discounts and premiums paid on purchases of portfolio securities on the
same basis for both financial reporting and tax purposes. Market discounts,
if applicable, are recognized as ordinary income upon disposition or
maturity.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders at least annually.
10 Arizona
<PAGE>
Notes to Financial Statements
================================================================================
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged
to each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets
of each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian, whereby it
earns custodian fee credits for temporary cash balances. These credits,
which offset custodian fees that may be charged to the Fund, are based on
80% of the daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when-issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner
as other portfolio securities. There were no "when-issued" purchase
commitments included in the statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of
beneficial interest with no par value authorized for each class.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
------------------------ --------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 375,009 $ 4,094,212 987,074 $ 10,720,918
Shares issued on reinvestment 83,033 899,709 174,172 1,897,941
Shares reacquired (647,592) (7,063,604) (1,111,337) (12,066,428)
NET (DECREASE) INCREASE (189,550) $(2,069,683) 49,909 $ 552,431
CLASS C:
Shares sold 42,440 $ 459,893 101,591 $ 1,111,699
Shares issued on reinvestment 2,903 31,474 3,779 41,210
Shares reacquired (7,928) (86,809) (71,245) (763,295)
NET INCREASE 37,415 $ 404,558 34,125 $ 389,614
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November
30, 1996, aggregated $15,329,966 and $18,040,576, respectively. At
November 30, 1996, cost for federal income tax purposes is $76,390,874 and
net unrealized appreciation aggregated $6,588,966, of which $6,605,709
related to appreciated securities and $16,743 related to depreciated
securities.
Arizona 11
<PAGE>
Notes to Financial Statements
================================================================================
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its discretion, permanently waived
$124,342 of its advisory fees. Included in accrued expenses at November 30,
1996 are accrued advisory fees of $13,806. Also, under an agreement with the
Fund, the Advisor may subsidize certain expenses excluding advisory and
distribution fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares, respectively.
Included in accrued expenses at November 30, 1996 are accrued distribution
fees of $26,810 and $1,906 for Class A and Class C shares, respectively.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the Fund
as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $51,000 for the six months ended November 30, 1996,
of which approximately $44,300 was paid to other dealers. For the six months
ended November 30, 1996, the Distributor received approximately $300 of
contingent deferred sales charges on redemptions of shares. Certain officers
and trustees of the Trust are also officers and/or directors of the
Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may temporarily
borrow up to $4 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest at
1% above the federal funds rate. The average daily amount of borrowings under
the line of credit during the six months ended November 30, 1996 was
approximately $82,742, at a weighted average annualized interest rate of
6.43%. At November 30, 1996, the Fund had $825,028 outstanding under the line
of credit.
G. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective January
31, 1997.
12 Arizona
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
[Logo of Ship Art] Financial Highlights interest outstanding throughout the period.
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
CLASS A (Unaudited)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.73 $10.85 $10.43 $10.81 $10.13
Income from investment operations:
Net investment income 0.28 0.57 0.58 0.60 0.63
Net realized and unrealized gain
(loss) on securities 0.40 (0.12) 0.42 (0.38) 0.69
Total from investment operations 0.68 0.45 1.00 0.22 1.32
Less distributions:
From net investment income (0.28) (0.57) (0.58) (0.60) (0.64)
Total distributions (0.28) (0.57) (0.58) (0.60) (0.64)
Net asset value, end of period $11.13 $10.73 $10.85 $10.43 $10.81
Total return(a) 12.78% 4.21% 10.03% 1.92% 13.37%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.83% 0.69% 0.82% 0.64% 0.44%
Net investment income 5.11% 5.20% 5.59% 5.48% 6.03%
Assuming credits and no waivers
or reimbursements:
Expenses 1.12% 1.07% 1.20% 1.09% 1.11%
Net investment income 4.82% 4.82% 5.21% 5.03% 5.36%
Net assets at end of period (000's) $80,940 $80,094 $80,406 $82,676 $72,778
Portfolio turnover rate 18.69% 38.15% 26.79% 21.08% 20.04%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.82% and 0.67%, respectively; prior period numbers have not been
restated to reflect these credits.
Arizona 13
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
[Logo of Ship Art] Financial Highlights interest outstanding throughout the period.
===========================================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 February 7, 1994 to
CLASS C (Unaudited) May 31, 1994
------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.73 $10.84 $10.43 $11.22
Income from investment operations:
Net investment income 0.25 0.51 0.52 0.14
Net realized and unrealized gain
(loss) on securities 0.40 (0.11) 0.41 (0.79)
Total from investment operations 0.65 0.40 0.93 (0.65)
Less distributions:
From net investment income (0.25) (0.51) (0.52) (0.14)
Total distributions (0.25) (0.51) (0.52) (0.14)
Net asset value, end of period $11.13 $10.73 $10.84 $10.43
Total return(a) 12.23% 3.75% 9.32% (16.61%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 1.38% 1.23% 1.36% 1.20%
Net investment income 4.55% 4.64% 5.01% 4.36%
Assuming credits and no waivers
or reimbursements:
Expenses 1.67% 1.63% 1.75% 1.62%
Net investment income 4.26% 4.24% 4.62% 3.94%
Net assets at end of period (000's) $2,459 $1,970 $1,621 $1,122
Portfolio turnover rate 18.69% 38.15% 26.79% 21.08%
</TABLE>
(a) The total returns shown do not include the effect of applicable contingent
deferred sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.37% and 1.21%, respectively; prior period numbers have not been
restated to reflect these credits.
14 Arizona
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] Statement of Investments in Securities and Net Assets November 30, 1996 (Unaudited)
==============================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Escrowed to Maturity
-------------------------------------------------------------------------------------------------------------------
$ 1,000 Adams County, CO Multi-County Single Family Mortgage Revenue -
Series 1985 0.000% 06/01/16 $ 333,480
6,500 Arapahoe County, CO Single Family Mortgage Revenue - Series 1984 0.000 09/01/10 3,106,480
7,500 Colorado Health Facilities Authority - Retirement Facilities - Liberty Heights -
Series B 0.000 07/15/24 1,198,200
900 Colorado Springs, CO Utilities Revenue - Series B 6.600 11/15/18 982,242
3,000 El Paso County, CO Single Family Mortgage Revenue - Series 1985 0.000 05/01/15 1,061,460
4,300 El Paso County, CO Single Family Mortgage Revenue - Series 1984 0.000 09/01/15 1,493,089
4,000 Mesa County, CO Residual Revenue - Series 1992 0.000 12/01/11 1,800,760
Hospitals
-------------------------------------------------------------------------------------------------------------------
500 Colorado Springs, CO Hospital Revenue - Series 1995 5.750 12/15/09 526,310
250 Pueblo County, CO Hospital Facilities Revenue - Parkview Episcopal Medical Center 7.000 09/01/09 277,130
Housing/Multifamily
-------------------------------------------------------------------------------------------------------------------
100 Aurora, CO Multifamily Revenue - Dayton Plaza Project - Series A 8.250 01/20/29 106,081
500 Colorado Housing Finance Authority - MultiFamily Housing Mortgage Revenue -
Series 1995 A 6.650 10/01/28 522,365
1,000 Lakewood, CO Multifamily Housing Mortgage Revenue - Heights by Marston Lake -
Series 1995 6.650 10/01/25 1,044,660
Housing/Single Family
-------------------------------------------------------------------------------------------------------------------
140 Colorado Housing Finance Authority - Single Family - Series A 8.125 09/01/17 145,222
315 Colorado Housing Finance Authority - Single Family - Series 1991 C 7.375 08/01/23 331,078
850 Colorado Housing Finance Authority - Single Family - Series 1991 A 0.000 11/01/06 461,992
215 Commerce City, CO Single Family Mortgage Revenue - Series 1992 A 6.875 03/01/12 225,008
135 Pueblo County, CO Single Family Mortgage Revenue - Series 1992 A 6.850 12/01/25 140,366
500 Pueblo County, CO Single Family Mortgage Revenue - Series 1994 A 7.050 11/01/27 529,215
Industrial Development and Pollution Control
-------------------------------------------------------------------------------------------------------------------
500 Denver, CO City and County Special Facilities Airport Revenue -
United Air Lines - Series 1992 A 6.875 10/01/32 523,805
Municipal Appropriation Obligations
-------------------------------------------------------------------------------------------------------------------
200 Boulder, CO Property Authority Lease Purchase - Series B 7.400 12/01/02 208,450
500 El Paso County, CO School District Number 38 -
Certificates of Participation - Series 1991 A 6.900 12/01/13 556,065
175 Jefferson County, CO Certificates of Participation - Series 1992 6.650 12/01/08 195,911
100 University of Colorado - Certificates of Participation - Series D 7.400 12/01/05 108,173
Municipal Revenue/Other
-------------------------------------------------------------------------------------------------------------------
1,500 Hyland Hills Park and Recreation District - Adams County - Special Revenue -
Series 1996 A 6.750 12/15/15 1,573,185
</TABLE>
4 Colorado
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------
$ 4,300 Arapahoe County, CO E-470 Public Highway Authority Revenue - E-470 Project -
Series 1986 0.000% 08/31/06 $ 2,443,475
1,000 Eagle County, CO Air Terminal Corporation - Airport Revenue - Series 1996 7.500 05/01/21 1,022,820
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
120 Colorado Water Resources and Power Development Authority Revenue -
Small Water Resources - Series 1992 A 6.700 11/01/12 132,667
250 Ute, CO Water Conservancy District Revenue 7.900 06/15/06 255,395
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
450 Cherry Creek, CO Vista Park and Recreation District - General Obligation -
Arapahoe County - Series 1992B 6.875 10/01/11 480,038
500 El Paso, CO School District Number RJ-1 - General Obligation - Series 1995 6.800 12/01/14 554,950
1,025 El Paso County, CO School District Number 49 - Falcon Schools - General
Obligation - Series 1996 0.000 12/15/07 573,959
1,020 El Paso County, CO School District Number 49 - Falcon Schools - General
Obligation - Series 1996 0.000 12/15/08 540,671
250 Pitkin County, CO General Obligation - Open Space Revenue -
Series 1994 6.875 12/01/24 278,880
190 Valley Metropolitan District, CO General Obligation - Series 1992 7.000 12/15/06 195,675
Pre-refunded
--------------------------------------------------------------------------------------------------------------------
175 Aspen, CO Certificates of Participation - Public Facilities Authority 7.000 09/01/09 184,972
100 Colorado Association of School Boards Certificates of Participation -
Pueblo School District Number 60 7.250 12/01/09 109,678
300 Colorado Health Facilities Authority Revenue - Rose Medical Center 7.000 08/15/21 338,547
350 Colorado Health Facilities Authority Revenue - Bethesda PsycHealth Project 9.125 09/01/17 366,810
100 Colorado State Board of Agriculture Revenue - Colorado State University
Sports Recreation Facilities 7.700 04/01/09 106,882
300 Colorado Water Resources and Power Development Authority Revenue -
Stagecoach Project - Series 1986 8.000 11/01/17 330,942
250 Denver, CO City and County Industrial Development Revenue - University
of Denver 7.500 03/01/16 285,272
350 Denver, CO City and County Hospital Revenue - Sisters of Charity Health
Care Systems - Mercy Medical Center 7.700 05/01/07 374,902
100 El Paso County, CO Revenue - St. Francis Hospital - Series 1988 A 7.750 05/01/14 107,184
250 Fountain Valley, CO Water Treatment Revenue - Series 1991 6.800 12/01/19 275,352
250 Logan County, CO Health Care Facilities Revenue - Western Health Network 7.625 01/01/19 272,358
250 Northern Colorado Municipal Subdistrict - Water Conservancy District Revenue -
Series D 7.750 12/01/12 255,055
300 Parker, CO Sales and Use Tax Revenue 7.600 11/01/10 336,519
100 Regional Transportation District - Colorado Sales Tax Revenue 7.100 11/01/10 111,232
175 Thornton, CO Sales and Use Tax Revenue - Series D 8.000 09/01/07 180,691
250 University of Colorado - Boulder Campus Auxiliary Facilities System Revenue 7.050 06/01/15 274,820
</TABLE>
Colorado 5
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
===============================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
$ 200 Mesa County, CO Sales Tax Revenue 7.750% 12/01/13 $ 213,560
1,925 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1996 Y and Z 5.500 07/01/36 1,879,416
750 Woodland Park, CO Limited Sales Tax Revenue - Series 1994 6.400 12/01/12 806,596
Student Loan Revenue Bonds
--------------------------------------------------------------------------------------------------------------------
1,000 Colorado Student Obligation Bond Authority - Student Loan Revenue -
Series 1993 I-B 5.700 12/01/06 1,029,100
400 Colorado Student Obligation Bond Authority - Student Loan Revenue -
Series 1991 A-3 7.250 09/01/05 419,408
250 Colorado Student Obligation Bond Authority - Student Loan Revenue -
Series 1992C 7.150 09/01/06 266,155
Total Investments in Securities - Municipal Bonds (cost $30,088,778) - 99.2% 32,454,708
Excess of Other Assets over Liabilities - 0.8% 273,171
Total Net Assets - 100.0% $ 32,727,879
</TABLE>
See notes to financial statements.
6 Colorado
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] Statement of Assets and Liabilities November 30, 1996
(Unaudited)
=====================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $30,088,778) $32,454,708
Cash 113,826
Receivable for investments sold 5,086
Interest receivable 389,974
Other 1,783
Total assets 32,965,377
LIABILITIES:
Payable for Fund shares reacquired 67,524
Distributions payable 135,604
Accrued expenses 34,370
Total liabilities 237,498
NET ASSETS:
Applicable to 3,196,015 shares of beneficial interest issued and
outstanding $32,727,879
Net asset value per share $ 10.24
For the six months ended November 30, 1996
[LOGO OF SHIP ART] Statement of Operations (Unaudited)
[LOGO OF ROPE ART]
INVESTMENT INCOME - INTEREST $ 976,340
EXPENSES:
Distribution fees (Note E) 65,126
Investment advisory fees (Note E) 81,403
Custody and accounting fees 31,524
Transfer agent's fees 7,015
Registration fees 549
Legal fees 366
Audit fees 5,795
Reimbursement of organizational expenses (Note F) 8,381
Trustees' fees 549
Shareholder services fees (Note E) 1,830
Other 611
Advisory fees waived (Note E) (76,939)
Expense subsidy (Note E) (12,195)
Total expenses before credits 114,015
Custodian fee credit (Note B) (2,094)
Net expenses 111,921
Net investment income 864,419
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 71,019
Change in unrealized appreciation (depreciation) of investments 1,404,163
Net gain on investments 1,475,182
Net increase in net assets resulting from operations $ 2,339,601
See notes to financial statements.
Colorado 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] Statements of Changes in Net Assets
=====================================================================================================================
<S> <C> <C>
Six Months Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS November 30, 1996 May 31, 1996
Operations: (Unaudited)
Net investment income $ 864,419 $ 1,875,792
Net realized gain (loss) on security transactions 71,019 86,320
Change in unrealized appreciation (depreciation) of investments 1,404,163 (554,501)
Net increase in net assets resulting from operations 2,339,601 1,407,611
Distributions to shareholders:
From net investment income (856,149) (1,893,445)
Net decrease in net assets from distributions to shareholders (856,149) (1,893,445)
Net decrease in net assets from Fund share transactions (Note C) (2,392,074) (769,636)
Total decrease in net assets (908,622) (1,255,470)
NET ASSETS:
Beginning of period 33,636,501 34,891,971
End of period $32,727,879 $33,636,501
NET ASSETS CONSIST OF:
Paid-in surplus $30,837,601 $33,229,675
Undistributed net investment income 8,270
Accumulated net realized gain (loss) on security transactions (483,922) (554,941)
Unrealized appreciation (depreciation) of investments 2,365,930 961,767
$32,727,879 $33,636,501
See notes to financial statements.
8 Colorado
</TABLE>
<PAGE>
[Logo of Ship art]
Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Colorado Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on May 4, 1987. Shares of
beneficial interest in the Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
ESTIMATES: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
SECURITY VALUATIONS: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
The Fund must maintain a diversified investment portfolio as a
registered investment company, however, the Fund's investments are primarily
in the securities of its state. Such concentration subjects the Fund to the
effects of economic changes occurring within that state.
FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute to its shareholders all of its tax exempt net investment income
and net realized gains on security transactions. Therefore, no federal income
tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
SECURITY TRANSACTIONS: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes original
issue discounts and premiums paid on purchases of portfolio securities on the
same basis for both financial reporting and tax purposes. Market discounts,
if applicable, are recognized as ordinary income upon disposition or
maturity.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders at least annually.
EXPENSE ALLOCATION: Shared expenses incurred by the Trust are allocated among
the sub-trusts based on each sub-trust's ratio of net assets to the combined
net assets. Specifically identified direct expenses are charged to each sub-
trust as incurred.
The Fund has entered into an agreement with the custodian, whereby it
earns custodian fee credits for temporary cash balances. These credits, which
offset custodian fees that may be charged to the Fund, are based on 80% of
the daily effective federal funds rate.
Colorado 9
<PAGE>
Notes to Financial Statements
================================================================================
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate of
securities as collateral, purchase and sell portfolio securities on a "when-
issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and
payment take place after the date of the transaction and such securities are
subject to market fluctuations during this period. The current market value
of these securities is determined in the same manner as other portfolio
securities. There were no "when-issued" purchase commitments included in the
statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
------------------------ -----------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares sold 181,714 $ 1,813,699 416,678 $ 4,177,017
Shares issued on reinvestment 43,412 429,454 90,419 901,092
Shares reacquired (465,139) (4,635,227) (586,370) (5,847,745)
Net decrease (240,013) $(2,392,074) (79,273) $ (769,636)
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November 30,
1996, aggregated $3,929,365 and $6,898,938, respectively. At November 30,
1996, cost for federal income tax purposes is $30,088,778 and net unrealized
appreciation aggregated $2,365,930, all of which related to appreciated
securities.
At November 30, 1996, the Fund has available a capital loss carryforward of
approximately $483,900 to offset future net capital gains through May 31,
2003.
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its discretion, permanently waived $76,939
of its advisory fees. Included in accrued expenses at November 30, 1996 are
accrued advisory fees of $2,650. Also, under an agreement with the Fund, the
Advisor may subsidize certain expenses excluding advisory and distribution
fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor for its
actual expenses incurred in the distribution and promotion of sales of the
Fund's shares. The maximum amount payable for these expenses on an annual
basis is .40% of the Fund's average daily net assets. Included in accrued
expenses at November 30, 1996 are accrued distribution fees of $10,240.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the Fund
as shareholder services fees.
10 Colorado
<PAGE>
Notes to Financial Statements
================================================================================
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's shares of
approximately $48,300 for the six months ended November 30, 1996, of which
approximately $41,500 was paid to other dealers. Certain officers and
trustees of the Trust are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund (approximately
$83,600) are being reimbursed to the Advisor on a straight-line basis over a
period of five years. As of November 30, 1996, $58,578 has been reimbursed.
In the event that the Advisor'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.
G. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may temporarily
borrow up to $2 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest at
1% above the federal funds rate. The average daily amount of borrowings under
the line of credit during the six months ended November 30, 1996 was
approximately $72,577, at a weighted average annualized interest rate of
6.39%. At November 30, 1996, the Fund had no borrowings outstanding under the
line of credit.
H. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective January
31, 1997.
Colorado 11
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art]
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
==============================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.79 $ 9.93 $ 9.62 $ 10.04 $ 9.56
Income from investment operations:
Net investment income 0.26 0.54 0.57 0.58 0.60
Net realized and unrealized gain
(loss) on securities 0.45 (0.13) 0.30 (0.37) 0.55
Total from investment operations 0.71 0.41 0.87 0.21 1.15
Less distributions:
From net investment income (0.26) (0.55) (0.56) (0.58) (0.60)
From net realized capital gains (0.07)
In excess of net realized capital gains (0.05)
Total distributions (0.26) (0.55) (0.56) (0.63) (0.67)
Net asset value, end of period $ 10.24 $ 9.79 $ 9.93 $ 9.62 $ 10.04
Total return/(a)/ 14.73% 4.14% 9.54% 2.03% 12.41%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 0.70% 0.55% 0.50% 0.37% 0.41%
Net investment income 5.30% 5.41% 5.99% 5.71% 6.05%
Assuming credits and no waivers
or reimbursements:
Expenses 1.23% 1.27% 1.27% 1.27% 1.35%
Net investment income 4.77% 4.69% 5.22% 4.81% 5.11%
Net assets at end of period (000's) $32,728 $33,637 $34,892 $35,796 $26,656
Portfolio turnover rate 12.10% 69.76% 37.84% 41.76% 30.49%
(a) The total returns shown do not include the effect of applicable front-end sales charge and are annualized
where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31, 1996, the Fund has earned credits from
the custodian which reduce service fees incurred. If included, the ratio of expenses to average net assets would
be 0.69% and 0.53%, respectively; prior period numbers have not been restated to reflect these credits.
12 Colorado
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
[Logo of Ship Art] Statement of Investments in Securities and Net Assets (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds--Florida Intermediate
Face
Amount Face Market
(000) Description Rate Maturity Value
Health Care
------------------------------------------------------------------------------------------------------------------
$ 165 Jacksonville, FL Health Facilities Authority - Tax-Exempt Industrial Development
Revenue - National Benevolent Association - Cypress Village Florida Project -
Series 1996 A 5.850% 12/01/06 $ 169,016
200 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 5.500 05/15/05 198,264
Hospitals
------------------------------------------------------------------------------------------------------------------
200 Alachua County, FL Health Facilities Authority Revenue - Shands Teaching
Hospital and Clinics, Incorporated Project - Series 1996 A 5.300 12/01/08 205,548
200 Leesburg, FL Hospital Revenue - Leesburg Regional Medical Center Project -
Series 1996 A 5.600 07/01/08 204,440
250 Orange County, FL Health Facilities Authority Revenue - Adventist Health
System/Sunbelt - Series 1995 5.750 11/15/04 269,152
Housing/Single Family
------------------------------------------------------------------------------------------------------------------
180 Florida Housing Finance Agency - Single Family Mortgage Revenue - Series 1995 A 6.000 01/01/04 184,154
Industrial Development and Pollution Control
------------------------------------------------------------------------------------------------------------------
200 Escambia County, FL Pollution Control Revenue - Champion International
Corporation - Series 1992 6.950 11/01/07 216,322
Municipal Appropriation Obligations
------------------------------------------------------------------------------------------------------------------
100 Dade County, FL School Board - Certificates of Participation - Series 1994 A 5.375 05/01/04 104,567
290 Levy County, FL School Board - Certificates of Participation - Series 1995 5.500 07/01/06 302,722
Municipal Revenue/Other
------------------------------------------------------------------------------------------------------------------
225 Gulf Breeze, FL Local Government Loan Program Floating Rate Demand Revenue -
Series 1985 B 5.600 12/01/07 234,000
Municipal Revenue/Transportation
-------------------------------------------------------------------------------------------------------------------
350 Dade County, FL Aviation Facilities Revenue - Series 1994 A 6.250 10/01/02 381,342
125 Florida State Department of Transportation - Turnpike Revenue - Series 1995 A 5.500 07/01/03 132,492
100 Palm Beach County, FL Airport System Revenue 7.625 10/01/04 114,821
200 Sarasota Manatee, FL Airport Authority - Airport System Revenue - Series 1996 5.250 08/01/08 204,723
Municipal Revenue/Utility
------------------------------------------------------------------------------------------------------------------
250 Plant City, FL Utility System Revenue - Series 1995 5.400 10/01/06 262,522
Municipal Revenue/Water & Sewer
------------------------------------------------------------------------------------------------------------------
485 Auburndale, FL Water and Sewer Revenue - Series 1995 5.375 12/01/08 501,912
250 Lee County, FL Industrial Development Authority - Utility System Revenue -
Bonita Springs Utilities Project - Series 1996 5.450 11/01/07 260,438
100 Port Saint Lucie, FL Utility System Revenue - Series 1994 5.500 09/01/04 106,277
</TABLE>
Florida 5
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
[Logo of Rope art]
Municipal Bonds--Florida Intermediate (continued)
<S> <C> <C> <C> <C>
Face
Amount Face Market
(000) Description Rate Maturity Value
Non-State General Obligations
------------------------------------------------------------------------------------------------------------------
$200 Dade County, FL School District - General Obligation - Series 1996 4.500% 07/15/08 $ 190,404
500 Duval County, FL School District Revenue - General Obligation - Series 1992 6.300 08/01/08 542,635
225 New York City, NY General Obligation - Series 1996 H and I 6.500 03/15/06 242,026
Pre-refunded or Escrowed
------------------------------------------------------------------------------------------------------------------
570 Florida State Department of Transportation - Turnpike Revenue - Series 1992 A 6.350 07/01/22 630,773
Special Tax Revenue
-----------------------------------------------------------------------------------------------------------------
200 Broward County, FL Professional Sports Facilities Tax and Revenue -
Broward County Civic Arena Project - Series 1996 A and B 5.200 09/01/07 205,122
250 Florida State Division Board Finance Department - General Services Revenue -
Department of Environmental - Series 1995 5.500 07/01/06 264,890
100 Gulf County, FL Gas Tax Revenue - Series 1995 5.000 10/01/07 101,331
200 Hillsborough County, FL Capital Improvement Program Revenue -
County Center Project - Series 1996 B 4.800 08/01/08 196,934
150 Indian Trace, FL Community Development District - Water Management Special
Benefit - Series 1995 A 5.500 05/01/06 158,577
100 Jacksonville, FL Excise Taxes Revenue - Series 1996 A and B 5.050 10/01/03 102,070
125 Lynn Haven, FL Special Project Revenue - Series 1996 5.250 10/01/05 128,010
250 Martin County, FL Tropical Farms Water and Sewer Special Assessment District -
Series 1995 5.600 11/01/05 262,330
250 Palm Beach County, FL Criminal Justice Facilities Revenue - Series 1993 5.375 06/01/06 263,798
125 Pembroke Pines, FL Special Assessment Number 94-1 - Series 1995 5.750 11/01/05 128,326
200 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1993 X 5.200 07/01/03 205,374
State/Territorial General Obligations
------------------------------------------------------------------------------------------------------------------
225 Florida State Broward County Expressway Authority - Series 1984 9.875 07/01/09 322,574
100 Florida State Board of Education Capital Outlay - Series 1992 A 6.000 06/01/07 106,516
250 Florida State Board of Education Capital Outlay - Series 1993 5.000 06/01/08 252,618
275 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1993 5.375 07/01/05 284,056
Total Investments in Securities - Municipal Bonds (cost $8,273,721) - 98.7% 8,641,076
Excess of Other Assets over Liabilities - 1.3% 117,314
Total Net Assets - 100.0% $ 8,758,390
</TABLE>
See notes to financial statements.
6 Florida
<PAGE>
<TABLE>
<CAPTION>
Florida Intermediate
[Logo of Ship Art] Statement of Assets and Liabilities November 30, 1996 (Unaudited)
[Rope Art]
<S> <C>
ASSETS:
Investments, at market value (cost $8,273,721) $ 8,641,076
Cash 472,147
Receivable for Fund shares sold 10,669
Interest receivable 139,133
Other 45
Total assets 9,263,070
LIABILITIES:
Payable for investments purchased 449,595
Payable for Fund shares reacquired 4,081
Distributions payable 29,846
Accrued expenses 21,158
Total liabilities 504,680
NET ASSETS 8,758,390
Class A:
Applicable to 541,809 shares of beneficial interest issued and outstanding $ 5,537,414
Net asset value per share $10.22
Class C:
Applicable to 315,154 shares of beneficial interest issued and outstanding $ 3,220,976
Net asset value per share $10.22
Florida Intermediate For the six months ended November 30, 1996
[Logo of Ship Art] Statement of Operations (Unaudited)
Rope art
INVESTMENT INCOME - INTEREST $ 221,216
EXPENSES:
Distribution fees - Class A (Note E) 10,304
Distribution fees - Class C (Note E) 14,518
Investment advisory fees (Note E) 20,532
Custody and accounting fees 21,609
Transfer agent's fees 17,225
Registration fees 457
Audit fees 5,734
Reimbursement of organizational expenses (Note F) 4,571
Trustees' fees 92
Shareholder services fees (Note E) 985
Other 143
Advisory fees waived (Note E) (20,532)
Expense subsidy (Note E) (36,256)
Total expenses before credits 39,382
Custodian fee credit (Note B) (1,019)
Net expenses 38,363
Net investment income 182,853
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions (3,843)
Change in unrealized appreciation (depreciation) of investments 275,480
Net gain on investments 271,637
Net increase in net assets resulting from operations $ 454,490
</TABLE>
See notes to financial statements.
Florida 7
<PAGE>
<TABLE>
<CAPTION>
Florida Intermediate
[Logo of Ship Art] Statements of Changes in Net Assets
Rope art
<S> <C> <C>
Six Months Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS November 30, 1996 May 31, 1996
Operations (Unaudited)
Net investment income $ 182,853 $ 331,742
Net realized gain (loss) on security transactions (3,843) 38,343
Change in unrealized appreciation (depreciation) of investments 275,480 (149,369)
Net increase in net assets resulting from operations 454,490 220,716
Distributions to Class A shareholders:
From net investment income (119,702) (235,102)
From net realized capital gains (22,352)
Distributions to Class C shareholders:
From net investment income (62,580) (100,151)
From net realized capital gains (11,661)
Net decrease in net assets from distributions to shareholders (182,282) (369,266)
Fund share transactions (Note C):
Proceeds from shares sold 979,177 5,685,452
Net asset value of shares issued in reinvestment of distributions 96,091 185,193
Cost of shares reacquired (662,814) (3,310,832)
Net increase in net assets from Fund share transactions 412,454 2,559,813
Total increase in net assets 684,662 2,411,263
NET ASSETS:
Beginning of period 8,073,728 5,662,465
End of period $ 8,758,390 $ 8,073,728
NET ASSETS CONSIST OF:
Paid-in surplus $ 8,354,830 $ 7,942,376
Undistributed net investment income 23,351 22,780
Accumulated net realized gain (loss) on security transactions 12,854 16,697
Unrealized appreciation (depreciation) of investments 367,355 91,875
$ 8,758,390 $ 8,073,728
</TABLE>
See notes to financial statements.
8 Florida
<PAGE>
<TABLE>
[LOGO OF SHIP ART] November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
[ROPE ART]
Municipal Bonds--Florida Double Tax Exempt
Face
Amount Face Market
(000) Description Rate Maturity Value
Escrowed to Maturity
------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$15,000 Colquitt County, GA Development Authority Revenue - Southern Care Corporation -
Series 1991 A 0.000% 12/01/21 $ 2,886,750
1,500 Dade County, FL Health Facilities Authority Revenue - Baptist Hospital of Miami
Project 5.750 05/01/21 1,536,540
335 Florida State Board of Education Capital Outlay 9.125 06/01/14 479,710
Health Care
------------------------------------------------------------------------------------------------------------------------
345 Jacksonville, FL Health Facilities Authority - Tax-Exempt Industrial Development
Revenue - National Benevolent Association - Cypress Village Florida Project -
Series 1996 A 6.125 12/01/16 344,800
1,000 Jacksonville, FL Health Facilities Authority - Tax-Exempt Industrial Development
Revenue - National Benevolent Association - Cypress Village Florida Project -
Series 1996 A 6.125 12/01/16 344,800
4,000 Palm Beach County, FL Industrial Development Revenue - Lourdes-Noreen McKeen
Residence for Geriatric Care, Incorporated Project - Series 1996 6.625 12/01/26 4,193,240
540 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 5.500 12/01/26 4,193,240
570 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 5.500 05/15/03 565,412
855 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 5.500 05/15/01 860,010
600 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 5.500 05/15/04 590,988
1,000 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 6.000 05/15/10 981,890
170 Sarasota County, FL Health Facilities Authority Revenue - Sunnyside Properties
Project - Series 1995 5.500 05/15/10 981,890
Hospitals
------------------------------------------------------------------------------------------------------------------------
2,735 Dade County, FL Health Facilities Authority Revenue - Catholic Health and
Rehabilitation Inc. 7.125 08/15/09 2,932,494
3,000 Jacksonville, FL Health Facilities Authority Hospital Revenue - St. Luke's
Hospital 7.125 11/15/20 3,308,580
6,000 Lakeland, FL Hospital Revenue - Lakeland Regional Medical Center Project -
Series 1996 5.250 11/15/25 5,834,580
2,320 Martin County, FL Health Facilities Authority Hospital Revenue - Martin Memorial
Hospital - Series A 7.125 11/15/04 2,573,970
1,000 Martin County, FL Health Facilities Authority Hospital Revenue - Martin Memorial
Hospital - Series B 7.100 11/15/20 1,108,570
1,295 North Miami, FL Health Facilities Authority Revenue - Bon Secours Health System -
Villa Maria Nursing Center 7.500 09/01/12 1,425,238
2,500 Orange County, FL Health Facilities Authority Revenue - Adventist Health/Sunbelt -
Series 1991 6.875 11/15/15 2,794,300
2,500 Orange County, FL Health Facilities Authority Revenue - Adventist Health/Sunbelt -
Series 1991 6.750 11/15/21 2,764,100
11,895 Orange County, FL Health Facilities Authority Revenue - Adventist Health System/
Sunbelt - Series 1995 5.250 11/15/20 11,594,056
</TABLE>
Florida 9
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
$2,070 Orange County, FL Health Facilities Authority - Hospital Revenue -
Orlando Regional Healthcare System - Series 1996 A and B 6.250% 10/01/18 $2,322,478
5,455 Orange County, FL Health Facilities Authority - Hospital Revenue -
Orlando Regional Healthcare System - Series 1996 A and B 6.250 10/01/21 6,124,929
1,550 Osceola County, FL Industrial Development Authority Revenue -
Evangelical Lutheran Society Project 6.750 05/01/16 1,709,882
1,000 Saint Johns County, FL Industrial Development Authority - Hospital Revenue -
Flagler Hospital - Series 1992 6.000 08/01/22 998,340
2,000 St. Petersburg, FL Health Facilities Authority Revenue - Allegheny Health System -
St. Anthony's Health Care Center 6.750 12/01/21 2,216,480
1,610 St. Petersburg, FL Health Facilities Authority Revenue - Allegheny Health System -
St. Mary's Hospital 7.000 12/01/21 1,809,737
1,000 Tampa, FL Allegany Health System Revenue - St. Joseph's Hospital, Incorporated -
Series 1991 6.750 12/01/17 1,112,980
2,000 Tampa, FL Allegany Health System Revenue - St. Joseph's Hospital - Series 1994 6.500 12/01/23 2,210,280
Housing/Multifamily
-----------------------------------------------------------------------------------------------------------------------
250 Broward County, FL Housing Finance Authority Revenue - Multifamily Housing -
Boardwalk Apartments Project - Series 1996 6.200 08/01/16 256,662
2,700 Duval County, FL Housing Finance Authority - Multifamily Housing Revenue -
Greentree Place - Series 1995 6.750 04/01/25 2,791,125
1,000 Florida Housing Finance Agency - Multifamily Housing Revenue -
Antigua Club Apartments - Series 1995 A1 6.750 08/01/14 1,067,370
1,115 Florida Housing Finance Agency - Multifamily Housing Revenue -
Brittany of Rosemont Apartments - Series 1995 C1 6.875 08/01/26 1,187,486
1,260 Florida Housing Finance Agency Revenue - Vinyards Project - Series 1995 H 6.400 11/01/15 1,277,703
1,660 Florida Housing Finance Agency Revenue - Vinyards Project - Series 1995 H 6.500 11/01/25 1,684,518
1,000 Florida Housing Finance Agency Revenue - Multifamily Housing -
Players Club at Tampa, Suntree at East Bay, Suntree at Orlando -
Players Club at Magnolia Bay and Players Club at East Bay Projects - Ser 6.200 08/01/16 1,027,590
3,500 Florida Housing Finance Agency Revenue - Villas of Capri Project - Series 1996 H 6.100 04/01/17 3,588,690
1,000 Florida Housing Finance Agency Revenue - Leigh Meadows Apartments Project -
Stoddert Arms Apartments Project - Series 1996 N and O 6.300 09/01/36 1,020,700
1,000 Florida Housing Finance Agency Revenue - Leigh Meadows Apartments Project -
Stoddert Arms Apartments Project - Series 1996 N and O 6.300 09/01/36 1,020,700
Housing/Single Family
-----------------------------------------------------------------------------------------------------------------------
5,100 Broward County, FL Housing Finance Authority Revenue - Single Family -
Series 1985 0.000 04/01/16 720,528
1,900 Broward County, FL Housing Finance Authority Revenue - Single Family -
Series 1990 A 7.900 03/01/23 2,006,913
2,500 Clay County, FL Housing Finance Authority Revenue - Single Family Mortgage -
Series 1995 6.550 03/01/28 2,560,800
280 Dade County, FL Housing Finance Authority - Single Family - Series B 7.750 03/01/17 296,243
630 Dade County, FL Housing Finance Authority - Single Family - Series B 7.250 09/01/23 659,471
1,355 Dade County, FL Housing Finance Authority - Single Family - Series D 6.950 12/15/12 1,439,511
40 Dade County, FL Housing Finance Authority - Single Family - Series E 7.000 03/01/24 42,013
</TABLE>
10 FLORIDA
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
===================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
$ 1,000 Dade County, FL Housing Finance Authority - Single Family Mortgage Revenue -
Series 1995 6.700% 04/01/28 $ 1,024,520
420 Duval County, FL Housing Finance Authority - Single Family - Series B 7.500 06/01/15 444,797
210 Duval County, FL Housing Finance Authority - Single Family - Series A 7.850 12/01/22 222,048
490 Duval County, FL Housing Finance Authority - Single Family - Series C 7.650 09/01/10 521,522
730 Duval County, FL Housing Finance Authority Revenue - Single Family - Series 1994 6.550 10/01/15 755,594
1,690 Escambia County, FL Housing Finance Authority - Single Family 7.400 10/01/23 1,782,122
1,405 Florida Housing Finance Agency - Single Family Revenue - Series 1994 6.250 07/01/11 1,450,915
715 Florida Housing Finance Agency - Single Family Mortgage Revenue - Series 1995 A 6.550 07/01/14 742,199
715 Florida Housing Finance Agency - Single Family Mortgage Revenue - Series 1995 A 6.650 01/01/24 739,353
415 Leon County, FL Housing Finance Authority Revenue - Single Family 7.300 04/01/21 434,380
3,000 Leon County, FL Housing Finance Authority Revenue - Single Family - Series 1995 7.300 01/01/28 3,329,280
1,255 Orange County, FL Housing Finance Authority Revenue - Series B 8.100 11/01/21 1,330,313
280 Orange County, FL Housing Finance Authority Revenue - Series A 7.600 01/01/24 297,858
1,055 Palm Beach County, FL Housing Finance Authority - Single Family Mortgage Revenue 7.600 03/01/23 1,121,138
2,000 Pinellas County, FL Housing Finance Authority Revenue - Single Family -
Series 1995 A 6.650 08/01/21 2,066,920
1,160 Polk County, FL Housing Finance Authority - Single Family Revenue - Series A 7.150 09/01/23 1,221,793
Industrial Development and Pollution Control
------------------------------------------------------------------------------------------------------------------------
6,000 Citrus County, FL Pollution Control Revenue - Florida Power Corporation -
Crystal River Power Plant - Series 1992A 6.625 01/01/27 6,439,380
750 Clay County, FL Industrial Development Authority Revenue - Cargill Project -
Series 1992 6.400 03/01/11 800,610
5,500 Escambia County, FL Pollution Control Revenue - Champion International
Corporation - Series 1994 6.900 08/01/22 5,852,440
6,100 Escambia County, FL Pollution Control Revenue - Champion International
Corporation Project - Series 1996 6.400 09/01/30 6,266,713
2,500 Hillsborough County, FL Industrial Development Authority Pollution Control
Revenue - Tampa Electric Company 7.875 08/01/21 2,899,950
600 Jacksonville, FL Industrial Development Revenue - Cargill Project - Series 1992 6.400 03/01/11 633,720
2,000 Martin County, FL Pollution Control Revenue - Florida Power and Light Company -
Series 1990 7.300 07/01/20 2,215,560
1,500 Nassau County, FL Pollution Control Revenue - ITT Rayonier Project - Series 1993 6.200 07/01/15 1,533,525
4,000 Pinellas County, FL Pollution Control Revenue - Florida Power Corporation -
Anclote and Bartow Power Plants 7.200 12/01/14 4,330,760
3,000 St. Lucie County, FL Solid Waste Disposal Revenue - Florida Power and Light Company 7.150 02/01/23 3,274,470
2,000 St. Lucie County, FL Solid Waste Disposal Revenue - Florida Power and Light
Company - Series 1992 6.700 05/01/27 2,141,100
Florida 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Municipal Appropriation Obligations
-------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 500 Brevard County, FL School Board - Certificates of Participation -
Series 1996 A and B 5.400% 07/01/11 $ 507,045
500 Brevard County, FL School Board - Certificates of Participation -
Series 1996 A and B 5.400 07/01/12 504,705
3,100 Brevard County, FL School Board - Certificates of Participation -
Series 1996 A and B 5.500 07/01/21 3,075,076
3,425 Dade County, FL School Board - Certification of Participation - Series 1996 A 5.500 05/01/25 3,400,477
1,500 Florida State Department of Corrections - Certificates of Participation -
Series 1994 6.000 03/01/14 1,562,520
1,000 Palm Beach County, FL School Board - Certificates of Participation - Series 1994A 6.375 08/01/15 1,076,270
3,650 Palm Beach County, FL School Board - Certificates of Participation - Series 1995 A 5.375 08/01/15 3,630,546
Municipal Revenue/Other
-------------------------------------------------------------------------------------------------------------------------
3,105 Gulf Breeze, FL Local Government Loan Program Floating Rate Demand Revenue -
Series 1985 A through E 7.750 12/01/15 3,446,550
1,000 Gulf Breeze, FL Local Government Loan Program Floating Rate Demand Revenue -
Series 1985 B 5.900 12/01/11 1,064,770
5,000 Hernando County, FL Revenue Criminal Justice Complex 7.650 07/01/16 6,479,000
Municipal Revenue/Transportation
-------------------------------------------------------------------------------------------------------------------------
7,585 Dade County, FL Aviation Revenue - Series 1996 A and B 5.600 10/01/26 7,616,933
2,620 Dade County, FL Seaport Revenue - Series 1996 5.400 10/01/21 2,574,098
2,335 Palm Beach County, FL Airport System Revenue 7.500 10/01/00 2,590,099
3,000 Sanford Airport Authority, Florida - Industrial Development Revenue Bonds -
(Central Florida Terminals, Inc. Project) - Series 1995 A and B 7.500 05/01/15 3,015,480
3,270 Sanford Airport Authority, Florida - Industrial Development Revenue Bonds -
(Central Florida Terminals, Inc. Project) - Series 1995 A and B 7.750 05/01/21 3,301,490
Municipal Revenue/Utility
-------------------------------------------------------------------------------------------------------------------------
2,000 Escambia County, FL Utilities Authority - System Revenue - Series 1992 B 0.000 01/01/15 740,360
3,000 Jacksonville, FL Electric Authority - St. Johns River Power System Revenue -
Issue 2 - Series 11 5.250 10/01/20 2,885,400
1,000 Lakeland, FL Electric and Water Revenue - Junior Subordinate Lien - Series 1996 B 6.000 10/01/12 1,092,340
1,850 Manatee County, FL Public Utilities Revenue - Series 1991 C 0.000 10/01/08 1,017,981
2,800 Manatee County, FL Public Utilities Revenue - Series 1991 C 0.000 10/01/09 1,446,676
1,000 Orlando, FL Utilities Commission - Water and Electric Revenue - Series 1989 D 6.750 10/01/17 1,188,580
340 Commonwealth of Puerto Rico Electric Power Authority - Series 1995 X 5.500 07/01/25 329,977
2,570 Sunrise, FL Utility System Revenue - Series 1992 B 0.000 10/01/13 1,032,420
Municipal Revenue/Water & Sewer
-------------------------------------------------------------------------------------------------------------------------
3,750 Auburndale, FL Water and Sewer Revenue - Series 1995 5.250 12/01/25 3,651,938
2,250 Hillsborough County, FL Utility Revenue - Series A 6.500 08/01/16 2,470,095
3,500 Hillsborough County, FL Utility Revenue - Series B 6.500 08/01/16 3,842,370
1,500 Miami Beach, FL Water and Sewer Revenue - Series 1995 5.375 09/01/15 1,495,485
12 Florida
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Non-State General Obligations
-------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$2,990 Hillsborough County, FL Environmentally Sensitive Lands Acquisition and
Protection Program - Series 1992 6.250% 07/01/08 $ 3,192,812
3,000 New York City, NY General Obligation - Series 1996 F and G 5.750 02/01/19 2,897,730
3,000 New York City, NY General Obligation - Series 1996 F and G 5.750 02/01/17 2,912,640
3,630 New York City, NY General Obligation - Series 1996 H and I 5.875 03/15/18 3,562,627
5,000 Sunrise Lakes, FL Phase 4 Recreation District - General Obligation and Revenue -
Series 1995 A and B 6.750 08/01/24 5,406,600
Pre-refunded
-------------------------------------------------------------------------------------------------------------------------
1,925 Boynton Beach, FL Water and Sewer System Utility Revenue - Series 1990 7.400 11/01/15 2,181,988
1,500 Broward County, FL School Board - Certificates of Participation 7.125 07/01/10 1,673,190
5,000 Florida State Board of Education Capital Outlay - Series 1991 B 6.700 06/01/22 5,539,300
2,000 Florida State Board of Education Capital Outlay - Series 1992 C 6.625 06/01/17 2,236,940
1,000 Hillsborough County, FL Port District Revenue - Tampa Port Authority -
Series 1990 8.250 06/01/09 1,158,300
1,635 Hillsborough County, FL Utility Revenue - Series A 7.000 08/01/14 1,839,310
1,810 Jacksonville, FL Electric Authority - Bulk Power Supply System Revenue -
Scherer 4 Project - Series 1991 A 7.000 10/01/12 2,014,385
1,500 Lady Lake, FL Industrial Development Revenue - Sunbelt Utilities 9.625 07/01/15 1,789,290
1,050 Naples, FL Hospital Revenue - Naples Community Hospital 7.200 10/01/19 1,178,824
3,400 North Springs, FL Improvement District Water and Sewer Revenue -
Broward County - Series 1991 8.000 10/01/16 4,010,844
1,750 Orange County, FL Tourist Development Tax Revenue - Series 1990 7.250 10/01/10 1,970,448
1,750 Palm Beach County, FL Criminal Justice Facilities Revenue 7.250 06/01/11 1,955,608
1,425 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/21 1,616,648
2,500 Seminole County, FL School Board - Certificates of Participation - Series 1994 B 6.750 07/01/14 2,865,525
Resource Recovery
-------------------------------------------------------------------------------------------------------------------------
4,395 Broward County, FL Resource Recovery Revenue - SES Broward Company,
L.P. South Project - Series 1984 7.950 12/01/08 4,857,178
2,125 Lee County, FL Solid Waste System Revenue - Series A 7.000 10/01/11 2,375,962
Special Tax Revenue
-------------------------------------------------------------------------------------------------------------------------
3,900 Broward County, FL Professional Sports Facilities Tax and Revenue -
Broward County Civic Arena Project - Series 1996 A and B 5.625 09/01/28 3,905,850
6,730 Dade County, FL Professional Sports Franchise Facilities Tax Revenue - Series 1995 5.250 10/01/30 6,542,771
3,250 Dade County, FL Special Obligation - Series 1996 A and B 5.000 10/01/35 2,999,945
5,835 Dade County, FL Special Obligation - Series 1996 A and B 0.000 10/01/07 3,412,833
1,010 Martin County, FL Tropical Farms Water and Sewer Special Assessment District -
Series 1995 5.900 11/01/11 1,046,057
1,000 Miami Beach, FL Redevelopment Agency - Tax Increment Revenue -
City Center/Historic Convention Village - Series 1993 5.875 12/01/22 969,570
1,000 Palm Beach Gardens, FL Special Obligation Revenue 7.250 07/01/15 1,086,060
2,600 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1996 Y and Z 5.500 07/01/36 2,538,432
5,000 Tampa, FL Occupational License Tax - Series 1996 A and B 5.500 10/01/27 4,941,050
3,300 Tampa, FL Utilities Tax Improvement - Series 1996 0.000 04/01/17 1,076,329
Florida 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds--Florida Double Tax Exempt (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
State/Territorial General Obligations
-------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$4,000 Florida State Broward County Expressway Authority - Series 1984 9.875% 07/01/09 $ 5,734,640
1,000 Florida State Broward County Expressway Authority - Series 1984 10.000 07/01/14 1,522,620
4,800 Florida State Department of Transportation Right of Way - General Obligation -
Series 1996 5.375 07/01/26 4,712,544
2,165 Florida State Board of Education Capital Outlay - Series 1985 9.125 06/01/14 3,098,959
Total Investments in Securities - Municipal Bonds (cost $286,411,339) - 98.3% 309,378,108
Excess of Other Assets over Liabilities - 1.7% 5,309,362
Total Net Assets - 100.0% $314,687,470
See notes to financial statements.
14 Florida
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art]
Florida Double Tax Exempt
Statement of Assets and Liabilities November 30, 1996 (Unaudited)
================================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $286,411,339) $309,378,108
Cash 262,191
Receivable for investments sold 5,056,985
Receivable for Fund shares sold 362,097
Interest receivable 5,111,382
Other 14,973
Total assets 320,185,736
LIABILITIES:
Payable for investments purchased 3,448,344
Payable for Fund shares reacquired 516,522
Distributions payable 1,329,128
Accrued expenses 204,272
Total liabilities 5,498,266
NET ASSETS 314,687,470
Class A:
Applicable to 29,047,014 shares of beneficial interest issued and outstanding $312,037,759
Net asset value per share $ 10.74
Class C:
Applicable to 246,537 shares of beneficial interest issued and outstanding $ 2,649,711
Net asset value per share $ 10.75
</TABLE>
<TABLE>
[Logo of Ship Art]
Florida Double Tax Exempt For the six months ended November 30, 1996
Statement of Operations (Unaudited)
================================================================================================
<S> <C>
INVESTMENT INCOME - INTEREST $ 9,737,956
EXPENSES:
Distribution fees - Class A (Note E) 625,510
Distribution fees - Class C (Note E) 9,394
Investment advisory fees (Note E) 786,734
Custody and accounting fees 80,873
Transfer agent's fees 78,140
Registration fees 6,400
Legal fees 2,745
Audit fees 10,431
Trustees' fees 4,575
Shareholder services fees (Note E) 12,050
Other 6,259
Advisory fees waived (Note E) (241,037)
Total expenses before credits 1,382,074
Custodian fee credit (Note B) (18,173)
Net expenses 1,363,901
Net investment income 8,374,055
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions (162,045)
Change in unrealized appreciation (depreciation) of investments 10,666,484
Net gain on investments 10,504,439
Net increase in net assets resulting from operations $ 18,878,494
</TABLE>
See notes to financial statements.
Florida 15
<PAGE>
Ship art
Florida Double Tax Exempt
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
====================================================================================================================
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
INCREASE (DECREASE) IN NET ASSETS (Unaudited)
<S> <C> <C>
Operations:
Net investment income $ 8,374,055 $ 17,831,203
Net realized gain (loss) on security transactions (162,045) 4,828,780
Change in unrealized appreciation (depreciation) of investments 10,666,484 (12,275,838)
Net increase in net assets resulting from operations 18,878,494 10,384,145
Distributions to Class A shareholders:
From net investment income (8,359,519) (17,864,777)
Distributions to Class C shareholders:
From net investment income (46,959) (15,706)
Net decrease in net assets from distributions to shareholders (8,406,478) (17,880,483)
Fund share transactions (Note C):
Proceeds from shares sold 12,742,723 36,866,299
Net asset value of shares issued in reinvestment of distributions 3,191,730 6,774,286
Cost of shares reacquired (31,350,043) (57,887,168)
Net decrease in net assets from Fund share transactions (15,415,590) (14,246,583)
Total decrease in net assets (4,943,574) (21,742,921)
NET ASSETS:
Beginning of period 319,631,044 341,373,965
End of period $314,687,470 $319,631,044
NET ASSETS CONSIST OF:
Paid-in surplus $293,233,201 $308,648,791
Overdistributed net investment income (32,423)
Accumulated net realized gain (loss) on security transactions (1,480,077) (1,318,032)
Unrealized appreciation (depreciation) of investments 22,966,769 12,300,285
$314,687,470 $319,631,044
</TABLE>
See notes to financial statements.
16 Florida
<PAGE>
Ship art
Notes to Financial Statements
================================================================================
A. Description of Business
Flagship's Florida Intermediate Tax Exempt Fund (Florida Intermediate) and
Florida Double Tax Exempt Fund (Florida Double Tax Exempt) are sub-trusts of
the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The non-diversified Florida Intermediate Fund
and diversified Florida Double Tax Exempt Fund are open-end management
investment companies registered under the Investment Company Act of 1940, as
amended. The Funds commenced investment operations on February 1, 1994 and
June 15, 1990, respectively. The Funds began to offer Class C shares to the
investing public on February 2, 1994, and September 14, 1995, respectively.
Class A shares are sold with a front-end sales charge. Class C shares are
sold with no front-end sales charge but are assessed a contingent deferred
sales charge if redeemed within one year from the time of purchase. Both
classes of shares have identical rights and privileges except with respect
to the effect of sales charges, the distribution and/or service fees borne
by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privilege of each class. Shares of
beneficial interest in each Fund, which are registered under the Securities
Act of 1933, as amended, are offered to the public on a continuous basis.
B. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds.
Estimates: The preparation of financial statements
and daily calculation of net asset value in conformity with generally
accepted accounting principles requires management to fairly value, at
market, investment securities and make estimates and assumptions regarding
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. The financial statements reflect these inherent
valuations, estimates and assumptions, and actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
The Funds must maintain a diversified investment portfolio as a registered
investment company, however, the Funds' investments are primarily in the
securities of their state. Such concentration subjects the Funds to the
effects of economic changes occurring within that state.
Federal Income Taxes: It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to their shareholders all of their tax exempt
net investment income and net realized gains on security transactions.
Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Funds amortize
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if applicable, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders at least annually.
Florida 17
<PAGE>
Notes to Financial Statements
================================================================================
Expense Allocation: Shared expenses incurred by the Trust are allocated among
the sub-trusts based on each sub-trust's ratio of net assets to the combined net
assets. Specifically identified direct expenses are charged to each sub-trust as
incurred. Fund expenses not specific to any class of shares are prorated among
the classes based upon the eligible net assets of each class. Specifically
identified direct expenses of each class are charged to that class as incurred.
The Funds have entered into an agreement with the custodian, whereby they
earn custodian fee credits for temporary cash balances. These credits, which
offset custodian fees that may be charged to the Funds, are based on 80% of the
daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Funds may, upon adequate
segregation of securities as collateral, purchase and sell portfolio securities
on a "when-issued" basis. These securities are registered by a municipality or
government agency, but have not been issued to the public. Delivery and payment
take place after the date of the transaction and such securities are subject to
market fluctuations during this period. The current market value of these
securities is determined in the same manner as other portfolio securities. At
November 30, 1996, there were no "when-issued" purchase commitments included in
the Florida Intermediate and the Florida Double Tax Exempt Funds' statements of
investments.
C. Fund Shares
At November 30, 1996, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
------------------------------ ------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
FLORIDA INTERMEDIATE
Class A:
Shares sold 73,244 $ 738,674 366,520 $ 3,698,170
Shares issued on reinvestment 6,462 64,372 12,299 124,575
Shares reacquired (43,214) (429,517) (261,357) (2,643,760)
Net increase 36,492 $ 373,529 117,462 $ 1,178,985
CLASS C:
Shares sold 23,697 $ 240,503 195,954 $ 1,987,282
Shares issued on reinvestment 3,185 31,719 5,977 60,618
Shares reacquired (23,199) (233,297) (66,052) (667,072)
Net increase 3,683 $ 38,925 135,879 $ 1,380,828
FLORIDA DOUBLE TAX EXEMPT
Class A:
Shares sold 1,071,062 $ 11,233,704 3,341,801 $ 35,642,289
Shares issued on reinvestment 303,305 3,174,349 635,529 6,768,677
Shares reacquired (2,979,624) (31,224,433) (5,453,566) (57,862,882)
Net decrease (1,605,257) $(16,816,380) (1,476,236) $(15,451,916)
</TABLE>
18 Florida
<PAGE>
Notes to Financial Statements
<TABLE>
<CAPTION>
============================================================================================================
Six Months Ended Period From
November 30, 1996 September 14, 1995 to May 31, 1996
(Unaudited)
----------------------- ----------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS C:
Shares sold 143,956 $1,509,019 114,811 $1,224,010
Shares issued on reinvestment 1,655 17,381 526 5,609
Shares reacquired (12,109) (125,610) (2,302) (24,286)
Net increase 133,502 $1,400,790 113,035 $1,205,333
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November 30,
1996, aggregated:
<TABLE>
<CAPTION>
Fund Purchases Sales
<S> <C> <C>
Florida Intermediate $ 1,852,177 $ 1,505,394
Florida Double Tax Exempt $ 98,520,391 $120,291,803
</TABLE>
At November 30, 1996, cost for federal income tax purposes is $8,274,258
and $286,411,339 for the Florida Intermediate and Florida Double Tax Exempt
Funds, respectively, and net unrealized appreciation aggregated $366,818 and
$22,966,769, respectively, which includes:
<TABLE>
<CAPTION>
Unrealized Unrealized
Fund Appreciation Depreciation
<S> <C> <C>
Florida Intermediate $ 367,852 $ 1,034
Florida Double Tax Exempt $23,029,302 $62,533
</TABLE>
At November 30, 1996, the Florida Double Tax Exempt Fund has available
capital loss carryforwards of approximately $1,380,600 to offset future net
capital gains in the amounts of $1,130,500 through May 31, 2003 and $250,100
through May 31, 2005. The Florida Intermediate Fund has a capital loss
carryforward of approximately $3,000 to offset future net capital gains through
May 31, 2005.
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of agreements which provide
for furnishing of investment advice, office space and facilities to the Funds,
receives fees computed monthly on the daily net assets of the Funds at an
annualized rate of 1/2 of 1%. During the six months ended November 30, 1996, the
Advisor, at its discretion, permanently waived advisory fees for the Florida
Intermediate and Florida Double Tax Exempt Funds amounting to $20,532 and
$241,037, respectively. Included in accrued expenses at November 30, 1996 are
accrued advisory fees of $38,702 for Florida Double Tax Exempt. Also, under an
agreement with the Funds, the Advisor may subsidize certain expenses excluding
advisory and distribution fees.
The Funds have Distribution Agreements with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Funds' Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Funds have adopted a plan to reimburse
the Distributor for its actual expenses incurred in the distribution and
promotion of all classes of the Funds' shares. The maximum amount payable for
these expenses on an annual basis is .40% and .95% of the Funds' average daily
net assets for Class A and Class C shares, respectively. Included in accrued
expenses at November 30, 1996 are accrued distribution fees of $1,735, $2,364,
$102,349 and $2,197 for Florida Intermediate Class A shares and Class
Florida 19
<PAGE>
Notes to Financial Statements
================================================================================
C shares, and Florida Double Tax Exempt Class A shares and Class C shares,
respectively. Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the Funds
as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Funds, the Distributor received commissions on sales of the Funds' shares for
the six months ended November 30, 1996, are approximately as follows:
<TABLE>
<CAPTION>
Fund Gross Commissions Paid to Other Dealers
<S> <C> <C>
Florida Intermediate $3,800 $3,100
Florida Double Tax Exempt $3,400 $2,900
</TABLE>
For the six months ended November 30, 1996, the Distributor received
approximately $200 and $800 of contingent deferred sales charges on redemptions
of shares in Florida Intermediate and Florida Double Tax Exempt, respectively.
Certain officers and trustees of the Trust are also officers and/or directors of
the Distributor and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Florida Intermediate Fund
(approximately $27,400) are being reimbursed to the Advisor on a straight-line
basis over a period of three years. As of November 30, 1996, $4,571 has been
reimbursed. In the event that the Advisor'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.
G. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. Florida Double Tax Exempt
may temporarily borrow up to $17 million under the line of credit. Borrowings
are collateralized with pledged securities and are due on demand with interest
at 1% above the federal funds rate. The average daily amount of borrowings under
the line of credit during the six months ended November 30, 1996 was
approximately $403,100, at a weighted average annualized interest rate of 5.68%.
At November 30, 1996, the Fund had no borrowings outstanding under the line of
credit.
H. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Funds approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to an
Agreement and Plan of Merger. Any consolidation or reorganization of the Nuveen
and Flagship mutual fund families is expected to be effective January 31, 1997.
20 Florida
<PAGE>
Ship Art Florida Intermediate Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
<TABLE>
<CAPTION>
========================================================================================================================
Six Months Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 February 1, 1994 to
CLASS A (Unaudited) May 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.88 $10.05 $ 9.66 $ 9.70
Income from investment operations:
Net investment income 0.23 0.46 0.46 0.12
Net realized and unrealized gain
(loss) on securities 0.34 (0.17) 0.33 (0.04)
Total from investment operations 0.57 0.29 0.79 0.08
Less distributions:
From net investment income (0.23) (0.46) (0.40) (0.12)
Total distributions (0.23) (0.46) (0.40) (0.12)
Net asset value, end of period $10.22 $ 9.88 $ 10.05 $ 9.66
Total return/(a)/ 11.73% 3.41% 8.42% 1.75%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.75% 0.76% 0.67% 0.29%
Net investment income 4.64% 4.48% 4.74% 3.79%
Assuming credits and no waivers
or reimbursements:
Expenses 2.11% 1.67% 3.54% 6.70%
Net investment income 3.28% 3.57% 1.87% (2.62%)
Net assets at end of period (000's) $5,537 $4,995 $3,898 $ 964
Portfolio turnover rate 18.30% 66.18% 105.01% 28.15%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.73% and 0.67%, respectively; prior period numbers have not been
restated to reflect these credits.
Florida 21
<PAGE>
[Ship Art] Florida Intermediate Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
<TABLE>
<CAPTION>
==================================================================================================================================
Six Months Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 February 2, 1994 to
CLASS C (Unaudited) May 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.88 $10.05 $ 9.66 $ 9.70
Income from investment operations:
Net investment income 0.21 0.40 0.40 0.11
Net realized and unrealized gain
(loss) on securities 0.33 (0.16) 0.33 (0.06)
Total from investment operations 0.54 0.24 0.73 0.05
Less distributions:
From net investment income (0.20) (0.41) (0.34) (0.09)
Total distributions (0.20) (0.41) (0.34) (0.09)
Net asset value, end of period $10.22 $ 9.88 $ 10.05 $ 9.66
Total return/(a)/ 11.15% 2.88% 7.80% 1.33%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 1.30% 1.34% 1.19% 0.68%
Net investment income 4.09% 3.88% 4.19% 3.42%
Assuming credits and no waivers
or reimbursements:
Expenses 2.67% 2.25% 4.53% 7.38%
Net investment income 2.72% 2.97% 0.85% (3.28%)
Net assets at end of period (000's) $3,221 $3,079 $ 1,765 $1,058
Portfolio turnover rate 18.30% 66.18% 105.01% 28.15%
</TABLE>
(a) The total returns shown do not include the effect of applicable contingent
deferred sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.28% and 1.25%, respectively; prior period numbers have not been
restated to reflect these credits.
22 Florida
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art] Florida Double Tax Exempt
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
====================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
CLASS A (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.39 $ 10.63 $ 10.38 $ 10.76 $ 10.18
Income from investment operations:
Net investment income 0.28 0.57 0.58 0.60 0.63
Net realized and unrealized gain
(loss) on securities 0.35 (0.24) 0.26 (0.38) 0.61
Total from investment operations 0.63 0.33 0.84 0.22 1.24
Less distributions:
From net investment income (0.28) (0.57) (0.59) (0.60) (0.64)
From net realized capital gains (0.02)
Total distributions (0.28) (0.57) (0.59) (0.60) (0.66)
Net asset value, end of period $ 10.74 $ 10.39 $ 10.63 $ 10.38 $ 10.76
Total return/(a)/ 12.31% 3.14% 8.43% 2.00% 12.49%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 0.87% 0.83% 0.73% 0.58% 0.45%
Net investment income 5.32% 5.36% 5.71% 5.51% 6.01%
Assuming credits and no waivers
or reimbursements:
Expenses 1.02% 1.02% 1.04% 1.00% 0.99%
Net investment income 5.17% 5.17% 5.40% 5.09% 5.47%
Net assets at end of period (000's) $312,038 $318,456 $341,374 $372,082 $369,123
Portfolio turnover rate 31.48% 93.93% 52.67% 31.92% 22.60%
(a) The total returns shown do not include the effect of applicable front-end sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31, 1996, the Fund has earned credits from the custodian
which reduce service fees incurred. If included, the ratio of expenses to average net assets would be 0.86% and 0.82%,
respectively; prior period numbers have not been restated to reflect these credits.
</TABLE>
Florida 23
<PAGE>
[Logo of Ship Art]
Florida Double Tax Exempt
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
<TABLE>
<CAPTION>
================================================================================
Six Months Ended Period From
November 30, 1996 September 14, 1995 to
Class C (Unaudited) May 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.39 $10.65
Income from investment operations:
Net investment income 0.25 0.35
Net realized and unrealized gain
(loss) on securities 0.36 (0.26)
Total from investment operations 0.61 0.09
Less distributions:
From net investment income (0.25) (0.35)
Total distributions (0.25) (0.35)
Net asset value, end of period $10.75 $10.39
Total return/(a)/ 11.93% 1.30%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 1.40% 1.38%
Net investment income 4.69% 4.59%
Assuming credits and no waivers
or reimbursements:
Expenses 1.56% 1.55%
Net investment income 4.53% 4.42%
Net assets at end of period (000's) $2,650 $1,175
Portfolio turnover rate 31.48% 93.93%
</TABLE>
(a) The total returns shown do not include the effect of applicable contingent
deferred sales charge and are annualized.
(b) During the six months ended November 30, 1996 and the period ended May
31, 1996, the Fund has earned credits from the custodian which reduce
service fees incurred. If included, the ratio of expenses to average net
assets would be 1.39% and 1.37%, respectively; prior period numbers have
not been restated to reflect these credits.
24 Florida
<PAGE>
[CAPTION]
<TABLE>
[lOGO of Ship art] November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
=================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 675 Commonwealth of Puerto Rico Industrial, Medical and Environmental -
Pollution Control Facilities Financing Authority - Catholic
University of Puerto Rico Project - Series 1993 5.600% 12/01/07 $ 674,669
60 University of New Mexico Regents - System Revenue - Series 1992 A 5.900 06/01/04 64,667
5,000 University of New Mexico Regents - System Revenue - Series 1992 A 6.000 06/01/21 5,278,649
Escrowed to Maturity
--------------------------------------------------------------------------------------------------------
327 Santa Fe County, NM Office and Training Facilities Revenue Project 9.000 07/01/07 415,153
Health Care
--------------------------------------------------------------------------------------------------------
1,000 Hobbs, NM Health Facilities Revenue - Evangelical Lutheran
Good Samaritan Society - Series 1996 5.500 05/01/26 984,190
500 Las Cruces, NM Health Facilities Revenue - Evangelical Lutheran
Good Samaritan Society - Series 1992 6.450 12/01/17 540,040
Hospitals
--------------------------------------------------------------------------------------------------------
450 Albuquerque, NM Hospital System - Presbyterian Healthcare Services -
Series 1992 A 6.375 08/01/07 493,790
1,500 Albuquerque, NM Evangelical Lutheran Good Samaritan Society -
Series 1993 5.900 06/01/13 1,557,435
350 Socorro, NM Health Facilities Revenue - Evangelical Lutheran
Good Samaritan Society - Series 1994 6.000 05/01/08 375,484
Housing/Multifamily
--------------------------------------------------------------------------------------------------------
1,000 Las Cruces, NM Housing Development Corporation - Multifamily Mortgage
Revenue - Series 1993A 6.400 10/01/19 1,010,960
Housing/Single Family
--------------------------------------------------------------------------------------------------------
2,000 New Mexico Mortgage Finance Authority Revenue -
Single Family Mortgage Program - Series 1996 D 6.250 07/01/22 2,052,960
1,250 New Mexico Mortgage Finance Authority Revenue -
Single Family - Series 1995 A 6.650 07/01/26 1,295,075
170 New Mexico Mortgage Finance Authority Revenue -
Single Family - Series 1992 A-1 6.850 07/01/10 177,873
810 New Mexico Mortgage Finance Authority -
Single Family - Series 1992 A-2 6.900 07/01/24 849,342
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------
985 Farmington, NM Pollution Control Revenue - Public Service Company -
San Juan and Four Corners - Series 1992 A 6.375 12/15/22 1,063,051
1,000 Lordsburg, NM Pollution Control Revenue - Phelps Dodge Corporation -
Series 1993 6.500 04/01/13 1,059,220
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------
1,000 Albuquerque, NM Airport Revenue - Series 1995 A and B 6.600 07/01/16 1,089,610
</TABLE>
4 New Mexico
SAR-196
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------
$1,200 Guam Power Authority Revenue - Series 1993 A 5.250% 10/01/23 $1,093,956
250 Las Cruces, NM Utility and Improvement Revenue 6.250 07/01/12 259,295
1,000 Los Alamos County, NM Incorporated Utility System Revenue - Series 1994 A 5.700 07/01/05 1,066,320
1,500 Los Alamos County, NM Incorporated Utility System Revenue - Series 1994 A 6.000 07/01/15 1,568,880
700 Commonwealth of Puerto Rico Electric Power Authority Revenue - Series 1995 Z 5.250 07/01/21 658,574
100 Rio Grande, NM Natural Gas Association System Revenue and Improvement -
Dona Ana County - Series 1993 6.000 07/01/07 100,047
1,000 Rio Grande, NM Natural Gas Association System Revenue and Improvement -
Dona Ana County - Series 1993 6.125 07/01/13 998,380
1,000 Santa Fe, NM Utility Revenue - Series 1995 A 5.250 06/01/17 983,970
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------
1,000 Albuquerque, NM Joint Water and Sewer System Revenue - Series 1990 A 0.000 07/01/07 584,270
100 Grants, NM Water and Sewer Improvement Revenue - Series 1993 B 5.600 01/01/08 101,814
500 Grants, NM Water and Sewer Improvement Revenue - Series 1993 B 5.800 01/01/13 485,230
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------
50 Albuquerque, NM Municipal School District Number 12 - General
Obligation - Series 1996 5.000 08/01/02 51,549
80 Bernalillo County, NM General Obligation - Series 1994 5.750 10/01/05 85,774
480 Grants/Cibola County, NM School District Number 1 - General Obligation -
Series 1994 6.250 05/01/08 507,058
510 Grants/Cibola County, NM School District Number 1 - General Obligation -
Series 1994 6.250 05/01/09 535,561
200 Torrance County, NM General Obligation - Series 1993 5.500 07/01/04 204,292
Pre-refunded
--------------------------------------------------------------------------------------------------------------------
250 Albuquerque, NM Joint Water and Sewer System Revenue - Series 1990 A 6.000 07/01/15 264,838
500 Sandoval County, NM Gross Receipts Tax Revenue - Series 1994 7.150 11/01/10 593,330
Resource Recovery
--------------------------------------------------------------------------------------------------------------------
1,000 Las Cruces, NM South Central Solid Waste Authority Revenue -
Environmental Services - Series 1995 6.000 06/01/16 1,006,610
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------
4,250 Albuquerque, NM Gross Receipts - Lodgers Tax Revenue - Series 1991 0.000 07/01/11 1,936,810
1,000 Bernalillo County, NM Gross Receipts Tax Revenue - Series 1996 A 5.750 04/01/21 1,012,880
2,550 Dona Ana County, NM Gross Receipts Tax and Improvement Revenue
- Series 1993 6.000 06/01/19 2,613,062
465 Grants, NM Gross Receipts Tax and Improvement Revenue - Series 1993 B 5.800 07/01/13 451,013
250 Las Cruces, NM Gross Receipts Tax Revenue - Series 1992 6.250 12/01/05 267,362
1,000 Las Cruces, NM Revenue - Series 1995 5.450 12/01/08 1,014,970
500 Las Cruces, NM Revenue - Series 1995 5.500 12/01/15 493,045
100 New Mexico Finance Authority - Special Cigarette Tax Revenue -
University of New Mexico Cancer Treatment Center Project - Series 1996 5.500 06/01/07 103,640
</TABLE>
New Mexico 5
SAR-197
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
$ 60 New Mexico Finance Authority - Special Cigarette Tax Revenue -
University of New Mexico Cancer Treatment Center Project - Series 1996 5.000% 06/01/03 $ 61,607
3,700 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue
- Series 1996 Y and Z 5.500 07/01/36 3,612,384
1,000 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1996 Y and Z 5.000 07/01/36 909,240
300 Roswell, NM Sales Tax Revenue - Series 1993 6.000 06/01/12 306,903
225 Sandoval County, NM Gross Receipts Tax/Fire District Revenue - Series 1993 6.600 12/01/04 233,280
200 Sandoval County, NM Gross Receipts Tax/Fire District Revenue - Series 1993 6.900 12/01/07 207,436
375 Sandoval County, NM Gross Receipts Tax Revenue - Series 1992 6.900 11/01/12 404,276
130 Sandoval County, NM Gross Receipts Tax Revenue - Series 1992A 6.500 12/01/06 139,625
30 Santa Fe, NM Subordinate Lien Gross receipts Tax Revenue - Series 1995 A and B 4.750 06/01/04 30,264
500 Silver City, NM Sales Tax Revenue - Series 1993 5.850 07/01/09 500,635
470 Tucumcari, NM Municipal Gross Receipts/Lodgers' Tax Improvement Revenue -
Series 1993 5.875 06/01/12 466,931
State/Territorial General Obligations
----------------------------------------------------------------------------------------------------------------------
1,500 Guam Government General Obligation - Series 1993 A 5.375 11/15/13 1,416,270
Student Loan Revenue Bonds
---------------------------------------------------------------------------------------------------------------------
1,600 New Mexico Educational Assistance Foundation - Student Loan Revenue - Series A 6.850 04/01/05 1,731,072
500 New Mexico Educational Assistance Foundation - Student Loan Revenue - Series 1A 6.550 12/01/05 521,820
340 New Mexico Educational Assistance Foundation - Student Loan Revenue - Series 1A 6.850 12/01/05 355,378
1,000 New Mexico Educational Assistance Foundation - Student Loan Revenue -
Series 1994 II-A, II-B, II-C 5.500 12/01/07 1,023,030
1,250 New Mexico Educational Assistance Foundation - Student Loan Revenue - 6.500 03/01/04 1,363,600
Series 1995 IV-A1
Total Investments in Securities - Municipal Bonds (cost $48,811,917) - 98.6% 51,308,449
Excess of Other Assets over Liabilities - 1.4% 706,295
Total Net Assets - 100.0% $52,014,744
</TABLE>
See notes to financial statements.
6 New Mexico
SAR-198
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities November 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $48,811,917) $51,308,449
Receivable for investments sold 70,000
Receivable for Fund shares sold 50,046
Interest receivable 1,102,139
Other 2,327
Total assets 52,532,961
LIABILITIES:
Bank overdraft 162,027
Payable for Fund shares reacquired 101,134
Distributions payable 210,264
Accrued expenses 44,792
Total liabilities 518,217
NET ASSETS:
Applicable to 5,080,131 shares of beneficial interest issued and
outstanding $52,014,744
Net asset value per share $ 10.24
[LOGO OF SHIP ART]
Statement of Operations For the six months ended November 30, 1996
(Unaudited)
================================================================================
INVESTMENT INCOME - INTEREST $ 1,517,577
EXPENSES:
Distribution fees (Note E) 103,555
Investment advisory fees (Note E) 129,482
Custody and accounting fees 32,774
Transfer agent's fees 13,725
Registration fees 1,652
Legal fees 549
Audit fees 6,405
Reimbursement of organizational expenses (Note F) 5,179
Trustees' fees 732
Shareholder services fees (Note E) 2,745
Other 889
Advisory fees waived (Note E) (97,182)
Total expenses before credits 200,505
Custodian fee credit (Note B) (3,054)
Net expenses 197,451
Net investment income 1,320,126
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 55,494
Change in unrealized appreciation (depreciation) of investments 2,202,561
Net gain on investments 2,258,055
Net increase in net assets resulting from operations $ 3,578,181
See notes to financial statements.
</TABLE>
New Mexico 7
<PAGE>
(logo of ship art)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
================================================================================
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
INCREASE (DECREASE) IN NET ASSETS (Unaudited)
<S> <C> <C>
Operations:
Net investment income $ 1,320,126 $ 2,646,917
Net realized gain (loss) on security
transactions 55,494 (189,794)
Change in unrealized appreciation
(depreciation) of investments 2,202,561 (845,219)
Net increase in net assets resulting from
operations 3,578,181 1,611,904
Distributions to shareholders:
From net investment income (1,308,461) (2,660,344)
Net decrease in net assets from distributions
to shareholders (1,308,461) (2,660,344)
Net (decrease) increase in net assets from Fund
share transactions (Note C) (1,428,157) 71,218
Total increase (decrease) in net assets 841,563 (977,222)
NET ASSETS:
Beginning of period 51,173,181 52,150,403
End of period $52,014,744 $51,173,181
NET ASSETS CONSIST OF:
Paid-in surplus $50,834,382 $52,262,539
Undistributed net investment income 11,665
Accumulated net realized gain (loss) on
security transactions (1,327,835) (1,383,329)
Unrealized appreciation (depreciation) of
investments 2,496,532 293,971
$52,014,744 $51,173,181
See notes to financial statements.
</TABLE>
8 New Mexico
SAR-200
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship New Mexico Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on September 16,
1992. Shares of beneficial interest in the Fund, which are registered under
the Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Estimates: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
The Fund must maintain a diversified investment portfolio as a registered
investment company, however, the Fund's investments are primarily in the
securities of its state. Such concentration subjects the Fund to the effects
of economic changes occurring within that state.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax exempt net
investment income and net realized gains on security transactions. Therefore,
no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes original
issue discounts and premiums paid on purchases of portfolio securities on the
same basis for both financial reporting and tax purposes. Market discounts,
if applicable, are recognized as ordinary income upon disposition or
maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders at least annually.
Expense Allocation: Shared expenses incurred by the Trust are allocated among
the sub-trusts based on each sub-trust's ratio of net assets to the combined
net assets. Specifically identified direct expenses are charged to each sub-
trust as incurred.
The Fund has entered into an agreement with the custodian, whereby it earns
custodian fee credits for temporary cash balances. These credits, which
offset custodian fees that may be charged to the Fund, are based on 80% of
the daily effective federal funds rate.
New Mexico 9
SAR-201
<PAGE>
Notes to Financial Statements
================================================================================
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when-issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The current
market value of these securities is determined in the same manner as other
portfolio securities. There were no "when-issued" purchase commitments
included in the statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
----------------------- -----------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares sold 350,838 $ 3,475,344 691,631 $ 6,925,871
Shares issued on reinvestment 67,392 669,374 133,282 1,333,109
Shares reacquired (557,139) (5,572,875) (817,071) (8,187,762)
Net (decrease) increase (138,909) $(1,428,157) 7,842 $ 71,218
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November 30,
1996, aggregated $10,058,899 and $12,331,298, respectively. At November 30,
1996, cost for federal income tax purposes is $48,815,201 and net unrealized
appreciation aggregated $2,493,248, of which $2,520,931 related to
appreciated securities and $27,683 related to depreciated securities.
At November 30, 1996, the Fund has available capital loss carryforwards of
approximately $1,324,600 to offset future net capital gains in the amounts of
$1,034,000 through May 31, 2003 and $290,600 through May 31, 2004.
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly, on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its discretion, permanently waived $97,182
of its advisory fees. Included in accrued expenses at November 30, 1996, are
accrued advisory fees of $6,391. Also, under an agreement with the Fund, the
Advisor may subsidize certain expenses excluding advisory and distribution
fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's shares and in that capacity is responsible for all
sales and promotional efforts including printing of prospectuses and reports
used for sales purposes. Pursuant to Rule 12b-1 under the Investment Company
Act of 1940, the Fund has adopted a plan to reimburse the Distributor for its
actual expenses incurred in the distribution and promotion of sales of the
Fund's shares. The maximum amount payable for these expenses on an annual
basis is .40% of the Fund's average daily net assets. Included in accrued
expenses at November 30, 1996 are accrued distribution fees of $17,042.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the Fund
as shareholder services fees.
10 New Mexico
SAR-202
<PAGE>
Notes to Financial Statements
================================================================================
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's shares
of approximately $67,400 for the six months ended November 30, 1996, of
which approximately $58,200 was paid to other dealers. Certain officers and
trustees of the Trust are also officers and/or directors of the Distributor
and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund (approximately
$51,700) are being reimbursed to the Advisor on a straight-line basis over a
period of five years. As of November 30, 1996, $36,197 has been reimbursed.
In the event that the Advisor'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.
G. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may
temporarily borrow up to $2 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest
at 1% above the federal funds rate. The average daily amount of borrowings
under the line of credit during the six months ended November 30, 1996 was
approximately $52,043, at a weighted average annualized interest rate of
6.40%. At November 30, 1996, the Fund had no borrowings outstanding under
the line of credit.
H. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective January
31, 1997.
New Mexico 11
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
[LOGO OF SHIP ART] Financial Highlights interest outstanding throughout the period.
==============================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 September 16, 1992 to
(Unaudited) May 31, 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.81 $ 10.01 $ 9.68 $ 10.04 $ 9.58
Income from investment operations:
Net investment income 0.25 0.51 0.52 0.53 0.37
Net realized and unrealized gain
(loss) on securities 0.43 (0.19) 0.33 (0.33) 0.46
Total from investment operations 0.68 0.32 0.85 0.20 0.83
Less distributions:
From net investment income (0.25) (0.52) (0.52) (0.53) (0.37)
From net realized capital gains (0.01)
In excess of net realized capital gains (0.02)
Total distributions (0.25) (0.52) (0.52) (0.56) (0.37)
Net asset value, end of period $ 10.24 $ 9.81 $ 10.01 $ 9.68 $ 10.04
Total return(a) 14.08% 3.18% 9.25% 1.92% 11.72%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.77% 0.68% 0.67% 0.40% 0.14%
Net investment income 5.09% 5.10% 5.48% 5.24% 5.28%
Assuming credits and no waivers
or reimbursements:
Expenses 1.14% 1.09% 1.17% 1.14% 1.37%
Net investment income 4.72% 4.69% 4.98% 4.50% 4.05%
Net assets at end of period (000's) $52,015 $51,173 $52,150 $51,167 $31,499
Portfolio turnover rate 19.60% 57.40% 38.06% 38.88% 36.11%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.76% and 0.65%, respectively; prior period numbers have not been
restated to reflect these credits.
12 New Mexico
<PAGE>
[LOGO OF SHIP ART]
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
===================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Allegheny County, PA Higher Education Building Authority Revenue -
Robert Morris College - Series 1996 A 6.250% 02/15/26 $ 2,952,180
750 Northeastern Pennsylvania Hospital and Education Authority Revenue -
Luzerne County Community College - Series 1994 6.625 08/15/15 827,468
865 Union County, PA Higher Educational Facilities Financing Authority Revenue -
Bucknell University - Series 1996 5.500 04/01/16 862,889
Escrowed to Maturity
------------------------------------------------------------------------------------------------------------------------
650 Philadelphia, PA Gas Works Revenue - Twelfth Series 7.000 05/15/20 765,056
Health Care
------------------------------------------------------------------------------------------------------------------------
1,000 Butler County, PA Industrial Development Authority - Health Center Revenue -
Sherwood Oaks Project - Series 1993 5.750 06/01/16 970,360
400 Columbia County, PA Industrial Development Authority - Orangeville Nursing Center 9.000 12/01/12 399,988
Hospitals
------------------------------------------------------------------------------------------------------------------------
200 Allegheny County, PA Hospital Development Authority - St. Margaret Memorial
Hospital - Series 1991A 7.125 10/01/21 208,100
200 Butler County, PA Hospital Authority Revenue - North Hills Passavant Hospital 7.000 06/01/22 221,900
500 Clarion County, PA Hospital Authority Revenue - Clarion Hospital 8.100 07/01/12 531,190
500 Dauphin County, PA Hospital Authority Revenue - Harrisburg Hospital 8.250 07/01/14 522,410
1,300 Doylestown, PA Hospital Authority Revenue - Series 1993 A 5.000 07/01/23 1,209,676
1,035* Jeannette, PA Health Services Authority - Hospital Revenue - Jeannette District
Memorial Hospital - Series 1996 A 6.000 11/01/18 1,028,076
1,000 Monroeville, PA Hospital Authority Revenue - Forbes Health System - Series 1995 6.250 10/01/15 1,025,220
500 Montgomery County, PA Higher Education and Health Authority Revenue -
Holy Redeemer Hospital 7.625 02/01/20 545,050
1,000 Philadelphia, PA Hospital and Higher Education Facilities Authority -
Hospital Revenue - Chestnut Hill Hospital - Series 1992 6.500 11/15/22 1,030,610
2,000 Philadelphia, PA Hospitals and Higher Education Facilities Revenue -
Temple University Hospital - Series 1993 A 6.625 11/15/23 2,089,840
2,000 Philadelphia, PA Hospitals and Higher Education Facilities Authority -
Hospital Revenue - Pennsylvania Hospital - Series 1996 6.250 07/01/06 2,084,780
1,750 Westmoreland County, PA Industrial Development Authority Revenue -
Citizens General Hospital - Series 1987 A 8.250 07/01/13 1,807,418
Housing/Multifamily
------------------------------------------------------------------------------------------------------------------------
500 Bucks County, PA Redevelopment Authority Mortgage Revenue - Westminster Heights -
Series 1992 A 6.875 08/01/23 518,705
</TABLE>
4 Pennsylvania
SAR-241
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Housing/Single Family
-----------------------------------------------------------------------------------------------------------------
$ 300 Pennsylvania Housing Finance Agency - Single Family - Series 1989 S 7.600% 04/01/16 $ 322,275
165 Pennsylvania Housing Finance Agency - Single Family - Series 1991-30 7.300 10/01/17 175,623
1,250 Pennsylvania Housing Finance Agency Revenue - Single Family Mortgage -
Series 1996-50, 50A and 50B 6.000 10/01/13 1,278,788
1,000 Pennsylvania Housing Finance Agency Revenue - Single Family Mortgage -
Series 1996 53, 53A and 53B 6.050 04/01/18 1,008,320
1,000 Pittsburgh, PA Urban Redevelopment Authority - Mortgage Revenue -
Series 1996 A 6.000 04/01/19 1,000,720
1,000 Pittsburgh, PA Urban Redevelopment Authority - Mortgage Revenue -
Series 1996 C and D 6.250 10/01/17 1,022,320
Industrial Development and Pollution Control
------------------------------------------------------------------------------------------------------------------
296 Allegheny County, PA Industrial Development Authority - Solid Waste Disposal -
Conversion Systems, Inc. - Series 1991 8.000 03/01/98 309,921
2,000 Cambria County, PA Industrial Development Authority Pollution Control
Revenue - Pennsylvania Electric Company - Series 1995 A and B 5.800 11/01/20 2,040,440
1,500 Lawrence County, PA Industrial Development Authority Pollution
Control Revenue - Pennsylvania Power Company 7.150 03/01/17 1,585,245
550 Lehigh County, PA Industrial Development Authority Pollution Control
Revenue - Pennsylvania Power and Light Company - Series 1995A 6.150 08/01/29 583,539
1,000 Northampton County, PA Industrial Development Authority Pollution
Control Revenue - Metropolitan Edison - Series 1995 A 6.100 07/15/21 1,056,800
2,000 Pennsylvania Economic Development Financing Authority Revenue -
MacMillan Bloedel Clarion - Series 1995 7.600 12/01/20 2,242,440
1,000 Pennsylvania Economic Development Finance Authority Revenue -
Wastewater Treatment - Sun Company, Incorporated R & M - Series 1994A 7.600 12/01/24 1,120,470
250 Philadelphia, PA Industrial Development Authority - National Board of
Medical Examiners - Series 1992 6.750 05/01/12 271,878
Municipal Revenue/Other
------------------------------------------------------------------------------------------------------------------
1,500 Harrisburg, PA Authority - Dauphin County, Pennsylvania - Revenue
Pooled Bond Program - Series 1996 I and II 5.625 04/01/19 1,500,495
2,545 Reading, PA Parking Authority Revenue - Berks County, Pennsylvania -
Series 1993 0.000 11/15/15 896,374
Municipal Revenue/Utility
------------------------------------------------------------------------------------------------------------------
1,400 Philadelphia, PA Gas Works Revenue - Fourteenth Series - Series 1993 6.375 07/01/26 1,442,504
750 Philadelphia, PA Gas Works Revenue - Fourteenth Series - Series 1993 6.375 07/01/26 807,975
750 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 6.375 07/01/24 797,205
Municipal Revenue/Water & Sewer
------------------------------------------------------------------------------------------------------------------
1,185 Pittsburgh, PA Water and Sewer Authority - Water and Sewer System Revenue -
Series 1995 B 5.750 09/01/25 1,198,687
920 South Wayne County, PA Water and Sewer Authority Revenue 8.200 04/15/13 990,546
</TABLE>
Pennsylvania 5
SAR-242
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
============================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
Non-State General Obligations
-------------------------------------------------------------------------------------------------------------
$ 2,195 Montour, PA School District - General Obligation - Allegheny County -
Series 1993 B 0.000% 01/01/14 $ 856,994
Pre-refunded
-------------------------------------------------------------------------------------------------------------
1,500 Pennsylvania Intergovernmental Cooperation Authority - Special Tax
Revenue - Philadelphia Funding Program - Series 1992 7.000 06/15/14 1,739,295
500 Pennsylvania State Higher Educational Facilities Authority Revenue -
Lycoming College 8.375 10/01/18 547,525
700 Pennsylvania State Higher Educational Facilities Authority Revenue -
Thomas Jefferson University 8.000 01/01/18 744,219
150 Philadelphia, PA Municipal Authority Revenue 7.800 04/01/18 160,514
1,450 Philadelphia, PA Municipal Authority Revenue 7.800 04/01/18 1,609,398
Resource Recovery
-------------------------------------------------------------------------------------------------------------
1,650 Cambria County, PA Industrial Development Authority Resource Recovery
Revenue - Cambria CoGen Project 7.750 09/01/19 1,708,658
400 York County, PA Solid Waste and Refuse Authority Industrial Development
Revenue - Resource Recovery - Series C 8.200 12/01/14 423,449
State/Territorial General Obligations
-------------------------------------------------------------------------------------------------------------
1,000 Pennsylvania State General Obligation - Series 1996 5.375 05/15/16 998,180
Total Investments in Securities - Municipal Bonds (cost $47,228,196) - 99.9% 50,041,713
Excess of Other Assets over Liabilities - 0.1% 56,841
Total Net Assets - 100.0% $50,098,554
</TABLE>
*Securities purchased on a "when-issued" basis.
See notes to financial statements.
6 Pennsylvania
SAR-243
<PAGE>
<TABLE>
<CAPTION>
(logo of ship art)
Statement of Assets and Liabilities November 30, 1996 (Unaudited)
====================================================================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $47,228,196) $ 50,041,713
Cash 506,799
Interest receivable 883,355
Other 2,509
Total assets 51,434,376
LIABILITIES:
Payable for investments purchased 1,023,595
Payable for Fund shares reacquired 48,458
Distributions payable 219,047
Accrued expenses 44,722
Total liabilities 1,335,822
NET ASSETS 50,098,554
Class A:
Applicable to 4,333,664 shares of beneficial interest issued and outstanding $ 44,780,065
Net asset value per share $ 10.33
Class C:
Applicable to 514,891 shares of beneficial interest issued and outstanding $ 5,318,489
Net asset value per share $ 10.33
(logo of ship art)
Statement of Operations For the six months ended November 30, 1996
(Unaudited)
====================================================================================================================================
INVESTMENT INCOME - INTEREST $ 1,578,336
EXPENSES:
Distribution fees - Class A (Note E) 88,911
Distribution fees - Class C (Note E) 22,970
Investment advisory fees (Note E) 123,267
Custody and accounting fees 25,931
Transfer agent's fees 22,725
Registration fees 1,736
Legal fees 366
Audit fees 6,555
Reimbursement of organizational expenses (Note F) 6,314
Trustees' fees 167
Shareholder services fees (Note E) 1,558
Other 805
Advisory fees waived (Note E) (81,285)
Total expenses before credits 220,020
Custodian fee credit (Note B) (3,236)
Net expenses 216,784
Net investment income 1,361,552
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions (168,147)
Change in unrealized appreciation (depreciation) of investments 1,813,265
Net gain on investments 1,645,118
Net increase in net assets resulting from operations $ 3,006,670
See notes to financial statements.
</TABLE>
Pennsylvania 7
SAR-244
<PAGE>
[logo of ship art]
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
=====================================================================================================
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 1,361,552 $ 2,669,292
Net realized gain (loss) on security transactions (168,147) 714,271
Change in unrealized appreciation (depreciation) of investments 1,813,265 (1,775,459)
Net increase in net assets resulting from operations 3,006,670 1,608,104
Distributions to Class A shareholders:
From net investment income (1,250,158) (2,497,316)
Distributions to Class C shareholders:
From net investment income (122,536) (199,438)
Net decrease in net assets from distributions to shareholders (1,372,694) (2,696,754)
Fund share transactions (Note C):
Proceeds from shares sold 1,954,715 8,804,404
Net asset value of shares issued in reinvestment of distributions 645,031 1,323,945
Cost of shares reacquired (2,968,798) (5,923,636)
Net (decrease) increase in net assets from Fund share transactions (369,052) 4,204,713
Total increase in net assets 1,264,924 3,116,063
NET ASSETS:
Beginning of period 48,833,630 45,717,567
End of period $50,098,554 $48,833,630
NET ASSETS CONSIST OF:
Paid-in surplus $47,567,186 $47,936,238
Overdistributed net investment income (11,142)
Accumulated net realized gain (loss) on security transactions (271,007) (102,860)
Unrealized appreciation (depreciation) of investments 2,813,517 1,000,252
$50,098,554 $48,833,630
</TABLE>
See notes to financial statements.
8 Pennsylvania
<PAGE>
[LOGO OF SHIP ART] Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Pennsylvania Triple Tax Exempt Fund (Fund), is a sub-trust of
the Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund commenced investment operations on October 29,
1986. On February 2, 1994, the Fund began to offer Class C shares to the
investing public. Class A shares are sold with a front-end sales charge.
Class C shares are sold with no front-end sales charge but are assessed a
contingent deferred sales charge if redeemed within one year from the time
of purchase. Both classes of shares have identical rights and privileges
except with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting
rights on matters affecting a single class and the exchange privilege of
each class. Shares of beneficial interest in the Fund, which are registered
under the Securities Act of 1933, as amended, are offered to the public on a
continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Estimates: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
The Fund must maintain a diversified investment portfolio as a
registered investment company, however, the Fund's investments are primarily
in the securities of its state. Such concentration subjects the Fund to the
effects of economic changes occurring within that state.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax exempt net
investment income and net realized gains on security transactions.
Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if applicable, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders at least annually.
Pennsylvania 9
<PAGE>
Notes to Financial Statements
================================================================================
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian, whereby it
earns custodian fee credits for temporary cash balances. These credits,
which offset custodian fees that may be charged to the Fund, are based on
80% of the daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when-issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $1,017,860 "when-issued" purchase
commitments included in the statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of
beneficial interest with no par value authorized for each class.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
------------------------ -------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 117,020 $ 1,187,136 715,960 $ 7,326,760
Shares issued on reinvestment 55,493 560,480 117,434 1,199,201
Shares reacquired (280,125) (2,829,103) (562,674) (5,744,061)
Net (decrease) increase (107,612) $(1,081,487) 270,720 $ 2,781,900
CLASS C:
Shares sold 75,743 $ 767,579 144,791 $ 1,477,644
Shares issued on reinvestment 8,369 84,551 12,212 124,744
Shares reacquired (13,738) (139,695) (17,822) (179,575)
Net increase 70,374 $ 712,435 139,181 $ 1,422,813
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November 30,
1996, aggregated $10,575,700 and $10,362,232, respectively. At November 30,
1996, cost for federal income tax purposes is $47,227,470 and net unrealized
appreciation aggregated $2,814,243, of which $2,827,658 related to
appreciated securities and $13,415 related to depreciated securities.
At November 30, 1996, the Fund has available capital loss carryforwards
of approximately $271,000 to offset future net capital gains in the amounts
of $12,400 through May 31, 1999, $60,900 through May 31, 2002, $28,800
through May 31, 2003, and $168,900 through May 31, 2005.
10 Pennsylvania
<PAGE>
Notes to Financial Statements
================================================================================
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its discretion, permanently waived
$81,285 of its advisory fees. Included in accrued expenses at November 30,
1996 are accrued advisory fees of $3,261. Also, under an agreement with the
Fund, the Advisor may subsidize certain expenses excluding advisory and
distribution fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at November 30, 1996 are accrued
distribution fees of $14,620 and $4,007 for Class A and Class C shares,
respectively. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Distributor and passed through to
the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $33,600 for the six months ended November 30, 1996,
of which approximately $29,500 was paid to other dealers. For the six months
ended November 30, 1996, the Distributor did not receive contingent deferred
sales charges on redemptions of shares. Certain officers and trustees of the
Trust are also officers and/or directors of the Distributor and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the reorganization
(approximately $63,000) are being reimbursed to the Advisor on a straight-
line basis over a period of five years. As of November 30, 1996, $11,558 has
been reimbursed. In the event that the Advisor'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.
G. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may
temporarily borrow up to $2 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest
at 1% above the federal funds rate. The average daily amount of borrowings
under the line of credit during the six months ended November 30, 1996 was
approximately $43,100, at a weighted average annualized interest rate of
6.46%. At November 30, 1996, the Fund had no borrowings outstanding under
the line of credit.
H. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective January
31, 1997.
Pennsylvania 11
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
====================================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
CLASS A (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.21 $10.06 $10.38 $ 9.90
Income from investment operations:
Net investment income 0.28 0.59 0.60 0.61 0.62
Net realized and unrealized gain
(loss) on securities 0.34 (0.20) 0.16 (0.32) 0.47
Total from investment operations 0.62 0.39 0.76 0.29 1.09
Less distributions:
From net investment income (0.29) (0.60) (0.61) (0.61) (0.61)
Total distributions (0.29) (0.60) (0.61) (0.61) (0.61)
Net asset value, end of period $10.33 $10.00 $10.21 $10.06 $10.38
Total return(a) 12.47% 3.83% 7.90% 2.70% 11.34%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.84% 0.79% 0.89% 0.91% 0.92%
Net investment income 5.57% 5.76% 6.08% 5.80% 6.07%
Assuming credits and no waivers
or reimbursements:
Expenses 1.16% 1.13% 1.29% 1.17% 1.32%
Net investment income 5.25% 5.42% 5.68% 5.55% 5.67%
Net assets at end of period (000's) $44,780 $44,392 $42,600 $42,226 $40,705
Portfolio turnover rate 21.04% 64.54% 49.86% 20.70% 22.69%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.83% and 0.77%, respectively; prior period numbers have not been
restated to reflect these credits.
12 Pennsylvania
SAR-249
<PAGE>
<TABLE>
<CAPTION>
(logo of ship art)
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
===============================================================================================================
Six Months Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 February 2, 1994 to
(Unaudited) May 31, 1994
<S> <C> <C> <C> <C>
CLASS C
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.99 $10.21 $10.06 $10.71
Income from investment operations:
Net investment income 0.25 0.53 0.54 0.16
Net realized and unrealized gain
(loss) on securities 0.35 (0.21) 0.16 (0.64)
Total from investment operations 0.60 0.32 0.70 (0.48)
Less distributions:
From net investment income (0.26) (0.54) (0.55) (0.17)
Total distributions (0.26) (0.54) (0.55) (0.17)
Net asset value, end of period $10.33 $9.99 $10.21 $10.06
Total return/(a)/ 12.11% 3.16% 7.31% (13.46%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 1.38% 1.34% 1.39% 1.41%
Net investment income 5.00% 5.19% 5.50% 4.91%
Assuming credits and no waivers
or reimbursements:
Expenses 1.70% 1.68% 1.84% 1.68%
Net investment income 4.68% 4.85% 5.05% 4.64%
Net assets at end of period (000's) $5,318 $4,442 $3,118 $1,697
Portfolio turnover rate 21.04% 64.54% 49.86% 20.70%
</TABLE>
(a) The total returns shown do not include the effect of applicable
contingent deferred sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.37% and 1.32%, respectively; prior period numbers have not been
restated to reflect these credits.
Pennsylvania 13
SAR-250
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
============================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500 Hampton Roads, VA Medical College Revenue - Series 1991A 6.875% 11/15/16 $ 535,005
500 Loudoun County, VA Industrial Development Authority - George Washington University 6.250 05/15/12 520,510
1,225 Loudoun County, VA Industrial Development Authority - George Washington University 6.250 05/15/22 1,269,210
1,250 Rockingham County, VA Industrial Development Authority Revenue - Bridgewater
College - Series 1993 6.000 10/01/23 1,212,625
2,000 University of Virginia - Rector and Visitors General Pledge - Series 1993B 5.375 06/01/20 1,956,920
750 Virginia College Building Authority Educational Facilities Revenue - Washington
and Lee University - Series 1992 6.400 01/01/12 797,828
1,000 Virginia College Building Authority Education Facilities Revenue - Marymount
University - Series 1992 7.000 07/01/12 1,052,710
1,400 Virginia College Building Authority Education Facilities Revenue - Marymount
University - Series 1992 7.000 07/01/22 1,465,156
2,000 Virginia College Building Authority Educational Facilities Revenue - Roanoke
College - Series 1992 6.625 10/15/12 2,087,580
3,250 Virginia College Building Authority Educational Facilities Revenue - Hampton
University - Series 1993 5.750 04/01/14 3,264,658
775 Winchester, VA Industrial Development Authority Educational Facilities Revenue -
Shenandoah University - Series 1994 6.750 10/01/19 852,330
1,800 Winchester, VA Industrial Development Authority Educational Facilities Revenue -
Shenandoah University - Series 1994 6.700 10/01/14 1,982,430
Health Care
--------------------------------------------------------------------------------------------------------------------
715 Albemarle County, VA Industrial Development Authority - First Mortgage Revenue 8.900 07/15/26 795,895
500 Front Royal & Warren County, VA Industrial Development Authority Revenue - Heritage
Hall 9.450 07/15/24 539,830
1,195 Henrico County, VA Industrial Development Authority - Nursing Facility -
Cambridge Manor Nursing Home - Series 1993 5.875 07/01/19 1,201,561
3,500 Norfolk, VA Industrial Development Authority Revenue - James Barry-Robinson
Institute Project 7.700 10/01/06 3,627,715
400 Richmond, VA Industrial Development Authority Revenue - Richmond Metropolitan
Blood Service 7.125 02/01/11 415,908
Hospitals
--------------------------------------------------------------------------------------------------------------------
1,125 Albemarle County, VA Industrial Development Authority Revenue - University of
Virginia Health Services Foundation - Series 1992 6.500 10/01/22 1,175,366
1,000 Alexandria, VA Industrial Development Authority - Alexandria Community
Healthcare - Series 1993B 5.500 07/01/14 1,001,980
1,165 Buena Vista, VA Industrial Development Authority - Stonewall Jackson Hospital 8.375 11/01/14 1,213,126
2,000 Fairfax County, VA Industrial Development Authority - Health Care Revenue -
Inova Health System Project - Series 1996 6.000 08/15/26 2,051,920
2,000 Hanover County, VA Industrial Development Authority Hospital Revenue - Memorial
Regional Medical Center - Series 1995 6.375 08/15/18 2,269,560
2,000 Hanover County, VA Industrial Development Authority Hospital Revenue - Bon Secours
Health System - Series 1995 5.500 08/15/25 1,968,600
</TABLE>
4 Virginia
SAR-271
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
===========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
$1,000 Harrisonburg, VA Industrial Development Authority Hospital Revenue -
Rockingham Memorial Hospital - Series 1993 5.250% 12/01/22 $ 958,960
2,000 Loudoun County, VA Industrial Development Authority Revenue -
Loudoun Hospital Center - Series 1995 5.800 06/01/20 2,026,680
250 Martinsville, VA Industrial Development Authority Hospital Facility
Revenue - Memorial Hospital Martinsville and Henry 7.000 01/01/11 262,990
2,000 Peninsula Ports Authority Revenue- Virginia Hospital Facility - Mary
Immaculate Hospital - Series 1994 7.000 08/01/17 2,099,720
2,000 Prince William County, VA Industrial Development Authority Revenue -
Hospital Facility - Potomac Hospital - Series 1995 6.850 10/01/25 2,168,700
2,000 Roanoke, VA Industrial Development Authority Hospital Revenue -
Roanoke Memorial Hospital - Community Hospital of Roanoke Valley Franklin
Memorial Hospital - Saint Albans Psychiatric Hospital - Series 5.000 07/01/24 1,850,780
Housing/Multifamily
------------------------------------------------------------------------------------------------------------------
1,200 Fairfax County, VA Redevelopment and Housing Authority Revenue -
Multifamily Housing - Mount Vernon Apartments - Series 1995 6.100 09/01/26 1,216,956
2,040 Harrisonburg, VA Redevelopment and Housing Authority - Multifamily
Housing Revenue - United Dominion - Series 1992 7.100 12/01/15 2,141,368
1,415 Harrisonburg, VA Redevelopment and Housing Authority - Multifamily
Housing Revenue - United Dominion - Series 1992 7.000 12/01/08 1,500,225
2,000 Newport News, VA Redevelopment and Housing Authority - Mortgage
Revenue - Berkley West Apartments - Series 1992A 6.550 07/01/24 2,062,460
1,500 Richmond, VA Redevelopment and Housing Authority Revenue - Old Manchester -
Series 1994 6.800 03/01/15 1,596,645
700 Virginia State Housing Development Authority Revenue - Multifamily -
Series 1991 F 7.000 05/01/04 752,269
Housing/Single Family
------------------------------------------------------------------------------------------------------------------
465 Commonwealth of Puerto Rico Housing Authority - Single Family - Series B 7.650 10/15/22 490,017
1,000 Virginia State Housing Development Authority - Commonwealth Mortgage -
Series 1992 A 7.100 01/01/22 1,043,940
3,000 Virginia State Housing Development Authority - Commonwealth Mortgage -
Series 1992 A 7.100 01/01/17 3,140,520
1,000 Virginia State Housing Development Authority - Commonwealth Mortgage -
Series 1995 C, Subseries C-1 6.300 07/01/25 1,021,940
2,000 Virginia State Housing Development Authority - Commonwealth Mortgage -
Series 1995 C, Subseries C-1 6.125 07/01/22 2,030,220
Industrial Development and Pollution Control
------------------------------------------------------------------------------------------------------------------
2,000 Covington-Alleghany County, VA Industrial Development Authority Revenue -
Pollution Control Facilities - Westvaco Corporation - Series 1994 6.650 09/01/18 2,160,700
2,000 Henrico County, VA Industrial Development Authority - Solid Waste Disposal
Revenue - Browning-Ferris Industries of South Atlantic, Incorporated -
Series 1996 A 5.450 01/01/14 1,970,840
3,545 Isle of Wight County, VA Industrial Development Authority - Solid Waste
Disposal Facilities - Union Camp - Series 1994 6.550 04/01/24 3,763,159
</TABLE>
Virginia 5
SAR-272
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
=========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
<S> <C> <C> <C> <C>
$ 300 Loudoun County, VA Industrial Development Authority - Air Cargo Facility
Revenue - Washington Dulles - Series 1992 6.625% 01/01/00 $ 307,737
3,000 Loudoun County, VA Industrial Development Authority - Air Cargo Facility
Revenue - Washington Dulles - Series 1992 7.000 01/01/09 3,085,560
600 Loudoun County, VA Industrial Development Authority Revenue - Air Cargo
Facility - Washington Dulles Air Cargo Limited Partnership - Series 1996 6.500 01/01/09 603,012
2,500 Mecklenburg County, VA Industrial Development Authority Revenue -
Mecklenburg Cogeneration 7.350 05/01/08 2,660,300
2,000 Puerto Rico Ports Authority - Special Facilities Revenue - American Airlines,
Incorporated Project - Series 1996 A 6.250 06/01/26 2,049,460
1,000 Russell County, VA Industrial Development Authority Pollution Control Revenue -
Appalachian Power Company 7.700 11/01/07 1,097,230
Municipal Appropriation Obligations
-----------------------------------------------------------------------------------------------------------------
2,300 Big Stone Gap, VA Redevelopment and Housing Authority - Correctional Facility
Lease Revenue - Wallens Ridge Development - Series 1995 5.500 09/01/15 2,294,457
3,000 Brunswick County, VA Industrial Development Authority - Correctional Facility
Lease Revenue - Series 1996 5.500 07/01/17 3,002,370
1,410 Fairfax County, VA Redevelopment and Housing Authority Revenue -
Office Building - Series 1992 A 7.500 06/15/18 1,497,462
2,000 Hampton Roads, VA Regional Jail Authority - Regional Jail Facility Revenue -
Series 1996 A 5.500 07/01/24 1,988,640
2,000 Henrico County, VA Industrial Development Authority Revenue - Henrico
County Regional Jail - Series 1994 7.000 08/01/13 2,256,180
750 Loudoun County, VA Certificates of Participation 7.200 10/01/10 909,105
2,000 Prince William County, VA Industrial Development Authority - Lease Revenue -
Prince William County ATTC Project - Series 1996 6.000 02/01/14 2,047,740
1,000 Prince William County, VA Industrial Development Authority - Lease Revenue -
Prince William County ATTC Project - Series 1996 6.000 02/01/18 1,019,890
2,000 Virginia State Transportation Board - U.S. Route 58 Corridor Development
Program - Series 1993 B 5.500 05/15/18 1,985,020
Municipal Revenue/Other
-----------------------------------------------------------------------------------------------------------------
1,000 Virginia Public School Authority - School Financing - Series 1994 A 6.200 08/01/13 1,072,660
1,000 Virginia Public School Authority - School Financing - Series 1995 B 5.750 08/01/15 1,032,120
1,210 Virginia Public School Authority - School Financing - Series 1995 B 5.625 08/01/16 1,233,728
Municipal Revenue/Transportation
-----------------------------------------------------------------------------------------------------------------
1,500 Peninsula Airport Commission - Virginia Airport Improvement Revenue - Series 1991 7.300 07/15/21 1,655,535
Municipal Revenue/Utility
-----------------------------------------------------------------------------------------------------------------
2,110 Halifax County, VA Industrial Development Authority - Exempt Facilities
Revenue - Old Dominion Electric Cooperative - Series 1992 6.500 12/01/12 2,229,785
1,865 Commonwealth of Puerto Rico Electric Power Authority - Series O 0.000 07/01/17 582,216
1,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250 07/01/17 1,034,060
</TABLE>
6 Virginia
SAR-273
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
======================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
Municipal Revenue/Water & Sewer
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000 Blacksburg, VA Polytechnic Institute Sanitation Authority - Sewer System
Revenue - Series 1992 6.250% 11/01/12 $1,037,190
1,000 Fairfax County, VA Water Authority Revenue - Series 1992 6.000 04/01/22 1,040,640
1,000 Frederick-Winchester Service Authority, VA Regional Sewer System Revenue -
Series 1993 5.750 10/01/15 1,013,740
2,215 Upper Occoquan, VA Sewage Authority Revenue - Regional Sewerage System -
Series 1995 A and B 5.150 07/01/20 2,155,926
1,000 Virginia Resources Authority - Water and Sewer System Revenue -
Sussex County Project - Series 1995 A 5.600 10/01/25 990,030
500 Virginia Resources Authority - Water and Sewer System Revenue - Lot 7 7.125 10/01/16 536,050
1,500 Virginia Resources Authority - Water and Sewer System Revenue - Series 1992A 6.125 04/01/19 1,523,340
Non-State General Obligations
-------------------------------------------------------------------------------------------------------------
730 Danville, VA General Improvement Revenue 6.500 05/01/12 778,209
1,500 Portsmouth, VA Public Utility General Obligation - Series 1993 5.500 08/01/19 1,505,010
Pre-refunded
-------------------------------------------------------------------------------------------------------------
500 Fairfax County, VA Redevelopment and Housing Authority Revenue -
Vinson Pravalion - Series A 7.500 11/01/19 554,790
100 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public
Education and Health Facilities - Series G 7.875 07/01/16 104,516
200 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 210,710
500 Strasburg, VA General Obligation 7.875 03/01/19 510,195
1,000 Virginia College Building Authority Educational Facilities Revenue -
Hampton University - Series A 7.750 04/01/14 1,096,340
105 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series A 8.125 11/01/16 111,204
110 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series A 8.125 11/01/16 119,322
120 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series A 8.125 11/01/16 132,851
130 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series A 8.125 11/01/16 147,810
140 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series A 8.125 11/01/16 162,841
275 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series 1986 A 7.600 11/01/16 294,071
305 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series 1986 A 7.600 11/01/16 326,152
410 Virginia Resources Authority - Water and Sewer System Revenue -
Pooled Loan Program - Series 1986 A 7.650 11/01/16 454,186
Resource Recovery
-------------------------------------------------------------------------------------------------------------
1,000 Virginia State Resource Authority Solid Waste Disposal System Revenue -
Series 1992 B 6.750 11/01/12 1,087,500
</TABLE>
Virginia 7
SAR-274
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
==========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity Value
State/Territorial General Obligations
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3,750 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1996 A 5.400% 07/01/25 $ 3,612,450
2,575 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 2,768,820
2,500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 2,699,125
2,000 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue -
Series 1995 5.000 07/01/15 1,871,140
Total Investments in Securities - Municipal Bonds (cost $123,076,625) - 99.4% 130,005,937
Excess of Other Assets over Liabilities - 0.6% 837,129
Total Net Assets - 100.0% $130,843,066
</TABLE>
See notes to financial statements.
8 Virginia
SAR-275
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities November 30, 1996 (Unaudited)
=======================================================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at market value (cost $123,076,625) $130,005,937
Receivable for Fund shares sold 100,928
Interest receivable 2,454,593
Other 5,125
Total assets 132,566,583
LIABILITIES:
Bank borrowings (Note F) 557,708
Payable for Fund shares reacquired 485,119
Distributions payable 568,089
Accrued expenses 112,601
Total liabilities 1,723,517
NET ASSETS 130,843,066
Class A:
Applicable to 11,027,767 shares of beneficial interest
issued and outstanding $118,352,379
Net asset value per share $ 10.73
Class C:
Applicable to 1,164,418 shares of beneficial interest
issued and outstanding $ 12,490,687
Net asset value per share $ 10.73
[LOGO OF SHIP ART]
Statement of Operations
For the six months ended November 30, 1996
(Unaudited)
=======================================================================
INVESTMENT INCOME - INTEREST $ 4,053,791
EXPENSES:
Distribution fees - Class A (Note E) 237,319
Distribution fees - Class C (Note E) 56,999
Investment advisory fees (Note E) 326,698
Custody and accounting fees 22,181
Transfer agent's fees 44,950
Registration fees 4,274
Legal fees 1,098
Audit fees 5,940
Trustees' fees 1,830
Shareholder services fees (Note E) 5,735
Other 2,134
Advisory fees waived (Note E) (150,364)
Total expenses before credits 558,794
Custodian fee credit (Note B) (9,631)
Net expenses 549,163
Net investment income 3,504,628
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 367,240
Change in unrealized appreciation (depreciation) of
investments 3,815,644
Net gain on investments 4,182,884
Net increase in net assets resulting from operations $ 7,687,512
See notes to financial statements.
</TABLE>
Virginia 9
SAR-276
<PAGE>
(logo of ship art)
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 3,504,628 $ 6,709,724
Net realized gain (loss) on security transactions 367,240 1,352,908
Change in unrealized appreciation (depreciation) of investments 3,815,644 (3,368,259)
Net increase in net assets resulting from operations 7,687,512 4,694,373
Distributions to Class A shareholders:
From net investment income (3,215,411) (6,371,930)
Distributions to Class C shareholders:
From net investment income (291,205) (393,250)
Net decrease in net assets from distributions to shareholders (3,506,616) (6,765,180)
Fund share transactions (Note C):
Proceeds from shares sold 6,465,176 19,415,807
Net asset value of shares issued in reinvestment of distributions 1,920,262 3,681,025
Cost of shares reacquired (10,378,601) (11,550,452)
Net (decrease) increase in net assets from Fund share transactions (1,993,163) 11,546,380
Total increase in net assets 2,187,733 9,475,573
NET ASSETS:
Beginning of period 128,655,333 119,179,760
End of period $130,843,066 $128,655,333
NET ASSETS CONSIST OF:
Paid-in surplus $124,600,079 $126,593,242
Overdistributed net investment income (1,988)
Accumulated net realized gain (loss) on security transactions (684,337) (1,051,577)
Unrealized appreciation (depreciation) of investments 6,929,312 3,113,668
$130,843,066 $128,655,333
</TABLE>
See notes to financial statements.
10 Virginia
SAR-277
<PAGE>
(logo of ship art)
Notes to Financial Statements
================================================================================
A. Description of Business
The Flagship Virginia Double Tax Exempt Fund (Fund) is a sub-trust of the
Flagship Tax Exempt Funds Trust (Trust), a Massachusetts business trust
organized on March 8, 1985. The Fund is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on March 27, 1986. On
October 4, 1993, the Fund began to offer Class C shares to the investing
public. Class A shares are sold with a front-end sales charge. Class C shares
are sold with no front-end sales charge but are assessed a contingent
deferred sales charge if redeemed within one year from the time of purchase.
Both classes of shares have identical rights and privileges except with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privilege of each class.
Shares of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a continuous
basis.
B. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund.
Estimates: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
The Fund must maintain a diversified investment portfolio as a registered
investment company, however, the Fund's investments are primarily in the
securities of its state. Such concentration subjects the Fund to the effects
of economic changes occurring within that state.
Federal Income Taxes: It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute to its shareholders all of its tax exempt net investment income
and net realized gains on security transactions. Therefore, no federal income
tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes original
issue discounts and premiums paid on purchases of portfolio securities on the
same basis for both financial reporting and tax purposes. Market discounts,
if applicable, are recognized as ordinary income upon disposition or
maturity.
Investment Income, Expenses and Distributions: Interest income and estimated
expenses are accrued daily. Daily dividends are declared from net investment
income and paid monthly. Net realized gains from security transactions, to
the extent they exceed available capital loss carryforwards, are distributed
to shareholders at least annually.
Virginia 11
SAR-278
<PAGE>
Notes to Financial Statements
================================================================================
Expense Allocation: Shared expenses incurred by the Trust are allocated among
the sub-trusts based on each sub-trust's ratio of net assets to the combined
net assets. Specifically identified direct expenses are charged to each sub-
trust as incurred. Fund expenses not specific to any class of shares are
prorated among the classes based upon the eligible net assets of each class.
Specifically identified direct expenses of each class are charged to that
class as incurred.
The Fund has entered into an agreement with the custodian, whereby it earns
custodian fee credits for temporary cash balances. These credits, which
offset custodian fees that may be charged to the Fund, are based on 80% of
the daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when-issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The current
market value of these securities is determined in the same manner as other
portfolio securities. There were no "when-issued" purchase commitments
included in the statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of beneficial
interest with no par value authorized for each class. Transactions in shares
were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
--------------------- ----------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 438,338 $ 4,590,445 1,315,390 $ 13,890,308
Shares issued on reinvestment 168,240 1,765,948 328,665 3,474,566
Shares reacquired (899,195) (9,469,884) (989,759) (10,468,801)
Net (decrease) increase (292,617) $ (3,113,491) 654,296 $ 6,896,073
CLASS C:
Shares sold 179,014 $ 1,874,731 521,385 $ 5,525,499
Shares issued on reinvestment 14,703 154,314 19,541 206,459
Shares reacquired (85,933) (908,717) (103,572) (1,081,651)
Net increase 107,784 $ 1,120,328 437,354 $ 4,650,307
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November 30,
1996, aggregated $14,908,242 and $15,673,875, respectively. At November 30,
1996, cost for federal income tax purposes is $123,020,550 and net unrealized
appreciation aggregated $6,985,387, of which $7,014,547 related to
appreciated securities and $29,160 related to depreciated securities.
At November 30, 1996, the Fund has available a capital loss carryforward
of approximately $684,400 to offset future net capital gains through May 31,
2003.
12 Virginia
SAR-279
<PAGE>
Notes to Financial Statements
===============================================================================
E. Transactions with Investment Advisor and Distributor
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its discretion, permanently waived
$150,364 of its advisory fees. Included in accrued expenses at November 30,
1996 are accrued advisory fees of $30,121. Also, under an agreement with the
Fund, the Advisor may subsidize certain expenses excluding advisory and
distribution fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares, respectively.
Included in accrued expenses at November 30, 1996 are accrued distribution
fees of $38,944 and $9,704 for Class A and Class C shares, respectively.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the Fund
as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $148,000 for the six months ended November 30, 1996,
of which approximately $127,900 was paid to other dealers. For the six months
ended November 30, 1996, the Distributor received approximately $4,200 of
contingent deferred sales charges on redemptions of shares. Certain officers
and trustees of the Trust are also officers and/or directors of the
Distributor and/or Advisor.
F. Line of Credit
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may temporarily
borrow up to $6 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest at
1% above the federal funds rate. The average daily amount of borrowings under
the line of credit during the six months ended November 30, 1996 was
approximately $12,300, at a weighted average annualized interest rate of
6.71%. At November 30, 1996, the Fund had $557,708 outstanding under the line
of credit.
G. Subsequent Event
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective January
31, 1997.
Virginia 13
SAR-280
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship art]
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
====================================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
(Unaudited)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.40 $10.56 $10.36 $10.82 $10.24
Income from investment operations:
Net investment income 0.29 0.57 0.59 0.60 0.62
Net realized and unrealized gain
(loss) on securities 0.33 (0.15) 0.20 (0.31) 0.62
TOTAL FROM INVESTMENT OPERATIONS 0.62 0.42 0.79 0.29 1.24
Less distributions:
From net investment income (0.29) (0.58) (0.59) (0.60) (0.62)
From net realized capital gains (0.11) (0.04)
Distributions in excess of net
realized capital gains (0.04)
TOTAL DISTRIBUTIONS (0.29) (0.58) (0.59) (0.75) (0.66)
NET ASSET VALUE, END OF PERIOD $10.73 $10.40 $10.56 $10.36 $10.82
Total return/(a)/ 11.99% 4.03% 7.99% 2.62% 12.41%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 0.80% 0.83% 0.79% 0.64% 0.68%
Net investment income 5.41% 5.41% 5.81% 5.53% 5.82%
Assuming credits and no waivers
or reimbursements:
Expenses 1.02% 1.06% 1.10% 1.06% 1.07%
Net investment income 5.19% 5.18% 5.50% 5.11% 5.43%
Net assets at end of period (000's) $118,352 $117,677 $112,643 $107,502 $96,105
Portfolio turnover rate 11.54% 17.47% 50.17% 17.37% 30.33%
</TABLE>
(a) The total returns shown do not include the effect of applicable
front-end sales charge and are annualized where appropriate.
(b) During the six months ended November 30, l996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.79% and 0.80%, respectively; prior period numbers have not been
restated to reflect these credits.
14 Virginia
SAR-281
<PAGE>
<TABLE>
<CAPTION>
[logo of Ship art]
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
=====================================================================================================================
Six Months Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 October 4, 1993 to
(Unaudited) May 31, 1994
CLASS C
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.39 $10.56 $10.36 $11.24
Income from investment operations:
Net investment income 0.26 0.51 0.53 0.34
Net realized and unrealized gain
(loss) on securities 0.34 (0.16) 0.20 (0.78)
TOTAL FROM INVESTMENT OPERATIONS 0.60 0.35 0.73 (0.44)
Less distributions:
Dividends from net investment
income (0.26) (0.52) (0.53) (0.34)
Distributions from net realized
capital gains (0.07)
Distributions in excess of net
realized capital gains (0.03)
TOTAL DISTRIBUTIONS (0.26) (0.52) (0.53) (0.44)
NET ASSET VALUE, END OF PERIOD $10.73 $10.39 $10.56 $10.36
Total return/(a)/ 11.61% 3.37% 7.40% (7.13%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 1.35% 1.38% 1.34% 1.14%
Net investment income 4.84% 4.84% 5.24% 4.85%
Assuming credits and no waivers
or reimbursements:
Expenses 1.57% 1.60% 1.65% 1.79%
Net investment income 4.62% 4.62% 4.93% 4.20%
Net assets at end of period (000's) $12,491 $10,978 $6,537 $4,759
Portfolio turnover rate 11.54% 17.47% 50.17% 17.37%
</TABLE>
(a) The total returns shown do not include the effect of applicable
contingent deferred sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.34% and 1.35%, respectively; prior period numbers have not been
restated to reflect these credits.
Virginia 15
SAR-282
<PAGE>
PART C--OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements:
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information through incorporation
by reference to each Fund's most recent Annual and Semi-Annual Reports:
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Report of Independent Public Accountants
(b) Exhibits:
<TABLE>
<C> <S> <C>
1(a). Declaration of Trust of Registrant.
1(b). Amended and Restated Establishment and Designation of Series
of Shares of Beneficial Interest dated October 11, 1996.
1(c). Certificate for the Establishment and Designation of Classes
dated July 10, 1996.
2. By-Laws of Registrant.
3. Not applicable.
4. Specimen certificates of Shares of each Fund.
5. Form of Management Agreement between Registrant and Nuveen Ad-
visory Corp.
6. Form of Distribution Agreement between Registrant and John
Nuveen & Co. Incorporated.
7. Not applicable.
8. Form of Custodian Agreement between Registrant and Chase Man-
hattan Bank.
9(a). Form of Transfer Agency and Service Agreement between Regis-
trant and State Street Bank and Trust Company.
9(b). Form of Transfer Agency Agreement between Registrant and
Shareholder Services, Inc.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11(a). Consent of Arthur Andersen LLP, Independent Public Accoun-
tants.
11(b). Consent of Deloitte & Touche LLP, Independent Public Accoun-
tants.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule 12b-1 for
the Class A Shares, Class B Shares and Class C Shares of each
Fund.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3.
99(a). Original Powers of Attorney for the Trustees authorizing,
among others, James J. Wesolowski and Gifford R. Zimmerman to
execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees authorizing
the signing of the names of trustees and officers on the Reg-
istrant's Registration Statement pursuant to power of attor-
ney.
</TABLE>
C-1
<PAGE>
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES
At January 3, 1997:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
--------------- --------------
Nuveen Flagship Arizona Municipal Bond Fund
<S> <C>
Class A Shares.......................................... 2,124
Class B Shares.......................................... 0
Class C Shares.......................................... 83
Class R Shares.......................................... 619
Nuveen Flagship Colorado Municipal Bond Fund
Class A Shares.......................................... 876
Class B Shares.......................................... 0
Class C Shares.......................................... 0
Class R Shares.......................................... 0
Nuveen Flagship Florida Municipal Bond Fund
Class A Shares.......................................... 4,579
Class B Shares.......................................... 0
Class C Shares.......................................... 42
Class R Shares.......................................... 1,645
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Class A Shares.......................................... 85
Class B Shares.......................................... 0
Class C Shares.......................................... 25
Class R Shares.......................................... 0
Nuveen Maryland Municipal Bond Fund
Class A Shares.......................................... 649
Class B Shares.......................................... 0
Class C Shares.......................................... 77
Class R Shares.......................................... 1,799
Nuveen Flagship New Mexico Municipal Bond Fund
Class A Shares.......................................... 986
Class B Shares.......................................... 0
Class C Shares.......................................... 0
Class R Shares.......................................... 0
Nuveen Flagship Oklahoma Municipal Bond Fund
Class A Shares.......................................... 0
Class B Shares.......................................... 0
Class C Shares.......................................... 0
Class R Shares.......................................... 0
Nuveen Flagship Pennsylvania Municipal Bond Fund
Class A Shares.......................................... 1,433
Class B Shares.......................................... 0
Class C Shares.......................................... 129
Class R Shares.......................................... 2,551
Nuveen Flagship Virginia Municipal Bond Fund
Class A Shares.......................................... 2,933
Class B Shares.......................................... 0
Class C Shares.......................................... 168
Class R Shares.......................................... 2,135
</TABLE>
C-2
<PAGE>
ITEM 27: INDEMNIFICATION
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith,
C-3
<PAGE>
gross negligence and willful disregard of duty (i.e., where the insured did not
act in good faith for a purpose he or she reasonably believed to be in the best
interest of Registrant or where he or she shall have had reasonable cause to
believe this conduct was unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Flagship
Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free
Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. It also serves as investment adviser to the following
closed-end management type investment companies: Nuveen Municipal Value Fund,
Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal
Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen
California Performance Plus Municipal Fund, Inc., Nuveen New York Performance
Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen
Municipal Market Opportunity Fund, Inc., Nuveen California Municipal Market
Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen
California Investment Quality Municipal Fund, Inc., Nuveen New York Investment
Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc.,
Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment
Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal
Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select
Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund,
Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, and Nuveen Insured Premium Income Municipal Fund 2. Nuveen
Advisory Corp. has no other clients or business at the present time. The
principal business address for all of these investment companies is 333 West
Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Schwertfeger has, during the last two years, been
Chairman and formerly Executive Vice President and Director of the John Nuveen
Company, John Nuveen & Co. Incorporated, and Nuveen Institutional Advisory
Corp. Anthony T. Dean is President and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Dean has, during the last two years, been Executive
Vice President and Director of The John Nuveen Company and John Nuveen & Co.
Incorporated; and Director of Nuveen Institutional Advisory Corp.
C-4
<PAGE>
ITEM 29: PRINCIPAL UNDERWRITERS
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies: Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship
Municipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., Nuveen Tax-Free
Reserves, Inc., Flagship Admiral Funds Inc., and Nuveen Investment Trust.
Nuveen also acts as depositor and principal underwriter of the Nuveen Tax-
Exempt Unit Trust, a registered unit investment trust. Nuveen has also served
or is serving as co-managing underwriter to the following closed-end management
type investment companies: Nuveen Municipal Value Fund, Inc., Nuveen California
Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen
Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen
Performance Plus Municipal Fund, Inc., Nuveen California Performance Plus
Municipal Fund, Inc., Nuveen New York Performance Plus Municipal Fund, Inc.,
Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal Market Opportunity
Fund, Inc., Nuveen California Municipal Market Opportunity Fund, Inc., Nuveen
Investment Quality Municipal Fund, Inc., Nuveen California Investment Quality
Municipal Fund, Inc., Nuveen New York Investment Quality Municipal Fund, Inc.,
Nuveen Insured Quality Municipal Fund, Inc., Nuveen Florida Investment Quality
Municipal Fund, Nuveen New Jersey Investment Quality Municipal Fund, Inc.,
Nuveen Pennsylvania Investment Quality Municipal Fund, Nuveen Select Quality
Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund, Inc.,
Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income
Municipal Fund, Inc., Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen
Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income Municipal
Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen Texas
Quality Income Municipal Fund, Nuveen California Quality Income Municipal Fund,
Inc., Nuveen New York Quality Income Municipal Fund, Inc., Nuveen Premier
Municipal Income Fund, Inc., Nuveen Premier Insured Municipal Income Fund,
Inc., Nuveen Select Tax-Free Income Portfolio, Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2, Nuveen Select
Tax-Free Income Portfolio, Nuveen Select Tax-Free Income Portfolio 2, Nuveen
Insured California Select Tax-Free Income Portfolio, Nuveen Insured New York
Select Tax-Free Income Portfolio and Nuveen Select Tax-Free Income Portfolio 3.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- --------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger Chairman of the Board, Chairman of the Board
333 West Wacker Drive Chief Executive Officer and Trustee
Chicago, IL 60606
Anthony T. Dean President President and Trustee
333 West Wacker Drive
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West Wacker Drive
Chicago, IL 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
Richard P. Davis Vice President None
One South Main Street
Dayton, OH 45402
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ----------------------------------------------------------------------------------
<S> <C> <C>
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Stephen D. Foy Vice President None
333 West Wacker Drive
Chicago, IL 60606
Robert D. Freeland Vice President None
333 West Wacker Drive
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Robert B. Kuppenheimer Vice President None
19900 MacArthur Blvd.
Irvine, CA 92612
Larry W. Martin Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Assistant Secretary
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, IL 60606
O. Walter Renfftlen Vice President Vice President and
333 West Wacker Drive and Controller Controller
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Assistant Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
C-6
<PAGE>
The Chase Manhattan Bank, 770 Broadway, New York, New York 10003 maintains all
general and subsidiary ledgers, journals, trial balances, records of all
portfolio purchases and sales, and all other required records not maintained by
Nuveen Advisory Corp., Shareholder Services, Inc. or Boston Financial.
Shareholder Services, Inc., P.O. Box 5330, Denver, Colorado 80217-5330 and
Boston Financial Data Services, 225 Franklin Street, Boston, Massachusetts
02106 maintain all the required records in their capacity as transfer, dividend
paying, and shareholder service agents for the Funds.
ITEM 31: MANAGEMENT SERVICES
Not applicable.
ITEM 32: UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest Annual Report to Sharehold-
ers upon request and without charge.
(d) The Registrant agrees to call a meeting of shareholders for the purpose of
voting upon the question of the removal of any trustee or trustees when re-
quested to do so in writing by the record holders of at least 10% of the
Registrant's outstanding shares and to assist the shareholders in
communications with other shareholders as required by section 16(c) of the
Act.
C-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (B) OF RULE 485
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 29TH DAY OF
JANUARY, 1997.
NUVEEN FLAGSHIP MULTISTATE TRUST I
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ O. Walter Renfftlen Vice President and
------------------------------- Controller (Principal
O. Walter Renfftlen Financial and January 29, 1997
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board )
and Trustee (Principal )
Executive Officer) )
)
Anthony T. Dean President and Trustee ) /s/ Gifford R. Zimmerman
} By____________________________
Lawrence H. Brown Trustee ) Gifford R. Zimmerman
) Attorney-in-Fact
Anne E. Impellizzeri Trustee )
) January 29, 1997
Margaret K. Rosenheim Trustee )
)
Peter R. Sawers Trustee )
Robert P. Bremner Trustee
William J. Schneider Trustee
</TABLE>
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, JAMES J. WESOLOWSKI
AND GIFFORD R. ZIMMERMAN TO EXECUTE THIS REGISTRATION STATEMENT, AND
AMENDMENTS THERETO, FOR EACH OF THE OFFICERS AND TRUSTEES OF REGISTRANT ON
WHOSE BEHALF THIS REGISTRATION STATEMENT IS FILED, HAS BEEN EXECUTED AND IS
INCORPORATED BY REFERENCE TO THIS REGISTRATION STATEMENT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1(a). Declaration of Trust of Registrant.
1(b). Amended and Restated Establishment and Designation of
Series of Shares of Beneficial Interest dated October
11, 1996.
1(c). Certificate for the Establishment and Designation of
Classes dated July 10, 1996.
2. By-Laws of Registrant.
3. Not applicable.
4. Specimen certificates of Shares of each Fund.
5. Form of Management Agreement between Registrant and
Nuveen Advisory Corp.
6. Form of Distribution Agreement between Registrant and
John Nuveen & Co. Incorporated.
7. Not applicable.
8. Form of Custodian Agreement between Registrant and
Chase Manhattan Bank.
9(a). Form of Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company.
9(b). Form of Transfer Agency Agreement between Registrant
and Shareholder Services, Inc.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.*
11(a). Consent of Arthur Andersen LLP, Independent Public
Accountants.
11(b). Consent of Deloitte & Touche LLP, Independent Public
Accountants.*
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule
12b-1 for the Class A Shares, Class B Shares and
Class C Shares of each Fund.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3.
99(a). Original Powers of Attorney for the Trustees autho-
rizing, among others, James J. Wesolowski and Gifford
R. Zimmerman to execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
</TABLE>
- --------
* To be filed by pre-effective amendment.
<PAGE>
Exhibit 10
January 28, 1997
Nuveen Flagship Multistate Trust I (202) 639-7065
333 West Wacker Drive
Chicago, Illinois 60606
RE: Registration Statements on Form N-1A under the Securities
Act of 1933 for Nuveen Flagship Multistate Trust I (File No.
333-16617)
Ladies and Gentlemen:
We have acted as counsel for Nuveen Flagship Multistate Trust I, a
Massachusetts voluntary association (commonly known as a business trust) (the
"Trust"), in connection with the above-referenced Registration Statement on Form
N-1A as proposed to be filed with the Securities and Exchange Commission on
January 28, 1997 (as amended, the "Registration Statement") which relates to the
Class A Shares, Class B Shares, Class C Shares and Class R Shares (collectively,
the "Shares") of each of the following series of the Trust: Nuveen Flagship
Arizona Municipal Bond Fund, Nuveen Flagship Colorado Municipal Bond Fund,
Nuveen Flagship Florida Municipal Bond Fund, Nuveen Flagship Florida
Intermediate Municipal Bond Fund, Nuveen Maryland Municipal Bond Fund, Nuveen
Flagship New Mexico Municipal Bond Fund, Nuveen Flagship Pennsylvania Municipal
Bond Fund and Nuveen Flagship Virginia Municipal Bond Fund (collectively, the
"Series"). This opinion is being delivered to you in connection with the Trust's
filing of Pre-Effective Amendment No. 3 to the Registration Statement (the
"Amendment") with the Securities and Exchange Commission. With your permission,
all assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;
(b) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and the Amended and
Restated Establishment and Designation of Series of Shares of
Beneficial Interest on file in the office of the Secretary of State;
(c) a certificate executed by Morrison C. Warren, an Assistant Secretary
of the Trust, certifying as to, and attaching copies of, the Trust's
Declaration of Trust and Designation of Series, the Trust's
Establishment and Designation of Classes, the By-Laws, as amended, and
a certain resolution of the Trustees of the Trust; and
(d) a printer's proof, dated January 28, 1997, of the Amendment.
-1-
<PAGE>
Nuveen Flagship Multistate Trust I
January 28, 1997
In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinions hereinafter expressed. In all such examinations, we have
assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinions, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representatives of the Trust. We have assumed that the Registration Statement,
as filed with the Securities and Exchange Commission, will be in substantially
the form of the printer's proof referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Trust's
Declaration of Trust and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and non-assessable,
except that, as set forth in the Registration Statement, shareholders of the
Trust may, under certain circumstances, be held personally liable for its
obligations.
The opinion expressed herein is limited to the laws of the Commonwealth of
Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Thomas S. Harman
--------------------------------------
Thomas S. Harman
-2-
<PAGE>
EXHIBIT 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 1, 1996, for the Nuveen Multistate Tax-Free Trust, comprising the
Arizona, Florida, Maryland, Pennsylvania and Virginia Tax-Free Value Funds, and
to all references to our firm included in or made a part of this registration
statement on Form N-1A of Nuveen Flagship Multistate Trust I.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 3 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 333-16617, of our reports dated July 3, 1996, relating to the Flagship
Pennsylvania Triple Tax Exempt Fund, Flagship Virginia Double Tax Exempt Fund,
Flagship Florida Double Tax Exempt Fund, Flagship Florida Intermediate Tax
Exempt Fund, Flagship Arizona Double Tax Exempt Fund, Flagship Colorado Double
Tax Exempt Fund and Flagship New Mexico Double Tax Exempt Fund, included by
reference in the Statement of Additional Information and to the reference to us
under the caption "Independent Public Accountants and Custodians", in such
Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, Ohio
January 24, 1997
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE FIGURES*
I. YIELD
A. Yield Formula
Yield is computed according the following formula:
6
YIELD = 2 [ ( A - B + 1) - 1 ]
-----
CD
Where: A = dividends and interest(degrees) earned during the period.
B = expenses accrued for the period (net of reimbursements).
C = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
D = the maximum offering price per share on the last day of the period.
- --------
* The maximum sales charge in effect during the periods shown was 4.20%.
/./ Interest earned on tax-exempt obligations is determined as follows:
A. In the case of a tax-exempt obligation (1) with a current market premium
or (2) issued at a discount where the current market discount is less
than the then-remaining portion of the original issue discount, it is
necessary to first compute the yield to maturity (YTM). The YTM is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (plus accrued interest).
B. In the case of a tax-exempt obligation issued at a discount where the
current market discount is in excess of the then-remaining portion of the
original issue discount, the adjusted original issue discount basis of
the obligation (plus accrued interest) is used in lieu of the market
value of the obligation (plus accrued interest) in computing the yield to
maturity (YTM). The YTM is then divided by 360 and the quotient is multi-
plied by the adjusted original issue basis of the obligation (plus ac-
crued interest).
C. In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of inter-
est is used in lieu of the yield to maturity. The coupon rate is then di-
vided by 360 and the quotient is multiplied by the par value of the obli-
gation.
<PAGE>
B. Yield Calculations
1. Arizona Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 355,392.85 - $53,204.75]
Yield = 2 [( --------------------------- + 1)/6/ - 1]
[ 7,369,273.79 X $ 11.62]
= 4.27%
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 10,681.53 - $2,698.97]
Yield = 2 [( ---------------------------- + 1)/6/ - 1]
[ 221,487.69 X $ 11.13]
= 3.92%
2. Colorado Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 159,819.25 - $21,114.12]
Yield = 2 [( --------------------------- + 1)/6/ - 1]
[ 3,181,817.86 X $ 10.69]
= 4.94%
3. Florida Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,442,776.95 - $169,476.91]
Yield = 2 [( ------------------------------ +1)/6/ -1]
[ 29,226,595.15 X $ 11.21]
= 4.71%
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 12,040.13 - $ 2,593.82]
Yield = 2 [( -------------------------- + 1)/6/ - 1]
[ 243,899.02 X $ 10.75]
= 4.36%
4. Florida Intermediate Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 22,215.44 - $3,638.18]
Yield = 2 [( ------------------------- + 1)/6/ - 1]
[ 520,301.87 X $ 10.54]
= 4.10%
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 12,724.65 - $3,454.29]
Yield = 2 [( ------------------------- + 1)/6/ -1]
[ 298,020.55 X $ 10.22]
= 3.68%
2
<PAGE>
5. Maryland Municipal Bond Fund
The following is a 30-day yield as of July 31, 1996, for the Class A Shares
of the Fund:
[([$ 42,811.42 - $ 7,629.35] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 922,547.80 X $ 10.61]
= 4.35%
The following is a 30-day yield as of July 31, 1996, for the Class C Shares
of the Fund:
[([$ 7,918.23 - $ 2,469.42] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 170,753.79 X $ 10.15]
= 3.80%
The following is a 30-day yield as of July 31, 1996, for the Class R Shares
of the Fund:
[([$ 204,838.02 - $ 27,378.16] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 4,409,810.44 X $ 10.17]
= 4.80%
6. New Mexico Municipal Bond Fund
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[([$ 246,240.73 - $ 33,067.73] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 5,113,588.30 X $ 10.69]
= 4.73%
7. Pennsylvania Municipal Bond Fund
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[([$ 211,669.54 - $ 27,279.45] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 4,332,769.25 X $ 10.78]
= 4.78%
The following is the 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[([$ 24,395.34 - $ 5,465.19] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 499,360.29 X $ 10.33]
= 4.44%
8. Virginia Municipal Bond Fund
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[([$ 571,430.54 - $ 81,894.24] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [11,121,469.78 X $ 11.20]
= 4.76%
The following is the 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[([$ 59,915.34 - $ 14,204.93] )/6/ - 1 ]
----------------------------- + 1
Yield = 2 [ 1,166,102.59 X $ 10.73]
= 4.42%
3
<PAGE>
II. TAXABLE EQUIVALENT YIELD
A. Taxable Equivalent Yield Formula
The Taxable Equivalent Yield Formula is as follows:
Tax Exempt Yield
Taxable Equivalent Yield = ------------------------------------------------
(1 - combined federal and state income tax rate)
B. Taxable Equivalent Yield Calculations
Based on combined federal and state income tax rates of 44.5% for Maryland,
43.0% for Arizona and Virginia, 42.5% for Colorado, 39.5% for Florida and Flor-
ida Intermediate, 0.0% for New Mexico, and 41.5% for Pennsylvania, the Taxable
Equivalent Yields for the Class A Shares, Class C Shares and Class R Shares,
where applicable, for the 30-day period ended July 31, 1996 for November 30,
1996, where applicable, are as follows:
Class A Shares Class C Shares Class R Shares
---------------- ---------------- ----------------
Arizona Municipal 4.27% 3.92% n/a
Bond Fund: -------- = 7.49% -------- = 6.88% -------- = n/a
1 - .430 1 - .430 n/a
Colorado Municipal 4.94% n/a n/a
Bond Fund: -------- = 8.59% -------- = n/a ------- = n/a
1 - .425 n/a n/a
Florida Municipal 4.71% 4.36% n/a
Bond Fund: -------- = 7.80% -------- = 7.22% -------- = n/a
1 - .396 1 - .396 n/a
Florida Intermediate
Municipal Bond 4.10% 3.68% n/a
Fund: -------- = 6.79% -------- = 6.09% -------- = n/a
1 - .396 1 - .396 n/a
Maryland Municipal 4.35% 3.80% 4.80%
Bond Fund: -------- = 7.57% -------- = 6.61% -------- = 8.35%
1 - .425 1 - .425 1 - .425
New Mexico
Municipal 4.73% n/a n/a
Bond Fund: -------- = 8.52% -------- = n/a -------- = n/a
1 - .445 n/a n/a
Pennsylvania
Municipal Bond 4.78% 4.44% n/a
Fund: -------- = 8.17% -------- = 7.59% -------- = n/a
1 - .415 1 - .415 n/a
Virginia Municipal 4.76% 4.42% n/a
Bond Fund: -------- = 8.35% -------- = 7.75% -------- = n/a
1 - .430 1 - .430 n/a
III. DISTRIBUTION RATE
A. Distribution Rate Formula
The formula for calculation of distribution rate is as follows:
Distribution Rate = 12 X most recent tax-exempt income dividend per share
-----------------------------------------------------
share price
4
<PAGE>
B. Distribution Rate Calculations
1. Arizona Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Arizona Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04541
------------
$11.62
= 4.69%
Class C Distribution Rate = 12 X $.04049
------------
$11.13
= 4.37%
2. Colorado Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Colorado Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04278
------------
$10.69
= 4.80%
3. Florida Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Florida Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04532
------------
$11.21
= 4.85%
Class C Distribution Rate = 12 X $.04065
------------
$10.75
= 4.54%
4. Florida Intermediate Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Florida Intermediate Municipal Bond Fund:
Class A Distribution Rate = 12 X $.03811
------------
$10.54
= 4.34%
Class C Distribution Rate = 12 X $.03380
------------
$10.22
= 3.97%
5
<PAGE>
5. Maryland Municipal Bond Fund
The following is the distribution rate as of July 31, 1996, based on the maxi-
mum public offering price for the Maryland Municipal Bond Fund:
Class A Distribution Rate = 12 X $.0405
-----------
$10.61
= 4.58%
Class C Distribution Rate = 12 X $.0340
-----------
$10.15
= 4.02%
Class R Distribution Rate = 12 X $.0425
-----------
$10.17
= 5.01%
6. New Mexico Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the New Mexico Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04131
------------
$10.69
= 4.64%
7. Pennsylvania Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Pennsylvania Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04582
------------
$10.78
= 5.10%
Class C Distribution Rate = 12 X $.04123
------------
$10.33
= 4.79%
8. Virginia Municipal Bond Fund
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Virginia Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04680
------------
$11.20
= 5.01%
Class C Distribution Rate = 12 X $.04196
------------
$10.73
= 4.69%
6
<PAGE>
IV. AVERAGE ANNUAL TOTAL RETURN
A. Average Annual Total Return Formula
Average Annual Total Return is computed according to the following formula:
ERV /1//N
T = --- -1
P
Where: T = average annual total return.
P = a hypothetical initial payment of $1,000.
N = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10-year (or fractional portion
thereof) pe-riods at the end of such 1, 5 or 10-year (or fractional
portion thereof) periods.
B. Average Annual Total Return Calculations
The following are the average annual total returns for Class A Shares of the
Funds for the period from inception and the 1, 5 and 10-year periods ended Au-
gust 31, 1996 or November 30, 1996, whichever applicable, including the current
maximum sales charge. Class A total returns reflect actual performance for pe-
riods since class inception and Class R performance for periods prior to class
inception, adjusted for the differences in sales charges and fees between the
classes.
ANNUAL CLASS A TOTAL RETURNS including current maximum sales charge of 4.20%:
1. Arizona Municipal Bond Fund:
$1,005 /1/1/
A. 1 year ended November 30, 1996= ( ------ ) -1 = 0.53%
$1,000 =====
$1,426 /1/5/
B. 5 years ended November 30, 1996= ( ------ ) -1 = 7.36%
$1,000 =====
$2,020 /1/10/
C. 10 years ended November 30, 1996=( ------ ) -1 = 7.29%
$1,000 =====
$2,069 /1/10.089/
D. Inception through November 30, 1996= ( ------ ) -1 = 7.47%
$1,000 =====
2. Colorado Municipal Bond Fund:
$1,018 /1/1/
A. 1 year ended November 30, 1996= ( ------ ) -1 = 1.77%
$1,000 =====
$1,411 /1/5/
B. 5 years ended November 30, 1996= ( ------ ) -1 = 7.13%
$1,000 =====
$1,891 /1/9.577/
C. Inception through November 30, 1996= ( ------ ) -1 = 6.88%
$1,000 =====
3. Florida Municipal Bond Fund:
$1,000 /1/1/
A. 1 year ended November 30, 1996= ( ------ ) -1 = 0.00%
$1,000 =====
$1,374 /1/5/
B. 5 years ended November 30, 1996= ( ------ ) -1 = 6.56%
$1,000 =====
$1,577 /1/6.4613/
C. Inception through November 30, 1996= ( ------ ) -1 = 7.30%
$1,000 =====
7
<PAGE>
4. Florida Intermediate Municipal Bond Fund:
( $1,017 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 1.68%
( $1,000 ) =====
( $1,158 )/1///2.8282/
B. Inception through November 30, 1996 = ( ------ ) -1 = 5.32%
( $1,000 ) =====
5. Maryland Municipal Bond Fund:
( $1,011 )/1///1/
A. 1 year ended July 31, 1996 = ( ------ ) -1 = 1.07%
( $1,000 ) =====
( $1,267 )/1///4.4216/
B. Inception through July 31, 1996 = ( ------ ) -1 = 5.49%
( $1,000 ) =====
6. New Mexico Municipal Bond Fund:
( $1,013 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 1.33%
( $1,000 ) =====
( $1,276 )/1///4.2053/
B. Inception through November 30, 1996 = ( ------ ) -1 = 5.97%
( $1,000 ) =====
7. Pennsylvania Municipal Bond Fund:
( $1,009 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 0.88%
( $1,000 ) =====
( $1,371 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.51%
( $1,000 ) =====
( $1,928 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 6.79%
( $1,000 ) =====
( $1,956 )/1///10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 6.88%
( $1,000 ) =====
8. Virginia Municipal Bond Fund:
( $1,009 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 0.92%
( $1,000 ) =====
( $1,376 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.59%
( $1,000 ) =====
( $1,959 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 6.96%
( $1,000 ) =====
( $2,111 )/1///10.68/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.24%
( $1,000 ) =====
8
<PAGE>
ANNUAL CLASS B TOTAL RETURNS:
1. Arizona Municipal Bond Fund:
( $1,004 )/1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 0.38%
( $1,000 ) =====
( $1,439 )/1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 7.75%
( $1,000 ) =====
( $2,019 )/1/10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 7.28%
( $1,000 ) =====
( $2,067 )/1/10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.46%
( $1,000 ) =====
2. Colorado Municipal Bond Fund:
( $1,017 )/1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 1.66%
( $1,000 ) =====
( $1,380 )/1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.65%
( $1,000 ) =====
( $1,890 )/1/9.577/
C. Inception through November 30, 1996 = ( ------ ) -1 = 6.87%
( $1,000 ) =====
3. Florida Municipal Bond Fund:
( $ 999 )/1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = -0.15%
( $1,000 ) ======
( $1,386 )/1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.74%
( $1,000 ) =====
( $1,588 )/1/6.4613/
C. Inception through November 30, 1996 = ( ------ ) -1 = 7.42%
( $1,000 ) =====
4. Maryland Municipal Bond Fund:
( $1,007 )/1/1/
A. 1 year ended July 30, 1996 = ( ------ ) -1 = 0.74%
( $1,000 ) =====
( $1,272 )/1/4.4216/
B. Inception through July 31, 1996 = ( ------ ) -1 = 5.60%
( $1,000 ) =====
5. New Mexico Municipal Bond Fund:
( $1,012 )/1/1/
A. 1 year ended November 30, 1996 = ------ ) -1 = 5.60%
( $1,000 ) =====
( $1,291 )/1/4.2053/
B. Inception through November 30, 1996 = ( ------ ) -1 = 6.27%
( $1,000 ) =====
9
<PAGE>
6. Pennsylvania Municipal Bond Fund:
$1,008 /1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 0.75%
$1,000 =====
$1,382 /1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.69%
$1,000 =====
$1,926 /1/10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 6.78%
$1,000 =====
$1,955 /1/10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 6.87%
$1,000 =====
7. Virginia Municipal Bond Fund:
$1,008 /1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 0.77%
$1,000 =====
$1,388 /1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.77%
$1,000 =====
$1,957 /1/10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 6.95%
$1,000 =====
$2,109 /1/10.68/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.24%
$1,000 =====
Annual Class C Total Returns:
1. Arizona Municipal Bond Fund:
$1,044 /1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.38%
$1,000 =====
$1,463 /1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 7.91%
$1,000 =====
$2,016 /1/10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 7.26%
$1,000 =====
$2,063 /1/10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.44%
$1,000 =====
2. Colorado Municipal Bond Fund:
$1,059 /1/1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 5.87%
$1,000 =====
$1,448 /1/5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 7.68%
$1,000 =====
$1,909 /1/9.577
C. Inception through November 30, 1996 = ( ------ ) -1 = 6.99%
$1,000 =====
10
<PAGE>
3. Florida Municipal Bond Fund:
( $1,039 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 3.92%
( $1,000 ) =====
( $1,380 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.65%
( $1,000 ) =====
( $1,570 )/1///6.4613/
C. Inception through November 30, 1996 = ( ------ ) -1 = 7.24%
( $1,000 ) =====
4. Florida Intermediate Municipal Bond Fund:
( $1,043 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.25%
( $1,000 ) =====
( $1,176 )/1///2.8282/
B. Inception through November 30, 1996 = ( ------ ) -1 = 5.90%
( $1,000 ) =====
5. Maryland Municipal Bond Fund:
( $1,047 )/1///1/
A. 1 year ended July 31, 1996 = ( ------ ) -1 = 4.71%
( $1,000 ) =====
( $1,282 )/1///4.4216/
B. Inception through July 31, 1996 = ( ------ ) -1 = 5.78%
( $1,000 ) =====
6. New Mexico Municipal Bond Fund:
( $1,054 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 5.40%
( $1,000 ) =====
( $1,312 )/1///4.2053/
B. Inception through November 30, 1996 = ( ------ ) -1 = 6.68%
( $1,000 ) =====
7. Pennsylvania Municipal Bond Fund:
( $1,047 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.73%
( $1,000 ) =====
( $1,395 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.89%
( $1,000 ) =====
( $1,909 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 6.68%
( $1,000 ) =====
( $1,935 )/1///10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 6.76%
( $1,000 ) =====
8. Virginia Municipal Bond Fund:
( $1,049 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.86%
( $1,000 ) =====
( $1,396 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 6.90%
( $1,000 ) =====
( $1,934 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 6.82%
( $1,000 ) =====
( $2,075 )/1///10.68/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.07%
( $1,000 ) =====
11
<PAGE>
ANNUALIZED CLASS R TOTAL RETURNS:
- ---------------------------------
1. Arizona Municipal Bond Fund:
( $1,049 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.94%
( $1,000 ) =====
( $1,489 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 8.29%
( $1,000 ) =====
( $2,109 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 7.75%
( $1,000 ) =====
( $2,160 )/1///10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.93%
( $1,000 ) =====
2. Colorado Municipal Bond Fund:
( $1,062 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 6.24%
( $1,000 ) =====
( $1,473 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 8.06%
( $1,000 ) =====
( $1,974 )/1///9.577/
C. Inception through November 30, 1996 = ( ------ ) -1 = 7.36%
( $1,000 ) =====
3. Florida Municipal Bond Fund:
( $1,044 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.38%
( $1,000 ) =====
( $1,434 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 7.48%
( $1,000 ) =====
( $1,646 )/1///6.4613/
C. Inception through November 30, 1996 = ( ------ ) -1 = 8.02%
( $1,000 ) =====
4. Florida Intermediate Municipal Bond Fund:
( $1,048 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 4.82%
( $1,000 ) =====
( $1,194 )/1///2.8282/
B. Inception through November 30, 1996 = ( ------ ) -1 = 6.46%
( $1,000 ) =====
5. Maryland Municipal Bond Fund:
( $1,057 )/1///1/
A. 1 year ended July 31, 1996 = ( ------ ) -1 = 5.74%
( $1,000 ) =====
( $1,338 )/1///4.4216/
B. Inception through July 31, 1996 = ( ------ ) -1 = 6.80%
( $1,000 ) =====
6. New Mexico Municipal Bond Fund:
( $1,058 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 5.77%
( $1,000 ) =====
( $1,332 )/1///4.2053/
B. Inception through November 30, 1996 = ( ------ ) -1 = 7.05%
( $1,000 ) =====
12
<PAGE>
7. Pennsylvania Municipal Bond Fund:
( $1,053 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 5.30%
( $1,000 ) =====
( $1,431 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 7.43%
( $1,000 ) =====
( $2,013 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 7.24%
( $1,000 ) =====
( $2,042 )/1///10.089/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.33%
( $1,000 ) =====
8. Virginia Municipal Bond Fund:
( $1,053 )/1///1/
A. 1 year ended November 30, 1996 = ( ------ ) -1 = 5.34%
( $1,000 ) =====
( $1,436 )/1///5/
B. 5 years ended November 30, 1996 = ( ------ ) -1 = 7.51%
( $1,000 ) =====
( $2,045 )/1///10/
C. 10 years ended November 30, 1996 = ( ------ ) -1 = 7.42%
( $1,000 ) =====
( $2,203 )/1///10.68/
D. Inception through November 30, 1996 = ( ------ ) -1 = 7.68%
( $1,000 ) =====
V. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
ERV - P
T = -------
P
Where: T = cumulative total return.
P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the inception of the Fund or at the first day of a specified
1-year, 5-year or 10-year period.
B. Cumulative Total Return Calculation
The following are the cumulative total returns for the Class Shares of the
Funds for the periods from inception and for the one, five and 10-year periods
ended August 31, 1996 or November 30, 1996 whichever applicable, assuming no
imposition of sales charges. Class total returns reflect actual performance
for the periods since class inception and Class R performance for periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes.
13
<PAGE>
VI. TAXABLE EQUIVALENT TOTAL RETURN
A. Taxable Equivalent Total Return Formula
Each Fund's taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in the Fund's
shares on the first day of the period, computing the Fund's total return for
each fiscal year in the period according to the above formula, and increasing
the total return for each such fiscal year by the amount of additional income
that a taxable fund would need to have generated to equal the income of the
Fund on an after-tax basis, at a specified tax rate (usually the highest
marginal federal or combined federal and state tax rate), calculated pursuant to
the formula presented above under "taxable equivalent yield." The resulting
amount for the fiscal year is then divided by the initial investment amount to
arrive at a "taxable equivalent total return factor" for the fiscal year. The
taxable equivalent total return factors for all the fiscal years in the period
are then multiplied together and the result is then annualized by taking its Nth
root (N representing the number of years in the period) and subtracting 1, which
provides a taxable equivalent total return expressed as a percentage.
CUMULATIVE CLASS A TOTAL RETURNS including current maximum sales charge of
4.20%:
1. Arizona Municipal Bond Fund:
( $1,005 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.53%
( $1,000 ) =====
( $1,426 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 42.63%
( $1,000 ) ======
( $2,020 - $1,000 )
C. 10 years ended November 30, 1996 = ( --------------- ) = 102.04%
( $1,000 ) =======
( $2,069 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 106.89%
( $1,000 ) =======
2. Colorado Municipal Bond Fund:
( $1,018 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 1.77%
( $1,000 ) =====
( $1,411 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 41.13%
( $1,000 ) ======
( $1,891 - $1,000 )
C. Inception through November 30, 1996 = ( --------------- ) = 89.12%
( $1,000 ) ======
3. Florida Municipal Bond Fund:
( $1,000 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.00%
( $1,000 ) =====
( $1,374 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 37.40%
( $1,000 ) ======
( $1,577 - $1,000 )
C. Inception through November 30, 1996 = ( --------------- ) = 57.67%
( $1,000 ) ======
4. Florida Intermediate Municipal Bond Fund:
( $1,017 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 1.68%
( $1,000 ) =====
( $1,158 - $1,000 )
B. Inception through November 30, 1996 = ( --------------- ) = 15.80%
( $1,000 ) ======
14
<PAGE>
5. Maryland Municipal Bond Fund:
( $1,011 - $1,000 )
A. 1 year ended August 31, 1996 = ( --------------- ) = 1.07%
( $1,000 ) =====
( $1,267 - $1,000 )
D. Inception through August 31, 1996 = ( --------------- ) = 26.68%
( $1,000 ) ======
6. New Mexico Municipal Bond Fund:
( $1,013 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 1.33%
( $1,000 ) =====
( $1,276 - $1,000 )
B. Inception through November 30, 1996 = ( --------------- ) = 27.60%
( $1,000 ) ======
7. Pennsylvania Municipal Bond Fund:
( $1,009 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.88%
( $1,000 ) =====
( $1,371 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 37.10%
( $1,000 ) ======
( $1,928 - $1,000 )
C. 10 years ended November 30, 1996 = ( --------------- ) = 92.80%
( $1,000 ) ======
( $1,956 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 95.62%
( $1,000 ) ======
8. Virginia Municipal Bond Fund:
( $1,009 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.92%
( $1,000 ) =====
( $1,376 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 37.59%
( $1,000 ) ======
( $1,959 - $1,000 )
C. 10 years ended November 30, 1996 = ( --------------- ) = 95.93%
( $1,000 ) ======
( $2,111 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 111.07%
( $1,000 ) =======
CUMULATIVE CLASS B TOTAL RETURNS:
1. Arizona Municipal Bond Fund:
( $1,004 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.38%
( $1,000 ) =====
( $1,439 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 43.87%
( $1,000 ) ======
( $2,019 - $1,000 )
C. 10 years ended November 30, 1996 = ( --------------- ) = 101.86%
( $1,000 ) =======
( $2,067 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 106.72%
( $1,000 ) =======
15
<PAGE>
2. Colorado Municipal Bond Fund:
( $1,017 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 1.66%
( $1,000 ) =====
( $1,380 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 37.97%
( $1,000 ) ======
( $1,890 - $1,000 )
C. Inception through November 30, 1996 = ( --------------- ) = 88.95%
( $1,000 ) ======
3. Florida Municipal Bond Fund:
( $ 999 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = -0.15%
( $1,000 ) ======
( $1,386 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 38.56%
( $1,000 ) ======
( $1,588 - $1,000 )
C. Inception through November 30, 1996 = ( --------------- ) = 58.83%
( $1,000 ) ======
4. Maryland Municipal Bond Fund:
( $1,007 - $1,000 )
A. 1 year ended July 31, 1996 = ( --------------- ) = 0.74%
( $1,000 ) =====
( $1,272 - $1,000 )
B. Inception through July 31, 1996 = ( --------------- ) = 27.23%
( $1,000 ) ======
5. New Mexico Municipal Bond Fund
( $1,012 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 1.19%
( $1,000 ) =====
( $1,291 - $1,000 )
B. Inception through November 30, 1996 = ( --------------- ) = 29.14%
( $1,000 ) ======
6. Pennsylvania Municipal Bond Fund:
( $1,008 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.75%
( $1,000 ) =====
( $1,382 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 38.25%
( $1,000 ) ======
( $1,926 - $1,000 )
C. 10 years ended November 30, 1996 = ( --------------- ) = 92.63%
( $1,000 ) ======
( $1,955 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 95.45%
( $1,000 ) ======
16
<PAGE>
7. Virginia Municipal Bond Fund:
( $1,008 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 0.77%
( $1,000 ) =====
( $1,388 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 38.75%
( $1,000 ) ======
( $1,957 - $1,000 )
C. 10 years ended November 30, 1996 = ( --------------- ) = 95.75%
( $1,000 ) ======
( $2,109 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 110.89%
( $1,000 ) =======
Cumulative Class C Total Returns:
1. Arizona Municipal Bond Fund:
( $1,044 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 4.38%
( $1,000 ) =====
( $1,463 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 46.29%
( $1,000 ) ======
( $2,016 - $1,000 )
C. 10 years through November 30, 1996 = ( --------------- ) = 101.63%
( $1,000 ) =======
( $2,063 - $1,000 )
D. Inception through November 30, 1996 = ( --------------- ) = 106.28%
( $1,000 ) =======
2. Colorado Municipal Bond Fund:
( $1,059 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 5.87%
( $1,000 ) =====
( $1,448 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 44.78%
( $1,000 ) ======
( $1,909 - $1,000 )
C. Inception through November 30, 1996 = ( --------------- ) = 90.93%
( $1,000 ) ======
3. Florida Municipal Bond Fund:
( $1,039 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 3.92%
( $1,000 ) =====
( $1,380 - $1,000 )
B. 5 years ended November 30, 1996 = ( --------------- ) = 37.99%
( $1,000 ) ======
( $1,570 - $1,000 )
C. Inception through November 30, 1996 = ( --------------- ) = 57.05%
( $1,000 ) ======
4. Florida Intermediate Municipal Bond Fund:
( $1,043 - $1,000 )
A. 1 year ended November 30, 1996 = ( --------------- ) = 4.25%
( $1,000 ) =====
( $1,176 - $1,000 )
B. Inception through November 30, 1996 = ( --------------- ) = 17.60%
( $1,000 ) ======
17
<PAGE>
5. Maryland Municipal Bond Fund:
($1,047 - $1,000)
A. 1 year ended August 31, 1996 = --------------- = 4.71%
($1,000) =====
($1,282 - $1,000)
D. Inception through August 31, 1996 = --------------- = 28.21%
($1,000) ======
6. New Mexico Municipal Bond Fund:
($1,054 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 5.40%
($1,000) =====
($1,312 - $1,000)
B. Inception through November 30, 1996 = --------------- = 31.24%
($1,000) ======
7. Pennsylvania Municipal Bond Fund:
($1,047 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 4.73%
($1,000) =====
($1,395 - $1,000)
B. 5 years ended November 30, 1996 = --------------- = 39.50%
($1,000) ======
($1,909 - $1,000)
C. 10 years ended November 30, 1996 = --------------- = 90.90%
($1,000) ======
($1,935 - $1,000)
D. Inception through November 30, 1996 = --------------- = 93.51%
($1,000) ======
8. Virginia Municipal Bond Fund:
($1,049 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 4.86%
($1,000) =====
($1,396 - $1,000)
B. 5 years ended November 30, 1996 = --------------- = 39.60%
($1,000) ======
($1,934 - $1,000)
C. 10 years ended November 30, 1996 = --------------- = 93.42%
($1,000) ======
($2,075 - $1,000)
D. Inception through November 30, 1996 = --------------- = 107.52%
($1,000) =======
18
<PAGE>
CUMULATIVE CLASS R TOTAL RETURNS:
1. Arizona Municipal Bond Fund:
($1,049 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 4.94%
($1,000) =====
($1,489 - $1,000)
B. 5 years ended November 30, 1996 = --------------- = 48.89%
($1,000) ======
($2,109 - $1,000)
C. 10 years through November 30, 1996 = --------------- = 110.90%
($1,000) =======
($2,160 - $1,000)
D. Inception through November 30, 1996 = --------------- = 115.96%
($1,000) =======
2. Colorado Municipal Bond Fund:
($1,062 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 6.24%
($1,000) =====
($1,473 - $1,000)
B. 5 years ended November 30, 1996 = --------------- = 47.32%
($1,000) ======
($1,974 - $1,000)
C. Inception through November 30, 1996 = --------------- = 97.41%
($1,000) ======
3. Florida Municipal Bond Fund:
($1,044 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 4.38%
($1,000) =====
($1,434 - $1,000)
B. 5 years ended November 30, 1996 = --------------- = 43.42%
($1,000) ======
($1,646 - $1,000)
C. Inception through November 30, 1996 = --------------- = 64.58%
($1,000) ======
4. Florida Intermediate Municipal Bond Fund:
($1,048 - $1,000)
A. 1 year ended November 30, 1996 = --------------- = 4.82%
($1,000) =====
($1,194 - $1,000)
B. Inception through November 30, 1996 = --------------- = 19.38%
($1,000) ======
19
<PAGE>
5. Maryland Municipal Bond Fund:
$1,057 - $1,000
A. 1 year ended August 31, 1996 = (-----------------) = 5.74%
$1,000 =====
$1,338 - $1,000
D. Inception through August 31, 1996 = (-----------------) = 33.76%
$1,000 ======
6. New Mexico Municipal Bond Fund:
$1,058 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 5.77%
$1,000 =====
$1,332 - $1,000
B. Inception through November 30, 1996 = (-----------------) = 33.20%
$1,000 ======
7. Pennsylvania Municipal Bond Fund:
$1,053 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 5.30%
$1,000 =====
$1,431 - $1,000
B. 5 years ended November 30, 1996 = (-----------------) = 43.11%
$1,000 ======
$2,013 - $1,000
C. 10 years ended November 30, 1996 = (-----------------) = 101.26%
$1,000 =======
$2,042 - $1,000
D. Inception through November 30, 1996 = (-----------------) = 104.20%
$1,000 =======
8. Virginia Municipal Bond Fund:
$1,053 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 5.34%
$1,000 =====
$1,436 - $1,000
B. 5 years ended November 30, 1996 = (-----------------) = 43.62%
$1,000 ======
$2,045 - $1,000
C. 10 years ended November 30, 1996 = (-----------------) = 104.52%
$1,000 =======
$2,203 - $1,000
D. Inception through November 30, 1996 = (-----------------) = 120.32%
$1,000 =======
B. Taxable Equivalent Total Return Calculations
The taxable equivalent total return calculations for the Class R Shares of
the Maryland Fund for the one-year period ended July 31, 1996 is set forth on
the following pages assuming a combined federal and state income tax rate of
42.5% based on 1997 taxes.
Fund Name: Nuveen MD Tax-Free Value Class R
Since 07/31/95
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
07/31/95 10.11 .04300 989 10,000 10.10
08/31/95 10.16 .04300 42.532 42.532 42.532 993 10,092 10.20
09/30/95 10.17 .04300 42.711 42.711 85.244 997 10,144 10.20
10/31/95 10.26 .04300 42.892 42.892 128.135 1,002 10,277 10.29
11/30/95 10.37 .04300 43.071 43.071 171.206 1,006 10,430 10.40
12/31/95 10.43 .04300 43.249 43.249 214.455 1,010 10,534 10.43
01/31/96 10.44 .04250 42.922 42.922 257.377 1,014 10,587 10.44
02/29/96 10.34 .04250 43.097 43.097 300.474 1,018 10,528 10.37
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03/31/96 10.18 .04250 43.274 43.274 343.747 1,022 10,408 10.20
04/30/96 10.13 .04250 43.454 43.454 387.201 1,027 10,401 10.12
05/31/96 10.09 .04250 43.636 43.636 430.837 1,031 10,403 10.08
06/30/96 10.12 .04250 43.820 43.820 474.658 1,035 10,478 10.12
07/31/96 10.17 .04250 44.004 44.004 518.662 383.3 1,077 10,957 10.20
Rax Rate: 42.50%
Load: 0.00%
Past Year: Total Return 9.57%
1.0021 Years: Total Return 9.57%
Annualized: 9.57%
</TABLE>
21
