<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997.
1933 ACT REGISTRATION NO. 333-16615
1940 ACT REGISTRATION NO. 811-07751
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
<S> <C>
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 2 [X]
</TABLE>
(Check appropriate box or boxes)
----------------
NUVEEN FLAGSHIP MULTISTATE TRUST IV
(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
James J. Wesolowski, Esq.--Vice With a copy to:
President and Secretary Thomas A. Harman
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.
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO.
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 IV
----------------
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 LOCATION IN STATEMENT
OF FORM N- 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 IV
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
- --------------------------------------------------------------------------------
OVERVIEW
The funds listed above are diversified funds and part of the Nuveen Multistate
Trust IV, an open-end investment company. Each fund seeks to provide high tax-
free income and preservation of capital through investments in diversified
portfolios of quality municipal bonds.
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 16
How the Funds Select Investments 16
Risk Reduction Strategies 17
INVESTING IN THE FUNDS
How to Buy Fund Shares 18
How to Select a Purchase Option 18
How to Sell Fund Shares 20
Exchanging Shares 21
Optional Features and Services 21
DIVIDENDS AND TAXES
How the Funds Pay Dividends 22
Taxes and Tax Reporting 22
Taxable Equivalent Yields 24
GENERAL INFORMATION
How to Contact Nuveen 24
Fund Service Providers 24
How the Funds Report Performance 25
How Fund Shares are Priced 26
Organization 26
APPENDIX
Special State Considerations 26
</TABLE>
FEBRUARY 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Kansas Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: January 9, 1992
NET ASSETS: $97.1 million
- --------------------------------------------------------------------------------
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 0.59% 5.01% 4.43% 4.64% 5.01%
INCEPTION 6.20% 7.14% 6.55% 6.76% 7.14%
</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)
(GRAPH TO COME)
Average Maturity 21.4
Average Modified 8.2
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
NR (3%)
BBB (6%)
A (20%) (PIE CHART APPEARS HERE)
AA (19%)
AAA (52%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
Other (36%)
Industrial Development and
Pollution Control (8%)
Special Tax
Revenue (17%) (PIE CHART APPEARS HERE)
Hospitals (16%)
Housing/
Multifamily (13%)
Municipal Revenue/
Utility (10%)
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 0.18% 0.18% 0.18% 0.18%
- ---------------------------------------------------
TOTAL (GROSS) 0.93% 1.68% 1.48% 0.73%
WAIVERS/
REIMBURSEMENTS (0.20%) (0.20%) (0.20%) (0.20%)
- ---------------------------------------------------
TOTAL (NET) 0.73% 1.48% 1.28% 0.53%
</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 $ 49 $ 55 $ 13 $ 5
3 YEARS $ 64 $ 79 $ 41 $17
5 YEARS $ 81 $ 92 $ 70 $30
10 YEARS $129 $157 $155 $66
</TABLE>
Information as of 11/30/96 See Notes on Next Page z
- --------------------------------------------------------------------------------
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 (1/92)
1997(e) $ 9.83 $.26 $ .39 $(.26) $ -- $10.22
- --------------------------------------------------------------------------------------
1996 10.01 .54 (.18) (.54) -- 9.83
- --------------------------------------------------------------------------------------
1995 9.83 .55 .18 (.55) -- 10.01
- --------------------------------------------------------------------------------------
1994 10.38 .56 (.47) (.57) (.07) 9.83
- --------------------------------------------------------------------------------------
1993 9.65 .58 .73 (.58) -- 10.38
- --------------------------------------------------------------------------------------
1992(d) 9.58 .19 .07 (.19) -- 9.65
- --------------------------------------------------------------------------------------
<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 (1/92)
1997(e) 13.45%+ $97.1 .74%+ 5.18%+ 25%
- --------------------------------------------------------------------------------------
1996 3.63 96.7 .57 5.31 55
- --------------------------------------------------------------------------------------
1995 7.80 83.7 .54 5.67 72
- --------------------------------------------------------------------------------------
1994 .62 80.1 .26 5.37 93
- --------------------------------------------------------------------------------------
1993 14.15 62.6 .11 5.74 56
- --------------------------------------------------------------------------------------
1992(d) 5.95 9.6 .40+ 5.11+ 59
- --------------------------------------------------------------------------------------
</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:
- --------------------------------------------------------------------------------
NOTES:
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 0.93% to 0.73%
and on Class C from 1.48% to 1.28%, 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
dividend-setting practices. Nuveen 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. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Kentucky Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: May 4, 1987
NET ASSETS: $452.5 million
- --------------------------------------------------------------------------------
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 0.95% 5.38% 4.81% 4.81% 5.38%
5 YEARS 6.78% 7.70% 7.11% 7.05% 7.70%
INCEPTION 7.78% 8.27% 7.77% 7.65% 8.27%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C
total returns reflect actual performance for periods since class incep-
tion (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 20.3
Average Modified 7.2
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
NR (2%)
BBB (14%)
A (26%)
AA (11%)
AAA (47%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Other (21%)
Pre-refunded (8%)
Municipal Revenue/
Water & Sewer (9%)
Hospitals (17%)
Industrial Development and
Pollution Control (24%)
Municipal Appropriation
Obligations (21%)
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 0.54% 0.54% 0.54% 0.54%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.13% 0.13% 0.13% 0.13%
- ---------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.87% 1.62% 1.42% 0.67%
WAIVERS/
REIMBURSEMENTS (0.11%) (0.11%) (0.11%) (0.11%)
- ---------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.76% 1.51% 1.31% 0.56%
</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 $ 49 $ 55 $ 13 $ 6
3 YEARS $ 65 $ 80 $ 42 $18
5 YEARS $ 82 $ 94 $ 72 $31
10 YEARS $132 $160 $158 $70
</TABLE>
- --------------------------------------------------------------------------------
PAGE 4
Information as of 11/30/96 See Notes on Next Page
<PAGE>
- --------------------------------------------------------------------------------
NOTES:
- --------------------------------------------------------------------------------
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(e) $10.82 $.30 $ .35 $(.30) $ $11.17
- ------------------------------------------------------------------------------------
1996 10.99 .61 (.17) (.61) -- 10.82
- ------------------------------------------------------------------------------------
1995 10.65 .61 .35 (.62) -- 10.99
- ------------------------------------------------------------------------------------
1994 11.06 .62 (.40) (.63) -- 10.65
- ------------------------------------------------------------------------------------
1993 10.45 .64 .62 (.65) -- 11.06
- ------------------------------------------------------------------------------------
1992 10.19 .66 .27 (.66) (.01) 10.45
- ------------------------------------------------------------------------------------
1991 9.87 .66 .32 (.66) -- 10.19
- ------------------------------------------------------------------------------------
1990 9.97 .66 (.05) (.66) (.05) 9.87
- ------------------------------------------------------------------------------------
1989 9.38 .67 .60 (.67) (.01) 9.97
- ------------------------------------------------------------------------------------
1988 9.37 .66 .02 (.67) -- 9.38
- ------------------------------------------------------------------------------------
1987(d) 9.58 .02 (.23) -- -- 9.37
- ------------------------------------------------------------------------------------
CLASS C (10/93)
1997(e) 10.81 .27 .35 (.27) -- 11.16
- ------------------------------------------------------------------------------------
1996 10.99 .54 (.17) (.55) -- 10.81
- ------------------------------------------------------------------------------------
1995 10.65 .55 .35 (.56) -- 10.99
- ------------------------------------------------------------------------------------
1994(d) 11.46 .36 (.81) (.36) -- 10.65
- ------------------------------------------------------------------------------------
<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(e) 12.14%+ $428.4 .79%+ 5.41%+ 6%
- ------------------------------------------------------------------------------------
1996 4.04 410.8 .71 5.50 17
- ------------------------------------------------------------------------------------
1995 9.42 394.5 .68 5.85 28
- ------------------------------------------------------------------------------------
1994 1.90 369.5 .58 5.60 12
- ------------------------------------------------------------------------------------
1993 12.41 309.2 .61 5.96 15
- ------------------------------------------------------------------------------------
1992 9.46 207.4 .62 6.39 5
- ------------------------------------------------------------------------------------
1991 10.37 142.4 .72 6.65 23
- ------------------------------------------------------------------------------------
1990 6.92 111.2 .75 6.63 57
- ------------------------------------------------------------------------------------
1989 14.31 72.1 .67 6.94 32
- ------------------------------------------------------------------------------------
1988 7.79 41.0 .51 7.09 36
- ------------------------------------------------------------------------------------
1987(d) (29.63) 6.1 .18 + 2.66 + 45
- ------------------------------------------------------------------------------------
CLASS C (10/93)
1997(e) 11.58+ 24.1 1.34 + 4.85 + 6
- ------------------------------------------------------------------------------------
1996 3.38 20.6 1.27 4.93 17
- ------------------------------------------------------------------------------------
1995 8.82 15.8 1.23 5.27 28
- ------------------------------------------------------------------------------------
1994(d) (5.88) 11.2 1.08 + 4.96 + 12
- ------------------------------------------------------------------------------------
</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 funds 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 0.96% to 0.76%
and on Class C from 1.51% to 1.31%, 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
dividend-setting practices. Nuveen 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. If instead you redeemed your shares immediately prior to the
end of each holding period, your expenses would be higher. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Kentucky Limited Term
Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: September 14, 1995
NET ASSETS: $9.2 million
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS C CLASS R
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 2.75% 5.38% 5.04% 5.38%
INCEPTION 4.62% 6.82% 6.47% 6.82%
</TABLE>
Class A and C total returns reflect actual performance for all periods; 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 5.8
Average Modified 4.2
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
NR (7%)
BBB (8%)
A (24%) (PIE CHART APPEARS HERE)
AAA (30%)
AA (31%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
Other (26%)
Student Loan
Revenue Bonds (8%)
(PIE CHART APPEARS HERE)
Industrial Development and
Pollution Control (11%)
Municipal Appropriation
Obligations (27%)
Hospitals (16%)
Housing/
Multifamily (12%)
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 2.50%(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 0.45% 0.45% 0.45%
12B-1 FEES 0.20% 0.55% --
OTHER EXPENSES 1.25% 1.25% 1.25%
- ------------------------------------------
TOTAL (GROSS) 1.90% 2.25% 1.70%
WAIVERS/
REIMBURSEMENTS (1.50%) (1.50%) (1.50%)
- ------------------------------------------
TOTAL (NET) 0.40% 0.75% 0.20%
</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 $29 $ 8 $ 2
3 YEARS $38 $24 $ 6
5 YEARS $47 $42 $11
10 YEARS $74 $93 $26
</TABLE>
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
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
------------- --------- ---------- -------------- ---------- --------- ---------
<C> <C> <C> <C> <C> <C> <C>
CLASS A
(9/95)
1997(e) $9.79 $.22 $.18 $(.22) $ -- $9.97
- ---------------------------------------------------------------------------------
1996(d) 9.75 .31 .04 (.31) -- 9.79
- ---------------------------------------------------------------------------------
CLASS C
(9/95)
1997(e) 9.79 .20 .19 (.21) -- 9.97
- ---------------------------------------------------------------------------------
1996(d) 9.75 .29 .04 (.29) -- 9.79
- ---------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Total Net Assets Average Net Average Turnover
Return(b) (millions) Assets(c) Net Assets(c) Rate
-------------------- -------------------------- ---------
<C> <C> <C> <S> <C>
8.30%+ $7.5 .70%+ 4.34%+ 27%
- ---------------------------------------------------------------------------------
5.45 8.4 .37+ 4.37+ 48
- ---------------------------------------------------------------------------------
7.99+ 1.7 1.00+ 4.04+ 27
- ---------------------------------------------------------------------------------
5.12 1.8 .64+ 4.12+ 48
- ---------------------------------------------------------------------------------
</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) 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 0.60% to 0.40%
and on Class C from 0.95% to 0.75%, 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 Provid-
ers--Investment Adviser," to continue Flagship's dividend-setting practices.
Nuveen 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.
(4) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- --------------------------------------------------------------------------------
PAGE 7
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Michigan Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: June 27, 1985
NET ASSETS: $300.4 million
- --------------------------------------------------------------------------------
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 1.03% 5.46% 4.88% 4.80% 5.46%
5 YEARS 6.67% 7.59% 7.00% 6.75% 7.59%
10 YEARS 6.93% 7.39% 6.92% 6.68% 7.39%
INCEPTION 8.21% 8.62% 8.21% 7.91% 8.62%
</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 18.2
Average Modified 7.8
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
BBB (11%)
A (19%) (PIE CHART APPEARS HERE)
AA (18%)
AAA (52%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
Other (29%)
Municipal Revenue/
Water & Sewer (7%)
Special Tax
Revenue (8%)
(PIE CHART APPEARS HERE)
Hospitals (21%)
Pre-refunded (19%)
Non-State General
Obligations (16%)
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 0.54% 0.54% 0.54% 0.54%
12b-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.11% 0.11% 0.11% 0.11%
- -------------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.85% 1.60% 1.40% 0.65%
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>
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 8
<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
------------- --------- ---------- -------------- ---------- --------- ---------
<C> <C> <C> <C> <C> <C> <C>
CLASS A
(6/85)
1997(e) $11.37 $.31 $.44 $(.31) $ -- $11.81
- ---------------------------------------------------------------------------------
1996 11.59 .63 (.22) (.63) -- 11.37
- ---------------------------------------------------------------------------------
1995 11.31 .65 .28 (.65) -- 11.59
- ---------------------------------------------------------------------------------
1994 11.77 .66 (.43) (.66) (.03) 11.31
- ---------------------------------------------------------------------------------
1993 11.12 .68 .65 (.68) -- 11.77
- ---------------------------------------------------------------------------------
1992 10.80 .69 .32 (.69) -- 11.12
- ---------------------------------------------------------------------------------
1991 10.61 .69 .20 (.70) -- 10.80
- ---------------------------------------------------------------------------------
1990 10.67 .70 (.06) (.70) -- 10.61
- ---------------------------------------------------------------------------------
1989 10.10 .71 .57 (.71) -- 10.67
- ---------------------------------------------------------------------------------
1988 9.95 .72 .15 (.72) -- 10.10
- ---------------------------------------------------------------------------------
1987 10.14 .71 (.14) (.70) (.06) 9.95
- ---------------------------------------------------------------------------------
1986(d) 9.58 .65 .57 (.66) -- 10.14
- ---------------------------------------------------------------------------------
CLASS C
(6/93)
1997(e) 11.35 .27 .44 (.27) -- 11.79
- ---------------------------------------------------------------------------------
1996 11.58 .56 (.22) (.57) -- 11.35
- ---------------------------------------------------------------------------------
1995 11.30 .58 .28 (.58) -- 11.58
- ---------------------------------------------------------------------------------
1994(d) 11.86 .54 (.52) (.55) (.03) 11.30
- ---------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Total Net Assets Average Net Average Turnover
Return(b) (millions) Assets(c) Net Assets(c) Rate
-------------------- -------------------------- ---------
<C> <C> <C> <S> <C>
13.30%+ $257.4 .89%+ 5.29+ 26%
- ---------------------------------------------------------------------------------
3.61 248.4 .82 5.42 54
- ---------------------------------------------------------------------------------
8.57 250.4 .80 5.82 37
- ---------------------------------------------------------------------------------
1.87 243.0 .75 5.56 28
- ---------------------------------------------------------------------------------
12.27 227.3 .81 5.85 10
- ---------------------------------------------------------------------------------
9.74 176.6 .81 6.34 11
- ---------------------------------------------------------------------------------
8.73 134.2 .90 6.56 23
- ---------------------------------------------------------------------------------
6.21 102.5 .95 6.54 47
- ---------------------------------------------------------------------------------
13.12 84.6 .96 6.80 54
- ---------------------------------------------------------------------------------
8.95 73.5 .94 7.11 78
- ---------------------------------------------------------------------------------
6.60 82.0 .78 6.71 89
- ---------------------------------------------------------------------------------
14.76 44.6 .81+ 7.01+ 79
- ---------------------------------------------------------------------------------
12.74+ 43.1 1.44+ 4.74+ 26
- ---------------------------------------------------------------------------------
2.96 41.4 1.37 4.86 54
- ---------------------------------------------------------------------------------
7.98 37.1 1.35 5.25 37
- ---------------------------------------------------------------------------------
.19 30.0 1.25+ 4.89+ 28
- ---------------------------------------------------------------------------------
</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 by,
if applicable, 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 Practice. The waiver/reimbursemen
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 contimue Flagship's dividend-setting
practices. Nuveen 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. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- --------------------------------------------------------------------------------
PAGE 9
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Missouri Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: August 3, 1987
NET ASSETS: $223.1 million
- --------------------------------------------------------------------------------
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 0.99% 5.42% 4.85% 4.85% 5.42%
5 YEARS 6.70% 7.62% 7.03% 7.05% 7.62%
INCEPTION 7.47% 7.96% 7.46% 7.38% 7.96%
</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 8.0
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
NR (7%)
BBB (6%)
A (25%) (PIE CHART APPEARS HERE)
AA (9%)
AAA (53%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
Municipal Appropriation
Obligations (10%)
Hospitals (12%)
(PIE CHART APPEARS HERE)
Municipal Revenue/Utility (10%)
State/Territorial General
Obligations (9%)
Health Care (9%)
Other (50%)
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 0.54% 0.54% 0.54% 0.54%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.15% 0.15% 0.15% 0.15%
- ---------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.89% 1.64% 1.44% 0.69%
WAIVERS/
REIMBURSEMENTS (0.08%) (0.08%) (0.08%) (0.08%)
- ---------------------------------------------------------------------------------------------
TOTAL (NET) 0.81% 1.56% 1.36% 0.61%
</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 $ 55 $14 $ 6
3 YEARS $ 67 $ 81 $ 43 $20
5 YEARS $ 85 $ 96 $ 74 $34
10 YEARS $138 $165 $164 $76
</TABLE>
Information as of 11/30/96 See Notes on Next Page z
- --------------------------------------------------------------------------------
PAGE 10
<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 (8/87)
1997(e) $10.51 $.28 $.39 $(.28) $ -- $10.90
- -------------------------------------------------------------------------------------
1996 10.72 .58 (.21) (.58) -- 10.51
- -------------------------------------------------------------------------------------
1995 10.50 .60 .22 (.60) -- 10.72
- -------------------------------------------------------------------------------------
1994 10.87 .61 (.34) (.61) (.03) 10.50
- -------------------------------------------------------------------------------------
1993 10.32 .64 .60 (.63) (.06) 10.87
- -------------------------------------------------------------------------------------
1992 10.04 .65 .29 (.65) (.01) 10.32
- -------------------------------------------------------------------------------------
1991 9.76 .65 .28 (.65) -- 10.04
- -------------------------------------------------------------------------------------
1990 9.86 .65 (.10) (.65) -- 9.76
- -------------------------------------------------------------------------------------
1989 9.30 .65 .57 (.65) (.01) 9.86
- -------------------------------------------------------------------------------------
1988(d) 9.58 .49 (.26) (.51) -- 9.30
- -------------------------------------------------------------------------------------
CLASS C (2/94)
1997(e) 10.50 .25 .39 (.25) -- 10.89
- -------------------------------------------------------------------------------------
1996 10.72 .51 (.21) (.52) -- 10.50
- -------------------------------------------------------------------------------------
1995 10.50 .53 .23 (.54) -- 10.72
- -------------------------------------------------------------------------------------
1994(d) 11.33 .02 (.83) (.02) -- 10.50
- -------------------------------------------------------------------------------------
<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 (8/87)
1997(e) 12.94%+ $216. .92% 5.22%+ 21%
- -------------------------------------------------------------------------------------
1996 3.51 212.7 .80 5.37 38
- -------------------------------------------------------------------------------------
1995 8.19 205.1 .67 5.78 40
- -------------------------------------------------------------------------------------
1994 2.42 187.3 .62 5.52 34
- -------------------------------------------------------------------------------------
1993 12.54 144.8 .55 5.99 33
- -------------------------------------------------------------------------------------
1992 9.70 76.1 .47 6.39 32
- -------------------------------------------------------------------------------------
1991 9.92 43.4 .58 6.57 44
- -------------------------------------------------------------------------------------
1990 5.89 19.1 .66 6.64 36
- -------------------------------------------------------------------------------------
1989 13.70 13.0 .69 6.80 69
- -------------------------------------------------------------------------------------
1988(d) 2.98 7.8 .50+ 6.32+ 119
- -------------------------------------------------------------------------------------
CLASS C (2/94)
1997(e) 12.36+ 7.0 1.47+ 4.66+ 21
- -------------------------------------------------------------------------------------
1996 2.84 6.2 1.35 4.79 38
- -------------------------------------------------------------------------------------
1995 7.60 4.0 1.20 5.19 40
- -------------------------------------------------------------------------------------
1994(d) (17.62) 1.9 1.15+ 4.44+ 34
- -------------------------------------------------------------------------------------
</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 1.01% to 0.81%
and on Class C from 1.56% to 1.36%, 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
dividend-setting practices. Nuveen 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. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- --------------------------------------------------------------------------------
PAGE 11
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Ohio Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: June 27, 1985
NET ASSETS: $490.6 million
- --------------------------------------------------------------------------------
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 0.38% 4.78% 4.21% 4.21% 4.78%
5 YEARS 6.23% 7.14% 6.56% 6.56% 7.14%
10 YEARS 6.84% 7.30% 6.83% 6.71% 7.30%
INCEPTION 8.00% 8.40% 7.99% 7.81% 8.40%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C
total returns reflect actual performance for periods since class incep-
tion (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 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 18.0
Average Modified 6.9
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
NR (2%)
BBB (9%)
A (12%)
AA (13%)
AAA (64%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Other (26%)
Municipal Revenue/
Utility (8%)
Industrial
Development and
Pollution Control (9%)
Pre-Refunded (22%)
Hospitals (20%)
Non-State General
Obligations (15%)
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 0.53% 0.53% 0.53% 0.53%
12b-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.11% 0.11% 0.11% 0.11%
- ------------------------------------------------
TOTAL (GROSS) 0.84% 1.59% 1.39% 0.64%
WAIVERS/
REIMBURSEMENTS -- -- -- --
- ------------------------------------------------
TOTAL (NET) 0.84% 1.59% 1.39% 0.64%
</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 $20
5 YEARS $ 87 $ 98 $ 76 $36
10 YEARS $141 $169 $167 $80
</TABLE>
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 12
<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 (6/85)
1997(e) $11.21 $.31 $ .34 $(.30) $ -- $11.56
- -------------------------------------------------------------------------------------
1996 11.43 .62 (.21) (.63) -- 11.21
- -------------------------------------------------------------------------------------
1995 11.21 .64 .22 (.64) -- 11.43
- -------------------------------------------------------------------------------------
1994 11.59 .64 (.38) (.64) -- 11.21
- -------------------------------------------------------------------------------------
1993 11.05 .66 .54 (.66) -- 11.59
- -------------------------------------------------------------------------------------
1992 10.72 .68 .33 (.68) -- 11.05
- -------------------------------------------------------------------------------------
1991 10.45 .68 .28 (.69) -- 10.72
- -------------------------------------------------------------------------------------
1990 10.54 .69 (.09) (.69) -- 10.45
- -------------------------------------------------------------------------------------
1989 10.04 .69 .51 (.70) -- 10.54
- -------------------------------------------------------------------------------------
1988 9.82 .71 .23 (.71) (.01) 10.04
- -------------------------------------------------------------------------------------
1987 10.12 .71 (.25) (.71) (.05) 9.82
- -------------------------------------------------------------------------------------
1986(d) 9.58 .66 .56 (.68) -- 10.12
- -------------------------------------------------------------------------------------
CLASS C (8/93)
1997(e) 11.21 .27 .35 (.27) -- 11.56
- -------------------------------------------------------------------------------------
1996 11.43 .55 (.21) (.56) -- 11.21
- -------------------------------------------------------------------------------------
1995 11.20 .57 .23 (.57) -- 11.43
- -------------------------------------------------------------------------------------
1994(d) 11.69 .46 (.49) (.46) -- 11.20
- -------------------------------------------------------------------------------------
<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 (6/85)
1997(e) 11.83%+ $451.4 .94%+ 5.36%+ 10%
- -------------------------------------------------------------------------------------
1996 3.59 443.1 .92 5.41 31
- -------------------------------------------------------------------------------------
1995 7.99 445.6 .95 5.78 31
- -------------------------------------------------------------------------------------
1994 2.24 445.3 .93 5.48 9
- -------------------------------------------------------------------------------------
1993 11.20 410.5 .96 5.81 15
- -------------------------------------------------------------------------------------
1992 9.77 325.3 .95 6.24 18
- -------------------------------------------------------------------------------------
1991 9.57 268.2 1.02 6.53 14
- -------------------------------------------------------------------------------------
1990 5.86 231.3 .96 6.56 42
- -------------------------------------------------------------------------------------
1989 12.36 195.1 .93 6.79 37
- -------------------------------------------------------------------------------------
1988 10.12 157.5 .88 7.16 85
- -------------------------------------------------------------------------------------
1987 5.33 153.3 .76 6.78 109
- -------------------------------------------------------------------------------------
1986(d) 14.71 77.0 .75+ 7.18+ 62
- -------------------------------------------------------------------------------------
CLASS C (8/93)
1997(e) 11.26+ 39.2 1.49+ 4.80+ 10
- -------------------------------------------------------------------------------------
1996 3.03 34.9 1.47 4.84 31
- -------------------------------------------------------------------------------------
1995 7.50 28.5 1.50 5.21 31
- -------------------------------------------------------------------------------------
1994(d) (.17) 25.7 1.46+ 4.79+ 9
- -------------------------------------------------------------------------------------
</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) 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 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 1.04%
to 0.84% and on Class C from 1.59% to 1.39%, 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 agreed to waive some or all of its fees or reimburse expenses
to prevent total operating expenses (not counting distribution and service
fees) from exceeding 0.75% of the fund's average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This
example does not represent past or future expenses; actual expenses may be
higher or lower.
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Wisconsin Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: June 1, 1994
NET ASSETS: $13.7 million
- --------------------------------------------------------------------------------
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 (0.04%) 4.34% 3.77% 3.97% 4.34%
INCEPTION 4.77% 6.58% 6.00% 6.21% 6.58%
</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 CHART APPEARS HERE)
Average Maturity 19.0
Average Modified 7.2
Duration
- --------------------------------------------------------------------------------
CREDIT QUALITY
NR (32%)
BBB (10%)
(PIE CHART APPEARS HERE)
A (17%)
AAA (30%)
AA (11%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
Other (32%)
Pre-Refunded (12%)
Hospitals (13%)
(PIE CHART APPEARS HERE)
Housing/
Multifamily (15%)
Municipal Revenue/
Other (14%)
Health Care (14%)
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 0.81% 0.81% 0.81% 0.81%
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES (GROSS) 1.56% 2.31% 2.11% 1.36%
WAIVERS/
REIMBURSEMENTS (1.11%) (1.11%) (1.11%) (1.11%)
- ---------------------------------------------------------------------------------------
TOTAL EXPENSES (NET) 0.45% 1.20% 1.00% 0.25%
</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 $46 $ 52 $ 10 $ 3
3 YEARS $56 $ 70 $ 32 $ 8
5 YEARS $66 $ 78 $ 55 $14
10 YEARS $96 $125 $122 $32
</TABLE>
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 14
<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
------------- --------- ---------- -------------- ---------- --------- ---------
<C> <C> <C> <C> <C> <C> <C>
CLASS A
(6/94)
1997(e) $9.61 $.25 $ .29 $(.25) $ -- $9.90
- ---------------------------------------------------------------------------------
1996 9.79 .50 (.18) (.50) -- 9.61
- ---------------------------------------------------------------------------------
1995(d) 9.58 .49 .21 (.49) -- 9.79
- ---------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Total Net Assets Average Net Average Turnover
Return(b) (millions) Assets(c) Net Assets(c) Rate
-------------------- -------------------------- ---------
<C> <C> <C> <S> <C>
11.44%+ $13.7 .66%+ 5.06%+ 27%
- ---------------------------------------------------------------------------------
3.35 12.4 .64 5.02 47
- ---------------------------------------------------------------------------------
7.36 8.3 .39 5.25 52
- ---------------------------------------------------------------------------------
</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 0.65% to 0.45%
and on Class C from 1.20% to 1.00%, 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 Asso-
ciation 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
dividend-setting practices. Nuveen also has voluntarily agreed through
July 31, 1997 to waive fees or reimburse expenses so that the total oper-
ating 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. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This
example does not represent past or future expenses; actual expenses may be
higher or lower.
- -------------------------------------------------------------------------------
PAGE 15
<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 (and in Michigan, including the Michigan intangible personal
property tax) as is consistent with preservation of capital. 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 primarily in municipal bonds 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 Michigan and Ohio 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. The Kentucky Limited Term Fund maintains a weighted average portfolio
maturity of 1 to 7 years. All of the other 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 16
<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 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. As non-diversified
funds, the Kansas, Kentucky Limited Term, Missouri, and Wisconsin Funds gener-
ally are subject to greater share price fluctuations due to these changes than
the Kentucky, Michigan, and Ohio Funds described in this prospectus, which are
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).
As diversified funds, the Kentucky, Michigan and Ohio Funds also may not have
more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of each 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 17
<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 except the Kentucky Limited Term Fund:
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
---------------------------------------- ----------
AS % OF
AS % OF PUBLIC YOUR NET AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE INVESTMENT OFFERING 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 18
<PAGE>
The following Class A sales charges and commissions apply to the Kentucky
Limited Term Fund:
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
---------------------------------------- ----------
AS % OF
AS % OF PUBLIC YOUR NET AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE INVESTMENT OFFERING PRICE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 2.50% 2.56% 2.00%
$50,000-100,000 2.00 2.04 1.60
$100,000-250,000 1.50 1.52 1.20
$250,000-500,000 1.25 1.27 1.00
$500,000-1,000,000 0.75 0.76 0.60
$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 to authorized dealers in connection with sales meet-
ings, 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. Nuveen pays for these
programs at its own expense and not out of fund assets.
- --------------------------------------------------------------------------------
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 Sales Charge Waivers
. Rights of Accumulation . Unit Trust Reinvestment
. Letter of Intent (LOI) . Purchases using Redemptions
from Unrelated Funds
. Group Purchase
. 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 Kentucky Limited
Term Fund does not currently offer 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, but Class C shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.55% (0.35% for the Kentucky Limited Term Fund) 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 19
<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 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.
- -------------------------------------------------------------------------------
PAGE 20
<PAGE>
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 national or state mutual fund. 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 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 averaging 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.
<TABLE>
<CAPTION>
(CHART APPEARS HERE)
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>
- -------------------------------------------------------------------------------
PAGE 21
<PAGE>
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.
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 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 in 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 22
<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 divi-
dend, 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 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.
- -------------------------------------------------------------------------------
PAGE 23
<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 Flagship Funds, was
merged with Nuveen Advisory.
- -------------------------------------------------------------------------------
PAGE 24
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management
fee. The following schedule applies to all funds described in this prospectus
except the Kentucky Limited Term Fund:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
NET ASSET VALUE FEE
- --------------------------------------
<S> <C>
For the first $125 million 0.5000%
For the next $125 million 0.4875%
For the next $250 million 0.4750%
For the next $500 million 0.4625%
For the next $1 billion 0.4500%
For assets over $2 billion 0.4250%
</TABLE>
The following schedule applies to the Kentucky Limited Term Fund:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
NET ASSET VALUE FEE
- --------------------------------------
<S> <C>
For the first $125 million 0.4500%
For the next $125 million 0.4375%
For the next $250 million 0.4250%
For the next $500 million 0.4125%
For the next $1 billion 0.4000%
For assets over $2 billion 0.3750%
</TABLE>
Nuveen will waive some or all of its fees or reimburse expenses so that the
total operating expenses (not counting distribution and service fees) for the
Michigan Fund and the Ohio Fund do not exceed 0.75% of average daily net
assets. 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 Davern has been the portfolio manager for the Kansas and the Missouri
Funds since 1992, the Michigan Fund since 1993, and the Wisconsin Fund since
1994. Mr. Davern became a Vice President of Flagship Financial Inc., the
funds' prior investment advisor in 1991, and became a Vice President of Nuveen
Advisory upon the acquisition of Flagship Resources Inc. by The John Nuveen
Company in January 1997. Richard Huber has been the portfolio manager for the
Kentucky Fund since 1993 and the Kentucky Limited Term Fund since 1995. Since
1995 he has been a Vice President of Flagship Financial Inc., the funds' 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. Walter Parker is the portfolio manager for the Ohio Fund. Mr.
Parker has managed the fund since 1995 as a Vice President and since 1994 had
been an employee of Flagship Financial Inc., the funds' prior investment
adviser, until becoming a Vice President of Nuveen Advisory upon the acquisi-
tion 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 each class of shares outstanding. The plan also
authorizes each fund (excluding the Kentucky Limited Term Fund which does not
currently offer Class B shares) to pay Nuveen an annual 0.75% distribution fee
on the average daily net assets of Class B shares outstanding. The plan also
authorizes each fund to pay Nuveen an annual 0.55% (0.35% for the Kentucky
Limited Term Fund) distribution fee on the average daily net assets of Class C
shares outstanding. In order to help compensate Nuveen for the sales commis-
sion 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 informa-
tion contains a detailed description of the plan and its provisions.
TRANSFER AGENT
The funds have appointed Boston Financial, P.O. Box 8509, Boston, MA, 02266-
8509 as the transfer agent responsible for distributing dividend payments and
providing certain bookkeeping, data processing and other administrative serv-
ices in connection with the maintenance of shareholder accounts.
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
PAGE 25
<PAGE>
results to various passive indices or other mutual funds with similar invest-
ment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. 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 diversified 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
portfolio 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 Ohio and Michigan 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.
KANSAS
Recent growth in the State's trade, services and manufacturing sectors has
decreased the historical dominance of agriculture on the Kansas economy. In
fact, agriculture today employs only 4.7% of the workforce. The Kansas economy
was characterized by strong employment growth in the manufacturing and
construction sectors in 1995, exceeding the national average. In only three of
the prior 13 years had the State average surpassed national job growth. The
State's other major labor market includes finance, insurance and real estate.
The State's unemployment rate fell from 4.2% in August 1995 to 4.0% a year
later in 1996. Per capita personal income rose 5.1% in 1995 to reach $21,825.
The State reserves 2.5% of the General Fund annually for an operating balance
fund and applies any moneys to budgetary shortfalls. Targeted ending balances
are also used as a means of restraining expenditure growth to the level of
revenue growth. In September 1995, the Governor ordered an 1.5% across the
board reduction in agency expenditures in the face of revenue shortfalls. In
addition, he has ordered all agencies to reduce employment by 2% in 1996. The
1997 budget recommendations include $7.8 billion in expenditures, a reduction
of almost $100 million from 1996.
Tax Treatment.
The Kansas Fund's regular monthly dividends will not be subject to Kansas
personal income taxes to the extent they are paid out of income earned on all
Kansas municipal bonds issued after December 31, 1987, on specified Kansas
municipal bonds issued before that date, or on U.S. government securities.
- -------------------------------------------------------------------------------
PAGE 26
<PAGE>
You will be subject to Kansas personal income taxes, however, to the extent
the Kansas Fund distributes any taxable income or realized capital gains, or
if you sell or exchange Kansas Fund shares and realize a capital gain on the
transaction.
The treatment of corporate shareholders of the Kansas Fund is similar to that
described above.
KENTUCKY
Kentucky's economy surpassed national growth rates during the 1990's in part
due to its lower costs of living and doing business and an aggressive business
recruitment and incentives program. The State's economic base is concentrated
in manufacturing and service industries such as industrial machinery, elec-
tronics and apparel production and insurance and real estate. Kentucky's
"Golden Triangle" bounded by Cincinnati, Lexington and Louisville has experi-
enced the most intense economic growth due in part to the influence of good
universities and transportation. Prosperity elsewhere in the State is uneven.
The State's unemployment rate fell below the national average during the past
two years. The rate as of August 1996 was 4.2%. Per capita income rose 4.8% in
1995 to $18,612.
The State has difficulty at times in balancing its budget. Moody's gives the
State's general obligation debt an Aa rating while S&P gives it an AA rating.
Tax Treatment.
The Kentucky Funds' regular monthly dividends will not be subject to the
Kentucky individual income tax to the extent they are paid out of income
earned on Kentucky municipal bonds or U.S. government securities. You will be
subject to Kentucky personal income tax, however, to the extent the Kentucky
Funds distribute any taxable income or realized capital gains, or if you sell
or exchange Kentucky Funds and realize a capital gain on the transaction. You
will not be subject to the annual Kentucky intangible property tax on the
portion of the fair cash value of your shares of the Kentucky Funds that is
attributable to Kentucky municipal bonds or U.S. government securities.
The treatment of corporate shareholders of the Kentucky Funds is similar to
that described above.
MICHIGAN
Michigan's economy has long been dominated by the automobile and related manu-
facturing industries, although employment in those sectors has fallen from
historical levels. As a result, the State is more vulnerable to cyclical
downturns than other states and the nation taken as a whole. However, the
State also manufactures food products, plastics as well as office furniture,
and the tourism, agriculture and mining industries balance the manufacturing
sector.
The State's unemployment rate was a low 4.2% as of August 1996 compared to a
national average of 5.1%. This represents a continuing drop from Michigan's
1994 and 1995 averages of 5.9% and 5.3%. Per capita income grew at the fourth
fastest rate in the nation in 1995, reaching $23,551.
The State Constitution mandates that proposed expenditures from each state
fund not exceed proposed revenues available. Any surplus or deficit in a fund
must be carried over to the succeeding year. The State Constitution also
limits the amount of revenue the legislature can raise from taxes and ties it
to personal income levels. The State ended fiscal years 1993 and 1994 with
surpluses of $26 million and $464 million which the government transferred to
a Counter-Cyclical Budget and Economic Stabilization Fund to be used in
periods of budget shortfalls. 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 Michigan Fund's regular monthly dividends will not be subject to the Mich-
igan individual income tax to the extent they are paid out of income earned on
Michigan municipal bonds or paid out of income earned on or capital gains
realized from the sale of U.S. government securities. You will be subject to
Michigan personal income tax, however, to the extent the Michigan Fund
distributes any taxable income or realized capital gains (other than capital
gains realized from the sale of U.S. government securities), or if you sell or
exchange Michigan Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Michigan Fund differs from that
described above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information and are urged to consult
their tax adviser.
MISSOURI
Missouri remains a major manufacturing, financial and agricultural state whose
economic performance echoes that of the nation due to its diverse employment
base. The State expects continued economic improvement in 1996 following its
recovery from the nationwide recession of the 1980's. The trade and service
sectors continue to employ over half of the workforce. An increase in automo-
bile manufacturing employment elevated manufacturing employment levels gener-
ally in the first half of the decade and compensated for defense and aerospace
related job losses.
The State's unemployment rate fell from 5.2% in August 1995 to 4.3% in August
1996, remaining below the national average. Per capita personal income rose
5.2% in 1995 to reach $21,627 after a 6.3% rise in 1994.
Sound fiscal management policies led to a balanced budget in 1995 and a
surplus of $1,586 billion.
- -------------------------------------------------------------------------------
PAGE 27
<PAGE>
Revenue collections increased in both 1994 and 1995 but the 1996 budget is
still based on conservative revenue projections of $5.455 billion. The
Governor enjoys line-item veto power over any appropriations except for public
debt and education expenditures and can reduce actual State agency spending
when revenue shortfalls occur. 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 Missouri Fund's regular monthly dividends will not be subject to the
Missouri individual income tax to the extent they are paid out of income
earned on Missouri municipal bonds or U.S. government securities. You will be
subject to Missouri personal income tax, however, to the extent the Missouri
Fund distributes any taxable income or realized capital gains, or if you sell
or exchange Missouri Fund shares and realize a capital gain on the transac-
tion.
The treatment of corporate shareholders of the Missouri Fund is similar to
that described above.
OHIO
The Ohio economy historically relied on durable goods manufacturing concen-
trated in motor vehicles and equipment, steel, rubber products and household
appliances, but has diversified to the point where service sector employment
now rivals that in the manufacturing sector. General economic activity tends
to be more cyclical than in non-industrialized states. Agricultural production
remains important to the economy involving 16% of the labor force and over
half the land area.
From 1990-96, the State's unemployment rate ranked below the national average.
For instance, Ohio enjoyed a low rate of 4.3% in August 1996 compared to a
national average of 5.1%. Personal income growth ranked 12th in the nation in
1995, increasing to a per capita level of $22,021.
The State cannot by law operate with a deficit and has well-established proce-
dures to ensure that appropriations and expenditures are matched by revenues
from the General Revenue Fund ("GRF"). The tools available to the State
include targeted and general cuts in spending and a Budget Stabilization Fund
("BSF"). Ohio operates on two year budgetary cycles or bienniums. The 1992-3
cycle presented significant shortfalls which were addressed with spending
reductions and tax revisions. By contrast the 1994-5 biennium produced a more
favorable financial picture and ended with a GRF balance of $928 million,
enabling the State to replenish the BSF with $535.2 million. Moody's gives
Ohio's general obligations bonds an Aa rating while S&P's given them an AA
rating.
Tax Treatment.
The Ohio Fund's regular monthly dividends will not be subject to Ohio personal
income taxes to the extent they are paid out of income earned on Ohio munic-
ipal bonds or U.S. government securities or out of gain from Ohio municipal
bonds. You will be subject to Ohio personal income taxes, however, to the
extent the Ohio Fund distributes any taxable income or realized capital gains
(other than capital gains on Ohio municipal bonds), or if you sell or exchange
Ohio Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Ohio Fund differs from that
described above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information and are urged to consult
their tax adviser.
WISCONSIN
Wisconsin's economy is diverse and strong with non-agricultural employment
evenly spread between the manufacturing, service and trade sectors. The number
of manufacturing jobs achieved an all time high in 1995 as did total non-agri-
cultural employment. Job growth was expected to slow down to 1% in 1996
however, reflecting nationwide trends. The State continues its efforts to
attract new businesses with grants and loans for major development projects,
labor training and technology development. The tourism industry has expanded
and now stimulates some $5.6 billion in expenditures.
The State's unemployment rate as of August 1996 was a very low 3.1% compared
to the comparable national average of 5.1% and represents the lowest state
level since 1969. Unemployment was also low in the preceding year, standing at
3.2% for the month of August 1995. Personal income per capita was $21,839 in
1995.
Wisconsin law provides several means to ensure budgetary restraint. The State
Constitution requires the legislature to enact a balanced budget and state law
prohibits enactment of a budget which would cause the estimated General Fund
balance to fall below 1% of general appropriations. The mandated reserves for
1996 and 1997 are $83 million and $92 million respectively. The Governor can
veto all or part of an appropriations bill. Provision is made for review of
expenditures when the administration projects revenue shortfalls mid-year. The
1995 fiscal year ended with an unaudited balance of $401 million while the
State projects a balance of $442 million out of $20.327 billion in total
disbursements and reserves for 1996. 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.
- -------------------------------------------------------------------------------
PAGE 28
<PAGE>
Tax Treatment.
The Wisconsin Fund's regular monthly dividends will not be subject to
Wisconsin personal income tax to the extent they are paid out of income earned
on certain Wisconsin municipal obligations or U.S. government securities. You
will be subject to Wisconsin personal income tax, however, to the extent the
Wisconsin Fund distributes any taxable income or realized capital gains, or if
you sell or exchange Wisconsin Fund shares and realize a capital gain on the
transaction.
The treatment of corporate shareholders of the Wisconsin Fund differs from
that described above. Corporate shareholders should refer to the statement of
additional information for more detailed information and are urged to consult
their tax adviser.
- -------------------------------------------------------------------------------
PAGE 29
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds is designed to help you reach your finan-
cial 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
TAX-FREE INCOME 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, long-term insured, intermediate-term and limited-term
portfolios.
2. Long-term and long-term insured 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
<PAGE>
FEBRUARY 1, 1997
NUVEEN FLAGSHIP MULTISTATE TRUST IV
NUVEEN FLAGSHIP KANSAS MUNICIPAL BOND FUND
NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND
NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND
NUVEEN FLAGSHIP MICHIGAN INTERMEDIATE MUNICIPAL BOND FUND
NUVEEN FLAGSHIP MISSOURI MUNICIPAL BOND FUND
NUVEEN FLAGSHIP OHIO MUNICIPAL BOND FUND
NUVEEN FLAGSHIP WISCONSIN 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 IV 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-9
Investment Adviser and Investment Management Agreement..................... S-15
Portfolio Transactions..................................................... S-16
Net Asset Value............................................................ S-16
Tax Matters................................................................ S-17
Performance Information.................................................... S-20
Additional Information on the Purchase and Redemption of Fund Shares....... S-28
Distribution and Service Plans............................................. S-32
Independent Public Accountants and Custodians.............................. S-33
Financial Statements....................................................... S-33
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 Kentucky Municipal Bond Fund, the
Michigan Municipal Bond Fund, and the Ohio 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 IV (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 IV. 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 seven series: the Nuveen Flagship Kansas Municipal Bond Fund
(formerly the Flagship Kansas Triple Tax Exempt Fund, a series of the Flagship
Tax Exempt Funds Trust); the Nuveen Flagship Kentucky Municipal Bond Fund
(formerly the Flagship Kentucky Triple Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); the Nuveen Flagship Kentucky Limited Term
Municipal Bond Fund (formerly the Flagship Kentucky Limited Term Municipal Bond
Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship
Michigan Municipal Bond Fund (formerly the Flagship Michigan Triple Tax Exempt
Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen Flagship
Missouri Municipal Bond Fund (formerly the Flagship Missouri Double Tax Exempt
Fund, a series of the Flagships Tax Exempt Funds Trust); the Nuveen Flagship
Ohio Municipal Bond Fund (formerly the Flagship Ohio Double Tax Exempt Fund, a
series of the Flagship Tax Exempt Funds Trust); and the Nuveen Flagship
Wisconsin Municipal Bond Fund (formerly the Flagship Wisconsin Double Tax
Exempt Fund, a series of the Flagship Tax Exempt Funds Trust). 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.
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 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
S-3
<PAGE>
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.
PORTFOLIO 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>
Nuveen Flagship Kansas Municipal Bond Fund (5/31)............. 72% 55%
Nuveen Flagship Kentucky Municipal Bond Fund (5/31)........... 28% 17%
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
(5/31)....................................................... -- 48%
Nuveen Flagship Michigan Municipal Bond Fund (5/31)........... 37% 54%
Nuveen Flagship Missouri Municipal Bond Fund (5/31)........... 40% 38%
Nuveen Flagship Ohio Municipal Bond Fund (5/31)............... 31% 31%
Nuveen Flagship Wisconsin Municipal Bond Fund (5/31).......... 52% 47%
</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 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
S-4
<PAGE>
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 KANSAS
Recent growth in the state's trade, services and manufacturing sectors has
decreased the historical dominance of agriculture on the Kansas economy. In
fact, agriculture today employs only 4.7% of the workforce. The Kansas economy
was characterized by strong employment growth in the manufacturing and
construction sectors in 1995, exceeding the national average. In only three of
the prior 13 years had the state average surpassed national job growth. The
state's other major labor market includes finance, insurance and real estate.
The state's unemployment rate fell from 4.2% in August 1995 to 4.0% a year
later in 1996. Per capita personal income rose 5.1% in 1995 to reach $21,825.
The state reserves 2.5% of the General Fund annually for an operating balance
fund and applies any moneys to budgetary shortfalls. Targeted ending balances
are also used as a means of restraining expenditure growth to the level of
revenue growth. In September 1995, the Governor ordered a 1.5% across the board
reduction in agency expenditures in the face of a revenue shortfall. In
addition, he has ordered all agencies to reduce employment by 2% in 1996. The
1997 budget recommendations include $7.8 billion in expenditures, a reduction
of almost $100 million from 1996.
FACTORS PERTAINING TO KENTUCKY
Kentucky's economy surpassed national growth rates during the 1990's in part
due to its lower costs of living and doing business and an aggressive business
recruitment and incentives program. The state's economic base is concentrated
in manufacturing and service industries such as industrial machinery,
electronics and apparel production and insurance and real estate. Kentucky's
"Golden Triangle" bounded by Cincinnati, Lexington and Louisville has
experienced the most intense economic growth due in part to the influence of
good universities and transportation. Prosperity elsewhere in the state is
uneven.
The state's unemployment rate fell below the national average during the past
two years. The rate as of August 1996 was 4.2%. Per capita income rose 4.8% in
1995 to $18,612.
The state has difficulty at times in balancing its budget. Moody's gives the
state's general obligation debt an Aa rating while S&P gives it an AA rating.
FACTORS PERTAINING TO MICHIGAN
Michigan's economy has long been dominated by the automobile and related
manufacturing industries although employment in those sectors has fallen from
historical levels. As a result, the state is more vulnerable to cyclical
downturns than other states and the nation taken as a whole. However, the state
also manufactures food products, plastics as well as office furniture, and the
tourism, agriculture and mining industries balance the manufacturing sector.
The state's unemployment rate was a low 4.2% as of August 1996 compared to a
national average of 5.1%. This represents a continuing drop from Michigan's
1994 and 1995 averages of 5.9% and 5.0%. Per capita income grew at the fourth
fastest rate in the nation in 1995, reaching $23,551.
The state Constitution mandates that proposed expenditures from each state
fund not exceed proposed revenues available. Any surplus or deficit in a fund
must be carried over to the succeeding year. The state Constitution also limits
the amount of revenue the legislature can raise from taxes and ties it to
personal income levels. The state ended fiscal years 1993 and 1994 with
surpluses of $26 million and $464 million which the government transferred to a
Counter-Cyclical Budget and Economic Stabilization Fund to be used in periods
of budget shortfalls. As of February 7, 1996, Moody's gives the state's general
obligation debt an Aa rating while S&P gives it an AA+ rating.
FACTORS PERTAINING TO MISSOURI
Missouri remains a major manufacturing, financial and agricultural state
whose economic performance echoes that of the nation due to its diverse
employment base. The state expects continued economic improvement in 1996
following its recovery from the nationwide recession of the 1980's. The trade
and service sectors continue to employ over half of the workforce. An increase
in automobile manufacturing employment elevated manufacturing employment levels
generally in the first half of the decade and compensated for defense and
aerospace related job losses.
The state's unemployment rate fell from 5.2% in August 1995 to 4.3% in August
1996, remaining below the national average. Per capita personal income rose
5.2% in 1995 to reach $21,627 after a 6.3% rise in 1994.
S-5
<PAGE>
Sound fiscal management policies led to a balanced budget in 1995 and a
surplus of $1.586 billion. Revenue collections increased in both 1994 and 1995
but the 1996 budget is still based on conservative revenue projections of
$5.455 billion. The Governor enjoys line-item veto power over any
appropriations except for public debt and education expenditures and can reduce
actual state agency spending when revenue shortfalls occur. 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 OHIO
The Ohio economy historically relies on durable goods manufacturing
concentrated in motor vehicles and equipment, steel, rubber products and
household appliances, but has diversified to the point where service sector
employment now rivals that of the manufacturing sector. General economic
activity tends to be more cyclical than in non-industrialized states.
Agricultural production remains important to the economy involving 16% of the
labor force and over half the land area.
From 1990-96, the state's unemployment rate ranked below the national
average. For instance, Ohio enjoyed a low rate of 4.3% in August 1996 compared
to a national average of 5.1%. Personal income growth ranked 12th in the nation
in 1995, increasing to a per capita level of $22,021.
The state cannot by law operate with a deficit and has well-established
procedures to ensure that appropriations and expenditures are matched by
revenues from the General Revenue Fund ("GRF"). The tools available to the
state include targeted and general cuts in spending and a Budget Stabilization
Fund ("BSF"). Ohio operates on two-year budgetary cycles or biennium's. The
1992-3 cycle presented significant shortfalls which were addressed with
spending reductions and tax revisions. By contrast, the 1994-5 biennium
produced a more favorable financial picture and ended with a GRF balance of
$928 million, enabling the state to replenish the BSF with $535.2 million.
Moody's gives Ohio's general obligation bonds an Aa rating while S&P's given
them an AA.
FACTORS PERTAINING TO WISCONSIN
Wisconsin's economy is diverse and strong with non-agricultural employment
evenly spread between the manufacturing, service and trade sectors. The number
of manufacturing jobs achieved an all time high in 1995 as did total non-
agricultural employment. Job growth was expected to slow down to 1% in 1996,
however, reflecting nationwide trends. The state continues its efforts to
attract new businesses with grants and loans for major development projects,
labor training and technology development. The tourism industry has expanded
and now stimulates some $5.6 billion in expenditures.
The state's unemployment rate as of August 1996 was a very low 3.1% compared
to the comparable national average of 5.1% and represents the lowest state
level since 1969. Unemployment was also low in the preceding year, standing at
3.2% for the month of August 1995. Personal income per capita was $21,839 in
1995.
Wisconsin law provides several means to ensure budgetary restraint. The state
Constitution requires the legislature to enact a balanced budget and state law
prohibits enactment of a budget which would cause the estimated General Fund
balance to fall below 1% of general appropriations. The mandated reserves for
1996 and 1997 are $83 million and $92 million, respectively. The Governor can
veto all or part of an appropriations bill. Provision is made for review of
expenditures when the administration projects revenue shortfalls mid-year. The
1995 fiscal year ended with an unaudited balance of $401 million while the
state projects a balance of $442 million out of $20.327 billion in total
disbursements and reserves for 1996. As of February 6, 1996, Moody's gives the
state's general obligation debt an Aa rating while S&P gives it an AA 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
S-6
<PAGE>
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.
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.
S-7
<PAGE>
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 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-8
<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. Schwertfeger* 47 Chairman and Chairman 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).
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).
Robert P. Bremner 56 Trustee Private Investor and Management Consultant.
3725 Huntington Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 62 Trustee Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company.
Highwood, IL 60040
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 Ct. President, Miller-Valentine Realty, Inc.
P.O. Box 744
Dayton, OH 45401
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-9
<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
Steven J. 39 Vice President Vice President of Nuveen Advisory Corp.
Krupa
333 West
Wacker
Drive
Chicago,
IL 60606
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, and Assistant Secretary (since January 1992) of
IL 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, Assistant Vice President (since December 1993) of
IV Nuveen Advisory Corp., portfolio manager prior
One thereto (since January 1992); Vice President
South (since September 1996), previously Assistant Vice
Main President (since May 1995) of Nuveen Institutional
Street Advisory Corp., portfolio manager prior thereto
Dayton, (since January 1992).
OH 45402
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
Thomas C. 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen
Spalding, Institutional Advisory Corp.; Chartered Financial
Jr. Analyst.
333 West
Wacker
Drive
Chicago,
IL 60606
H. 62 Vice President Vice President and Treasurer of The John Nuveen
William Company (since March 1992), John Nuveen & Co.
Stabenow Incorporated, Nuveen Advisory Corp. and Nuveen
333 West Institutional Advisory Corp, (since January 1992).
Wacker
Drive
Chicago,
IL 60606
Gifford 40 Vice President Vice President (since September 1992), Assistant
R. and Assistant Secretary and Assistant General Counsel of John
Zimmerman Secretary Nuveen & Co. Incorporated; Vice President (since
333 West May 1993) and Assistant Secretary of Nuveen
Wacker Advisory Corp.; Vice President (since May 1993)
Drive and Assistant Secretary (since January 1992) of
Chicago, Nuveen Institutional Advisory Corp.
IL 60606
</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 9 other Nuveen open-end funds and 52 Nuveen closed-end funds.
S-10
<PAGE>
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........................ $7,903(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..................... $8,288(3) $21,500(3)
</TABLE>
- --------
(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 month period 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 Kansas Municipal
Bond Fund MLPF&S for the sole benefit 15.89%
Class A Shares................... of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
PaineWebber for the benefit of 7.08
Sonya Ropfogel and Leonard
Ropfogel Ttees Leonard
Dated 8/20/81
155 N. Market, Suite 1000
Wichita KS 67202-1824
Nuveen Flagship Kentucky Municipal
Bond Fund MLPF&S for the benefit of 10.87
Class A Shares................... its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Kentucky Municipal
Bond Fund MLPF&S for the sole benefit of 28.90%
Class C Shares................... its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Kentucky Limited
Term Municipal Bond Fund MLPF&S for the sole benefit of 40.45
Class A Shares................... its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
BHC Securities Inc. 9.73
Trade House Acct
Attn Mutual FD Dept
One Commerce Square
2005 Market St
Philadelphia PA 19103-7042
Nuveen Flagship Kentucky Limited
Term Municipal Bond Fund MLPF&S for the sole benefit of 52.21
Class C Shares................... its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Dean Witter for the benefit of 9.84
Edwin Paul Lyon Jr and
Jo Ann Lyon Jtten
PO Box 266
Salyersville KY 41465-0266
Dean Witter 5.03
for the benefit of
George W. King and
Alice M. King Jtten
114 N Main St
London KY 40741-1369
William Jeffrey Groves 5.03
PO Box 1205
Madisonville KY 42431-8205
Nuveen Flagship Michigan Municipal
Bond Fund
Class A Shares...................
Nuveen Flagship Michigan Municipal
Bond Fund
Class C Shares...................
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Michigan Municipal
Bond Fund
Class R Shares....................
Nuveen Flagship Missouri Municipal
Bond Fund MLPF&S for the sole benefit of 23.38%
Class A Shares.................... of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Missouri Municipal
Bond Fund MLPF&S for the sole benefit 68.06
Class C Shares.................... of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6848
Nuveen Flagship Ohio Municipal Bond
Fund
Class A Shares....................
Nuveen Flagship Ohio Municipal Bond
Fund
Class C Shares....................
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Ohio Municipal Bond
Fund
Class R Shares....................
Nuveen Flagship Wisconsin Municipal
Bond Fund MLPF&S for the sole benefit of 9.81%
Class A Shares.................... its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
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<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>
Nuveen Advisory has agreed to waive all or a portion of its management fee or
reimburse certain expenses of the Ohio Fund in order to prevent total operating
expenses (including Nuveen Advisory's fee, but excluding interest, taxes, fees
incurred in acquiring and disposing of portfolio securities, any asset-based
distribution or service fees and, to the extent permitted, extraordinary
expenses) in any fiscal year from exceeding .75 of 1% of average daily net
asset value of any class of shares of the Fund.
For the other Funds, 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 voluntarily agreed
through July 31, 1997 to waive fees or reimburse expenses so that the total
operating expenses (not counting distribution and service fees, taxes,
interest, fees incurred in acquiring and disposing of portfolio securities and,
to the extent permitted, extraordinary expenses) for the Funds do not exceed
0.75% of average daily net assets.
For the last three fiscal years, the Funds paid net management fees to
Flagship Financial, predecessor to Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO FLAGSHIP REIMBURSEMENTS
FINANCIAL FOR THE YEAR 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>
Kansas Municipal Bond
Fund................... $ -- -- -- 425,046 404,085 496,188
Kentucky Municipal Bond
Fund................... $ 294,356 559,150 799,646 1,521,748 1,357,696 1,328,971
Kentucky Limited Term
Municipal Bond Fund.... $ -- -- -- -- -- 50,402
Michigan Municipal Bond
Fund................... $ 645,194 729,008 873,242 653,131 626,290 586,307
Missouri Municipal Bond
Fund................... $ 107,595 244,956 494,006 779,519 726,130 598,909
Ohio Municipal Bond
Fund................... $1,901,128 1,926,295 1,899,111 404,687 375,587 522,006
Wisconsin Municipal Bond
Fund................... $ -- -- -- -- 22,083 102,593
</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 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.
S-15
<PAGE>
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 Funds' 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 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.
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
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<PAGE>
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 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
S-17
<PAGE>
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 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
S-18
<PAGE>
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
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
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<PAGE>
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.
KANSAS
The following is a general, abbreviated summary of certain provisions of the
applicable Kansas tax law as presently in effect as it directly governs the
taxation resident individual and corporate shareholders of the Kansas Fund. The
foregoing 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 Kansas Fund transactions.
The following is based on the assumptions that the Kansas Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Kansas Fund distributions to qualify as
exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Kansas Fund's shareholders.
The Kansas Fund will be subject to the Kansas corporate franchise tax and the
Kansas corporate income tax only if it has a sufficient nexus with Kansas. If
it is subject to such taxes, it does not expect to pay a material amount of
either tax.
Distributions by the Kansas Fund that are attributable to interest on any
obligation of Kansas and its political subdivisions issued after December 31,
1987, and interest on certain such obligations issued before January 1, 1988,
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 Kansas personal income tax or the Kansas
corporate income tax. All other distributions, including distributions
attributable to capital gains, will be subject to the Kansas personal and
corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Kansas Fund
will be subject to the Kansas personal and corporate income taxes.
Shares of the Kansas Fund may be subject to the Kansas inheritance tax and
the Kansas estate tax if owned by a Kansas decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Kansas and local tax matters.
KENTUCKY
The following is a general, abbreviated summary of certain provisions of the
applicable Kentucky tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Kentucky
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 Kentucky Funds.
The following is based on the assumptions that the Kentucky Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause Kentucky Funds distributions
to qualify as exempt-interest dividends to shareholders, and that they will
distribute all interest and dividends they receive to the Kentucky Funds'
shareholders.
The Kentucky Funds will be subject to the Kentucky corporate income tax, the
Kentucky intangible property tax, and the Kentucky corporation license tax only
if they have a sufficient nexus with Kentucky. If they are subject to such
taxes, they do not expect to pay a material amount of any such tax.
Distributions from the Kentucky Funds that are attributable to interest on
any obligation of Kentucky and its political subdivisions ("Kentucky
Obligations") or to interest on obligations of the United States, its
territories, possessions, or instrumentalities that are exempt from state
taxation under federal law ("Federal Obligations") will not be subject to the
Kentucky personal income tax or the Kentucky corporate income tax. All other
distributions, including distributions attributable to capital gains, will be
subject to the Kentucky personal and corporate income tax.
Resident shareholders will not be subject to the Kentucky intangible property
tax on the portion of the fair cash value of their shares of the Kentucky Funds
that is attributable to Kentucky Obligations or Federal Obligations.
Gain on the sale, exchange, or other disposition of shares of the Kentucky
Funds will be subject to the Kentucky personal and corporate income taxes.
Shares of the Kentucky Funds may be subject to the Kentucky inheritance tax
and the Kentucky estate tax if owned by a Kentucky decedent at the time of
death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Kentucky and local tax matters.
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<PAGE>
MICHIGAN
The following is a general, abbreviated summary of certain provisions of the
applicable Michigan state tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the Michigan
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 Michigan Fund transactions.
The following is based on the assumptions that the Michigan Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Michigan Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Michigan Fund's shareholders.
The Michigan Fund will not be subject to the Michigan intangibles tax. The
Michigan Fund will be subject to the Michigan single business tax only if it
has a sufficient nexus with Michigan. If it is subject to the single business
tax, it does not expect to pay a material amount of such tax.
Distributions by the Michigan Fund attributable to interest on any obligation
of Michigan and its political subdivisions ("Michigan Obligations") or to
interest on obligations of the United States, its territories, possessions, or
instrumentalities that are exempt from state taxation under federal law
("Federal Obligations") will not be subject to the Michigan personal income tax
or the Michigan intangibles tax. In addition, under current administrative
practice of the Michigan Department of Revenue, dividends attributable to gains
realized from the sale or exchange of Federal Obligations will not be subject
to the Michigan personal income tax or the Michigan intangible tax. All other
distributions, including distributions attributable to capital gains (other
than gains from Federal Obligations), will be subject to the Michigan income
tax. Such other distributions also will be subject to the Michigan intangibles
tax; however, under the current administrative practice of the Michigan
Department of Revenue, capital gain dividends that are reinvested in Michigan
Fund shares are not subject to such tax.
If a shareholder subject to the Michigan single business tax receives
distributions derived from interest on Michigan Obligations or sells or
exchanges shares of the Michigan Fund, such events may affect its single
business tax base.
Gain on the sale, exchange, or other disposition of shares of the Michigan
Fund will be subject to the Michigan personal income tax.
Shares of the Michigan Fund may be subject to the Michigan estate tax if
owned by a Michigan decedent at the time of death.
Shareholders should note that the Michigan intangibles tax is repealed
effective January 1, 1998.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Michigan and local tax matters, particularly
with regard to the Michigan single business tax.
MISSOURI
The following is a general, abbreviated summary of certain provisions of the
applicable Missouri tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Missouri
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 Missouri Fund transactions.
The following is based on the assumptions that the Missouri Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Missouri Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Missouri Fund's shareholders.
The Missouri Fund will be subject to the Missouri corporate franchise tax and
the Missouri corporate income tax only if it has a sufficient nexus with
Missouri. If it is subject to such taxes, it does not expect to pay a material
amount with respect to either tax.
Distributions by the Missouri Fund that are attributable to interest on
obligations of Missouri 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 Missouri personal income tax or the Missouri corporate
income tax. All other distributions, including distributions attributable to
capital gains, will be subject to the Missouri personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Missouri
Fund will be subject to the Missouri personal income tax and the Missouri
corporate income tax.
Shares of the Missouri Fund may be subject to the Missouri estate tax if
owned by a Missouri decedent at the time of death.
S-21
<PAGE>
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Missouri and local tax matters.
OHIO
The following is a general, abbreviated summary of certain provisions of the
applicable Ohio tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Ohio 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 Ohio Fund transactions.
The following is based on the assumptions that the Ohio Fund will qualify
under Subchapter M of the Code as a regulated investment company and under Ohio
law as a qualified investment trust, that it will file any report that may be
required of it under the Ohio Revised Code, that it will satisfy the conditions
which will cause Ohio Fund distributions to qualify as exempt-interest
dividends to shareholders, and that it will distribute all interest and
dividends it receives to the Ohio Fund's shareholders.
The Ohio Fund is not subject to Ohio taxes.
Distributions by the Ohio Fund attributable to interest on or gain from the
sale of any interest-bearing obligation of Ohio and its political subdivisions
("Ohio Obligations") or to interest on obligations of the United States, its
territories, possessions, or instrumentalities that are exempt from state
taxation under federal law ("Federal Obligations") will not be subject to the
Ohio personal income tax. All other distributions, including distributions
attributable to capital gains (other than capital gains on Ohio Obligations),
will be subject to the Ohio personal income tax.
In computing their Ohio corporation franchise tax on the net income basis,
shareholders will not be subject to tax on the portion of distributions by the
Ohio Fund that is attributable to interest on or gain from the sale of Ohio
Obligations, interest on similar obligations of other states or their political
subdivisions, or interest on Federal Obligations. In computing their corporate
franchise tax on the net worth basis, shareholders must include in their tax
base their shares of the Ohio Fund.
Gain on the sale, exchange or other disposition of shares of the Ohio Fund
will be subject to the Ohio personal income tax and to the Ohio corporation
franchise tax.
Shares of the Ohio Fund may be subject to the Ohio estate tax if owned by an
Ohio decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Ohio and local tax matters.
WISCONSIN
The following is a general, abbreviated summary of certain provisions of the
applicable Wisconsin tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Wisconsin
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 Wisconsin Fund transactions.
The following is based on the assumptions that the Wisconsin Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Wisconsin Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Wisconsin Fund's
shareholders.
The Wisconsin Fund will be subject to the Wisconsin corporate franchise tax
or the corporate income tax only if it has a sufficient nexus with Wisconsin.
If it is subject to such taxes, it does not expect to pay a material amount of
either tax.
Distributions by the Wisconsin Fund that are attributable to interest earned
on any obligations of Wisconsin and its political subdivisions that are exempt
from the Wisconsin personal income tax under Wisconsin law 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 Wisconsin personal income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
Wisconsin personal income tax.
All Wisconsin Fund distributions to corporate shareholders, regardless of
source, will be subject to the Wisconsin corporate franchise tax.
Gain on the sale, exchange, or other disposition of shares of the Wisconsin
Fund will be subject to the Wisconsin personal income and corporate franchise
taxes.
Shares of the Wisconsin Fund may be subject to the Wisconsin estate tax if
owned by a Wisconsin decedent at the time of death.
S-22
<PAGE>
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Wisconsin state and tax maters.
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% (2.5% for the
Kentucky Limited Term 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 NOVEMBER 30, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Kansas Municipal Bond Fund
Class A Shares............. 4.81% 44.5% 8.67%
Class C Shares............. N/A N/A N/A
Class R Shares............. N/A N/A N/A
Kentucky Municipal Bond Fund
Class A Shares............. 4.63% 43.0% 8.12%
Class C Shares............. 4.29% 43.0% 7.53%
Class R Shares............. N/A N/A N/A
Kentucky Limited Term
Municipal Bond Fund
Class A Shares............. 4.23% 43.0% 7.42%
Class C Shares............. 4.04% 43.0% 7.09%
Class R Shares............. N/A N/A N/A
Michigan Municipal Bond Fund
Class A Shares............. 4.42% 43.0% 7.75%
Class C Shares............. 4.26% 43.0% 7.47%
Class R Shares............. N/A N/A N/A
Missouri Municipal Bond Fund
Class A Shares............. 4.56% 43.0% 8.00%
Class C Shares............. 4.22% 43.0% 7.40%
Class R Shares............. N/A N/A N/A
Ohio Municipal Bond Fund
Class A Shares............. 4.13% 44.0% 7.38%
Class C Shares............. 3.77% 44.0% 6.73%
Class R Shares............. N/A N/A N/A
Wisconsin Municipal Bond Fund
Class A Shares............. 4.60% 44.0% 8.21%
Class C Shares............. N/A N/A N/A
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.
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.
S-24
<PAGE>
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% (2.5% for the Kentucky Limited
Term Municipal Bond Fund), were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-----------------------
DISTRIBUTION RATES
-----------------------
CLASS A CLASS C CLASS R
------- ------- -------
<S> <C> <C> <C>
Kansas Municipal Bond Fund........................ 4.82% N/A N/A
Kentucky Municipal Bond Fund...................... 5.01% 4.71% N/A
Kentucky Limited Term Municipal Bond Fund......... 4.22% 4.03% N/A
Michigan Municipal Bond Fund ..................... 4.91% 4.56% N/A
Missouri Municipal Bond Fund...................... 4.84% 4.52% N/A
Ohio Municipal Bond Fund.......................... 4.96% 4.65% N/A
Wisconsin Municipal Bond Fund..................... 4.81% N/A 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.
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
Kansas Municipal Bond Fund
Class A Shares....................................... January 9, 1992
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 1, 1997
Class R Shares....................................... February 1, 1997
Kentucky Municipal Bond Fund
Class A Shares....................................... May 4, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
Kentucky Limited Term Municipal Bond Fund
Class A Shares....................................... September 14, 1995
Class C Shares....................................... September 14, 1995
Class R Shares....................................... February 1, 1997
Michigan Municipal Bond Fund
Class A Shares....................................... June 27, 1985
Class B Shares....................................... February 1, 1997
Class C Shares....................................... June 22, 1993
Class R Shares....................................... February 1, 1997
Missouri Municipal Bond Fund
Class A Shares....................................... August 3, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 2, 1994
Class R Shares....................................... February 1, 1997
Ohio Municipal Bond Fund
Class A Shares....................................... June 27, 1985
Class B Shares....................................... February 1, 1997
Class C Shares....................................... August 3, 1993
Class R Shares....................................... February 1, 1997
Wisconsin Municipal Bond Fund
Class A Shares....................................... June 1, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 1, 1997
Class R Shares....................................... February 1, 1997
</TABLE>
S-25
<PAGE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A Shares, for the one-year, five-year, and ten-
year periods (as applicable) ended November 30, 1996 and for the period from
inception through November 30, 1996, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
NOVEMBER 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Kansas Municipal Bond
Fund
Class A Shares........ 0.59% N/A N/A 6.20%
Class B Shares........ 4.43% N/A N/A 6.55%
Class C Shares........ 4.64% N/A N/A 6.76%
Class R Shares........ 5.01% N/A N/A 7.14%
Kentucky Municipal Bond
Fund
Class A Shares........ 0.95% 6.78% N/A 7.78%
Class B Shares........ 4.81% 7.11% N/A 7.77%
Class C Shares........ 4.81% 7.05% N/A 7.65%
Class R Shares........ 5.38% 7.70% N/A 8.27%
Kentucky Limited Term
Municipal Bond Fund
Class A Shares........ 2.75% N/A N/A 4.62%
Class B Shares........ N/A N/A N/A N/A
Class C Shares........ 5.04% N/A N/A 6.47%
Class R Shares........ 5.38% N/A N/A 6.82%
Michigan Municipal Bond
Fund
Class A Shares........ 1.03% 6.67% 6.93% 8.21%
Class B Shares........ 4.88% 7.00% 6.92% 8.21%
Class C Shares........ 4.80% 6.75% 6.68% 7.91%
Class R Shares........ 5.46% 7.59% 7.39% 8.62%
Missouri Municipal Bond
Fund
Class A Shares........ 0.99% 6.70% N/A 7.47%
Class B Shares........ 4.85% 7.03% N/A 7.46%
Class C Shares........ 4.85% 7.05% N/A 7.38%
Class R Shares........ 5.42% 7.62% N/A 7.96%
Ohio Municipal Bond Fund
Class A Shares........ 0.38% 6.23% 6.84% 8.00%
Class B Shares........ 4.21% 6.56% 6.83% 7.99%
Class C Shares........ 4.21% 6.56% 6.71% 7.81%
Class R Shares........ 4.78% 7.14% 7.30% 8.40%
Wisconsin Municipal Bond
Fund
Class A Shares........ (.04)% N/A N/A 4.77%
Class B Shares........ 3.77% N/A N/A 6.00%
Class C Shares........ 3.97% N/A N/A 6.21%
Class R Shares........ 4.34% N/A N/A 6.58%
</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.
S-26
<PAGE>
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, for the one-year, five-year,
and ten-year periods (as applicable) ended November 30, 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> <C>
Kansas Municipal Bond
Fund
Class A Shares........ 0.59% N/A N/A 34.22%
Class B Shares........ 4.43% N/A N/A 36.39%
Class C Shares........ 4.64% N/A N/A 37.73%
Class R Shares........ 5.01% N/A N/A 40.11%
Kentucky Municipal Bond
Fund
Class A Shares........ 0.95% 38.79% N/A 104.99%
Class B Shares........ 4.81% 40.97% N/A 104.82%
Class C Shares........ 4.81% 40.60% N/A 102.52%
Class R Shares........ 5.38% 44.87% N/A 113.98%
Michigan Municipal Bond
Fund
Class A Shares........ 1.03% 38.12% 95.50% 146.50%
Class B Shares........ 4.88% 40.28% 95.33% 146.32%
Class C Shares........ 4.80% 38.61% 90.92% 138.77%
Class R Shares........ 5.46% 44.17% 104.08% 157.31%
Missouri Municipal Bond
Fund
Class A Shares ....... 0.99% 38.27% N/A 95.74%
Class B Shares........ 4.85% 40.44% N/A 95.58%
Class C Shares........ 4.85% 40.56% N/A 94.32%
Class R Shares........ 5.42% 44.34% N/A 104.33%
Ohio Municipal Bond Fund
Class A Shares ....... 0.38% 35.26% 93.75% 140.85%
Class B Shares........ 4.21% 37.38% 93.58% 140.66%
Class C Shares........ 4.21% 37.41% 91.51% 136.13%
Class R Shares........ 4.78% 41.19% 102.25% 151.41%
Wisconsin Municipal Bond
Fund
Class A Shares ....... (.04%) N/A N/A 12.35%
Class B Shares........ 3.77% N/A N/A 15.68%
Class C Shares........ 3.97% N/A N/A 16.26%
Class R Shares........ 4.34% N/A N/A 17.27%
</TABLE>
The cumulative total return figures for the Kentucky Limited Term
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 using the
performance of the oldest class for periods prior to the inception of the newer
classes, as described above, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------
FROM
ONE YEAR INCEPTION
ENDED THROUGH
NOVEMBER 30, NOVEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
Kentucky Limited Term Municipal Bond Fund
Class A Shares................................ 2.75% 5.62%
Class C Shares................................ 5.04% 7.90%
Class R Shares................................ 5.38% 8.33%
</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.
S-27
<PAGE>
Using the 44.5% maximum marginal federal tax rate for 1997, the annual
taxable equivalent total return for the Kansas Municipal Bond Fund, Class A
Shares, for the one-year period ended November 30, 1996 was 9.26%.
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, 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 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.
S-28
<PAGE>
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 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
S-29
<PAGE>
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 purchased after that date will not have the option to convert those
shares to Class A Shares.
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 and their children under 21 years
of age); 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 or purchase.
S-30
<PAGE>
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 the 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.
To help advisers and investors better understand and most efficiently use the
Fund 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.
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 Shareholder Services, Inc., 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 IV, 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
S-31
<PAGE>
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, Inc. (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
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 NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Kansas Fund............. 251 35 384 51 1,400 185
Kentucky Fund........... 1,057 145 1,304 174 3,193 424
Kentucky Limited Fund... 23 4 -- -- -- --
Michigan Fund........... 553 76 594 81 1,223 139
Missouri Fund........... 632 87 892 120 2,103 278
Ohio Fund............... 931 124 1,066 141 2,337 275
Wisconsin Fund.......... 170 21 272 24 -- --
</TABLE>
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.
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<PAGE>
For the fiscal year ended May 31, 1996, 100% of service fees and distribution
fees were paid out as compensation to Authorized Dealers. For such periods, the
service fee for the 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>
Kansas Municipal Bond Fund (5/31/96)
Class A................................................ $ 373,114
Class C................................................ N/A
Kentucky Municipal Bond Fund (5/31/96)
Class A................................................ $1,621,314
Class C................................................ $ 181,774
Kentucky Limited Municipal Bond Fund (5/31/96)
Class A................................................ $ 8,450
Class C................................................ $ 3,532
Michigan Bond Fund (5/31/96)
Class A................................................ $1,002,957
Class C................................................ $ 383,244
Missouri Municipal Bond Fund (5/31/96)
Class A................................................ $ 851,451
Class C................................................ $ 48,302
Ohio Municipal Bond Fund (5/31/96)
Class A................................................ $1,802,234
Class C................................................ $ 307,322
Wisconsin Municipal Bond Fund (5/31/96)
Class A................................................ $ 44,164
Class C................................................ N/A
</TABLE>
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 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 Funds' assets 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-33
<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>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Hospitals
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,075 Lawrence, KS Hospital Revenue - Lawrence Memorial Hospital - Series 1994 6.200% 07/01/14 $ 1,075,602
400 Lawrence, KS Hospital Revenue - Lawrence Memorial Hospital - Series 1994 6.200 07/01/19 395,620
1,000 Olathe, KS Health Facilities Revenue - Olathe Medical Center - Miami County
Medical Center Project - Series 1996 A and B 5.500 09/01/24 941,300
100 Commonwealth of Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority Revenue -
Hospital Auxilio Mutuo - Series 1995 6.250 07/01/24 102,799
1,400 Wichita, KS Hospital Facilities Improvement Revenue - St. Francis Regional
Medical Center, Incorporated - Series III-A-3 6.250 10/01/10 1,442,896
2,250 Wichita, KS Revenue - CSJ Health System - Series XXV 7.200 10/01/15 2,375,752
450 Wichita, KS Revenue - CSJ Health Systems -Series X 7.000 11/15/18 464,445
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------------
995 Kansas City, KS Multifamily Housing Revenue - Rainbow Towers - Series 1994 6.700 07/01/23 1,009,428
1,000 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments
Project - Series 1993 A 6.500 02/01/23 1,011,090
445 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments
Project - Series 1993A 6.300 02/01/09 455,079
475 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments
Project - Series 1993A 6.400 02/01/10 484,752
2,000 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments
Project - Series 1993A 6.450 02/01/18 2,028,900
1,000 Olathe, KS Multifamily Housing Revenue - Deerfield Apartments - Series 1994 A 6.450 06/01/19 1,011,000
1,500 Wichita, KS Multifamily Housing Revenue - Shores Apartments - Series 1994 6.700 04/01/19 1,543,965
2,000 Wichita, KS Multifamily Housing Revenue - Shores Apartments - Series 1994 6.800 04/01/24 2,065,960
900 Wichita, Kansas Multifamily Housing Revenue - Brentwood Apartments -
Series 1995 IX-A and IX-B 5.850 12/01/25 871,056
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------------
230 Hutchinson, KS Single Family Mortgage Revenue - Series 1992 6.500 12/01/09 234,230
3,800 Kansas City, KS GNMA Collateralized Mortgage Revenue - Series 1995 5.900 11/01/27 3,708,572
710 Olathe-Labette County, KS Single Family Mortgage Revenue - Series 1994 C-I 7.800 02/01/25 776,761
2,275 Sedgwick County, KS Mortgage Loan Revenue - GNMA Collateralized Local
or Guaranteed Housing - Series 1989 7.875 12/01/21 2,418,575
1,425 Sedgwick and Shawnee County, KS Single Family Mortgage Revenue - Series 1994 A-III 8.125 05/01/24 1,573,514
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------------
4,550 Clearwater, KS Pollution Control Refunding Revenue - Vulcan Materials
Company - Series 1992 6.375 02/01/12 4,675,080
1,000 Dodge City, KS Pollution Control Revenue - Excel Corporation Project -
Series 1992 6.625 05/01/05 1,083,710
1,500 Puerto Rico Ports Authority - Special Facilities Revenue - American Airlines,
Incorporated Project - Series 1996 A 6.250 06/01/26 1,468,200
650 Wichita, KS Airport Authority - Wichita Airport Hotel Associates - Series 1992 7.000 03/01/05 699,933
</TABLE>
4 F-104 Kansas
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
Face
Amount Face Market
(000) Description Rate Maturity Value
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 275 Cowley County, KS Community College - Series 1992 7.000% 03/01/12 $ 288,164
500 Kansas State Development Finance Authority Revenue - Department of Corrections -
El Dorado and Larned Projects - Series 1992 L 6.000 02/01/09 510,280
455 Kansas State Development Finance Authority Revenue - Department of Corrections -
El Dorado and Larned Projects - Series 1992 L 6.000 08/01/09 464,355
1,050 Kansas State Development Finance Authority Revenue - Highway Patrol Central
Training Facility - Series 1992 T 6.600 12/01/07 1,116,706
Muicipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------------
1,500 Gardner, KS Electric Utility Revenue - Series 1992 7.000 11/01/09 1,594,995
2,500 Kansas City, KS Utility System Revenue - Series 1994 6.250 09/01/14 2,572,125
2,900 Kansas City, KS Utility System Revenue - Series 1994 6.375 09/01/23 3,004,487
215 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 6.125 07/01/08 221,424
150 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 6.000 07/01/16 147,926
11,380 Commonwealth of Puerto Rico Electric Power Authority - Series 1995 X 5.500 07/01/25 10,411,790
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------------
1,205 Junction City, KS Water and Sewer System Revenue - Series 1996 A 5.400 09/01/16 1,146,509
3,000 Kansas State Development Finance Authority - Water Pollution Control Revenue -
Series 1993 II 6.000 11/01/14 3,016,950
350 Newton, KS Wastewater Treatment System - Series 1992 7.125 03/01/12 373,670
200 Olathe, KS Water and Sewer System Revenue - Johnson County - Series 1990 6.875 02/01/09 205,442
200 Olathe, KS Water and Sewer System Revenue - Johnson County - Series 1990 6.875 08/01/09 205,442
750 Salina, KS Water and Sewer Improvement Revenue 6.250 10/01/12 789,038
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------------
170 Derby, KS General Obligation - Series II 6.500 12/01/12 175,129
440 Jefferson County, KS Unified School District Number 340 -
General Obligation - Series 1994 6.350 09/01/14 459,743
625 Johnson County, KS Unified School District Number 512 -
Shawnee Mission - Series 1992 C 6.000 10/01/09 636,244
1,750 Kansas City, KS General Obligation - Series 1995 5.375 09/01/10 1,716,575
860 Lyon County, KS Unified School District Number 253 - General Obligation -
Emporia - Series 1993 5.650 10/01/11 859,923
605 Lyon County, KS Unified School District Number 253 - General Obligation -
Emporia - Series 1993 5.700 10/01/12 604,946
800 Miami County, KS Unified School District Number 368 - Series 1992 6.600 12/01/08 855,400
250 Commonwealth of Puerto Rico Municipal Finance Agency - Series A 8.250 07/01/08 272,465
1,000 Shawnee County, KS Unified School District Number 437 - Seaman - Series 1994 5.700 09/01/14 989,840
350 Shawnee County, KS Unified School District Number 437 - Auburn-Washburn -
Series 1992 6.600 09/01/09 370,664
</TABLE>
Kansas F-105 5
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
Face
Amount Face Market
(000) Description Rate Maturity Value
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 325 Hays, KS Sales Tax Revenue - Series 1992 6.875% 09/01/12 $ 348,231
355 Jackson County, KS General Obligation - Unified School District Number 336 -
Holton 6.600 10/01/12 390,809
380 Jackson County, KS General Obligation - Unified School District Number 336 -
Denison-Holton - Series 1992 6.650 10/01/13 419,585
12,475 Johnson County, KS Residual Revenue - Series 1992 0.000 05/01/12 4,756,967
2,000 Kansas City, KS Single Family Mortgage Revenue - Verex - Series 1983 A 0.000 12/01/14 649,020
350 Kansas State Department of Transportation - Highway Revenue - Series 1992 6.500 03/01/12 383,218
150 Leawood, KS Public Building Commission - Leawood City Hall - Series 1992 6.600 09/01/12 163,892
975 Olathe-Labette County, KS Single Family Mortgage Revenue - Series 1984 A 0.000 02/01/16 294,548
2,120 Reno and Labette County, KS Single Family Mortgage Revenue - Series 1983 A 0.000 12/01/15 646,982
2,095 Reno/Sedgwick/Finney County, KS Single Family Mortgage Revenue - Series 1984 A 0.000 04/01/16 625,316
1,320 Saline County, KS Single Family Mortgage Revenue - Series 1983 0.000 12/01/15 402,838
80 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1992 T 6.625 07/01/18 88,653
900 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1992 T 6.625 07/01/18 994,833
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------------
4,450 Kansas State Department of Transportation - Highway Revenue - Series 1992A 6.000 09/01/12 4,501,398
1,000 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1993 W 5.500 07/01/13 952,090
750 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1993 X 5.500 07/01/13 712,530
3,500 Puerto Rico Highway and Transportation Authority Revenue -
Series 1996 Y and Z 5.500 07/01/36 3,176,880
1,000 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1993 W 5.500 07/01/15 972,330
100 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 107,983
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------------
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1992 A 6.000 07/01/14 993,400
1,500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 1,544,700
1,000 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 1,049,040
2,000 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue -
Series 1995 5.000 07/01/15 1,757,920
3,000 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public
Education and Health Facilities - Series M 5.000 07/01/21 2,795,550
Total Investments in Securities - Municipal Bonds (cost $94,411,159) - 98.9% 95,657,164
Excess of Other Assets over Liabilities - 1.1% 1,036,604
Total Net Assets - 100.0% $96,693,768
See notes to financial statements.
</TABLE>
6 F-106 Kansas
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (cost $94,411,159) $95,657,164
Receivable for investments sold 140,130
Receivable for Fund shares sold 24,583
Interest receivable 1,607,802
Other 6,053
Total assets 97,435,732
LIABILITIES:
Bank borrowings (Note G) 150,989
Payable for Fund shares reacquired 83,964
Distributions payable 437,875
Accrued expenses 69,136
Total liabilities 741,964
NET ASSETS:
Applicable to 9,837,930 shares of beneficial interest issued
and outstanding $96,693,768
Net asset value per share $ 9.83
</TABLE>
[LOGO OF SHIP ART]
Statement of Operations For the year ended May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME - INTEREST $ 5,491,517
EXPENSES:
Distribution fees (Note E) 373,114
Investment advisory fees (Note E) 468,046
Custody and accounting fees 78,087
Transfer agent's fees 66,085
Registration fees 11,150
Legal fees 2,389
Audit fees 13,400
Reimbursement of organizational expenses (Note F) 8,601
Trustees' fees 2,562
Shareholder services fees (Note E) 10,490
Other 2,898
Expense subsidy (Note E) (66,694)
Advisory fees waived (Note E) (429,494)
Total expenses before credits 540,634
Custodian fee credit (Note B) (31,897)
Net expenses 508,737
Net investment income 4,982,780
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 355,041
Change in unrealized appreciation (depreciation) of investments (2,413,598)
Net loss on investments (2,058,557)
Net increase in net assets resulting from operations $ 2,924,223
</TABLE>
See notes to financial statements.
Kansas F-107 7
<PAGE>
[LOGO OF SHIP ART]
Statements of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS Year Ended Year Ended
Operations: May 31, 1996 May 31, 1995
<S> <C> <C>
Net investment income $ 4,982,780 $ 4,581,886
Net realized gain (loss) on security transactions 355,041 (3,110,652)
Change in unrealized appreciation (depreciation) of investments (2,413,598) 4,329,711
Net increase in net assets resulting from operations 2,924,223 5,800,945
Distributions to shareholders:
From net investment income (5,023,868) (4,609,298)
Net decrease in net assets from distributions to shareholders (5,023,868) (4,609,298)
Net increase in net assets from Fund share transactions (Note C) 15,110,128 2,431,796
Total increase in net assets 13,010,483 3,623,443
NET ASSETS:
Beginning of year 83,683,285 80,059,842
End of year $ 96,693,768 $83,683,285
NET ASSETS CONSIST OF:
Paid-in surplus $100,520,594 $85,451,554
Accumulated net realized gain (loss) on security transactions (5,072,831) (5,427,872)
Unrealized appreciation (depreciation) of investments 1,246,005 3,659,603
$ 96,693,768 $83,683,285
</TABLE>
See notes to financial statements.
8 F-108 Kansas
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
................................................................................
A. Description of Business
The Flagship Kansas 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 an open-end non-diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund commenced investment operations on January 9,
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.
Kansas F-109 9
<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 May 31, 1996.
C. Fund Shares
At May 31, 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>
Year Ended Year Ended
May 31, 1996 May 31, 1995
-------------------------- --------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 2,552,505 $ 25,844,692 1,847,956 $ 17,915,184
Shares issued on reinvestment 257,842 2,591,397 257,537 2,474,272
Shares reacquired (1,330,464) (13,325,961) (1,894,256) (17,957,660)
Net increase 1,479,883 $ 15,110,128 211,237 $ 2,431,796
</TABLE>
D. Purchases and Sales of Municipal Bonds
Purchases and sales of municipal bonds for the year ended May 31, 1996,
aggregated $65,698,113 and $50,774,443, respectively. At May 31, 1996, cost
for federal income tax purposes is $94,411,159 and net unrealized
appreciation aggregated $1,246,005, of which $2,050,045 related to
appreciated securities and $804,040 related to depreciated securities.
At May 31, 1996, the Fund has available a capital loss carryforward of
approximately $5,072,800 to offset future net capital gains expiring on 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 year ended May 31,
1996, the Advisor, at its discretion, permanently waived $429,494 of its
advisory fees. 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 May 31, 1996 are accrued distribution fees of $32,803. 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 shares of
approximately $251,000 for the year ended May 31, 1996, of which
approximately $216,000 was paid to other dealers. Certain officers and
trustees of the Trust are also officers and/or directors of the Distributor
and/or Advisor.
10 F-110 Kansas
<PAGE>
Notes to Financial Statements
................................................................................
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund (approximately
$42,800) are being reimbursed to the Advisor on a straight-line basis over a
period of five years. As of May 31, 1996, $25,757 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 $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 year ended May 31, 1996 was approximately
$251,700, at a weighted average annualized interest rate of 6.52%. At May 31,
1996, the Fund had $150,989 outstanding under the line of credit.
Kansas F-111 11
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
Year Ended Year Ended Year Ended Year Ended January 9, 1992 to
May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.01 $ 9.83 $ 10.38 $ 9.65 $ 9.58
Income from investment operations:
Net investment income 0.54 0.55 0.56 0.58 0.19
Net realized and unrealized gain (loss) on
securities (0.18) 0.18 (0.47) 0.73 0.07
Total from investment operations 0.36 0.73 0.09 1.31 0.26
Less distributions:
From net investment income (0.54) (0.55) (0.57) (0.58) (0.19)
From net realized capital gains (0.02)
In excess of net realized capital gains (0.05)
Total distributions (0.54) (0.55) (0.64) (0.58) (0.19)
Net asset value, end of period $ 9.83 $ 10.01 $ 9.83 $ 10.38 $ 9.65
Total return/a/ 3.63% 7.80% 0.62% 14.15% 5.95%
Ratios to average net assets (annualized where
appropriate):
Actual net of waivers and reimbursements:
Expenses/b/ 0.57% 0.54% 0.26% 0.11% 0.40%
Net investment income 5.31% 5.67% 5.37% 5.74% 5.11%
Assuming credits and no waivers or
reimbursements:
Expenses 1.08% 1.10% 1.06% 1.22% 2.01%
Net investment income 4.80% 5.11% 4.57% 4.63% 3.50%
Net assets at end of period (000's) $ 96,694 $83,683 $80,060 $62,585 $9,552
Portfolio turnover rate 54.90% 71.50% 93.45% 55.70% 59.26%
</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 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 0.54%; prior period numbers have not
been restated to reflect these credits.
12 F-112 Kansas
<PAGE>
[LOGO OF SHIP ART] Independent Auditors' Report
................................................................................
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP KANSAS
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments in securities and net assets, of the
Flagship Kansas Triple Tax Exempt Fund as of May 31, 1996, the related statement
of operations for the year then ended, and the statements of changes in net
assets and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the Fund's custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Flagship
Kansas Triple Tax Exempt Fund at May 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 3, 1996
Kansas F-113 13
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Limited Term
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 50 Murray State University, KY Revenue - Consolidated Educational Buildings -
Series 1993 G 4.900% 05/01/00 $ 50,122
250 University of Kentucky Revenue - Consolidated Educational Buildings -
Series 1995 O 5.000 05/01/03 250,135
50 University of Louisville Kentucky Revenue - Housing Systems - Series 1994 D 5.400 11/01/02 51,250
Hospitals
--------------------------------------------------------------------------------------------------------------------------
75 Boyle County, KY Hospital Authority Revenue - Ephraim McDowell Regional
Medical Center - Series 1994 5.500 04/01/03 77,186
150 Kentucky Development Finance Authority Revenue - Sisters of Charity -
Nazareth Health Corporation - Serice 1991 5.750 11/01/98 153,448
380 Kentucky Development Finance Authority Revenue - Sisters of Charity -
Nazareth Health Corporation - Series 1991 6.000 11/01/01 393,083
300 Kentucky Development Finance Authority Revenue - Sisters of Charity -
Nazareth Health Corporation - Series 1991 6.600 11/01/06 316,869
270 Kentucky Economic Development Finance Authority Medical Center
Improvement Revenue - Ashland Hospital - Series 1993A 5.100 02/01/99 274,012
200 Kentucky Economic Development Finance Authority Hospital Facilities
Revenue - Green River Regional Mental Health/Mental Retardation Board,
Incorporated - Series 1996 5.200 11/01/01 197,580
325 McCracken County, KY Hospital Facilities Revenue - Mercy Health System -
Series 1994 A 6.300 11/01/06 348,588
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------------
410 Martin County, KY Mortgage Revenue - FHA Insured Mortgage Loan -
Series 1995 5.375 07/01/05 412,198
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------------
100 Kentucky Housing Corporation Revenue - Series 1993 B 5.150 07/01/07 98,586
100 Kentucky Housing Corporation - Housing Revenue - Series 1995 F 4.650 01/01/02 98,922
100 Kentucky Housing Corporation - Housing Revenue - Series 1995 F 4.800 07/01/03 99,221
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------------
325 Ashland, KY Pollution Control Revenue - Ashland Oil Inc. - Series 1988 7.375 07/01/09 345,995
635 Newport, KY Industrial Building Revenue - Louis Trauth Dairy, Incorporated
Project - Series 1996 A and B 4.800 06/01/99 631,888
Municipal Appropriation Obligations
--------------------------------------------------------------------------------------------------------------------------
265 Hardin County, KY School District Finance Corporation - Building Revenue 6.800 06/01/08 285,339
300 Jefferson County, KY Capital Projects Corporation - Lease Revenue -
Series 1996 A 5.500 04/01/03 308,745
150 Jeffersontown, KY Public Projects Refunding and Improvements -
Certificates of Participation - Series 1996 4.850 11/01/04 147,192
100 Jeffersontown, KY Public Projects Refunding and Improvements -
Certificates of Participation - Series 1996 5.000 11/01/05 98,594
</TABLE>
Kentucky F-114 5
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds-Kentucky Limited Term (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 430 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund -
Series 1995 C 5.300% 06/01/03 $ 435,010
200 Kentucky State Property and Buildings Commission Revenue -
Project Number 55 - Series 1993 4.500 09/01/02 194,988
120 Kentucky State Turnpike Authority - Economic Development Road Revenue -
Series 1995 5.000 07/01/02 121,060
125 Kentucky State Turnpike Authority - Resource Recovery Road Revenue
Refunding - Series 1985 A 6.000 07/01/09 125,128
675 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue -
Series 1993 A 5.625 03/01/03 680,400
275 Commonwealth of Puerto Rico Urban Renewal and Housing - Series 1989 0.000 10/01/98 244,233
Municipal Revenue/Transportation
---------------------------------------------------------------------------------------------------------------------------
300 Kenton County, KY Airport Board Cincinnati/Northern Kentucky International
Airport Revenue - Series 1996 5.000 03/01/02 297,468
200* Louisville and Jefferson County, KY Regional Airport Authority System Revenue -
Revenue - Series 1997 A 5.750 07/01/98 200,232
Municipal Revenue/Utility
---------------------------------------------------------------------------------------------------------------------------
400 Owensboro, KY Electric Light and Power System Revenue - Series 1993A 0.000 01/01/04 270,612
Municipal Revenue/Water & Sewer
---------------------------------------------------------------------------------------------------------------------------
50 Kenton County, KY Water District Number 1 Revenue - Series 1995 A 5.700 02/01/04 52,106
250 Kenton County, KY Water District Number 1 Revenue - Series 1995 B 5.600 02/01/03 259,400
50 Kentucky Infrastructure Authority Revenue - Governmental Agencies
Program - Series 1993 F 4.500 02/01/01 49,049
25 Louisville, KY Water Works Board - Louisville Water Company -
Water System Revenue Bonds - Series 1992 5.100 11/15/01 25,368
Non-State General Obligations
---------------------------------------------------------------------------------------------------------------------------
50 Kentucky Interlocal School Transportation Association - Equipment Lease
Revenue - Series 1993 5.200 03/01/02 50,565
165 Lexington-Fayette Urban County Government Public Facilities Corporation -
Mortgage Revenue - Series 1995 5.000 11/01/01 167,100
175 Lexington-Fayette Urban County Government Public Facilities Corporation -
Mortgage Revenue - Series 1995 5.000 11/01/02 176,617
160 Lexington-Fayette Urban County Government Public Facilities Corporation -
Mortgage Revenue - Series 1995 5.000 11/01/03 160,682
50 Pike County, Ky School District Finance Corporation - School Building Revenue -
Second Series 1993 4.300 10/01/98 49,954
Pre-refunded or Escrowed
---------------------------------------------------------------------------------------------------------------------------
150 Hardin County, KY Hospital Revenue - Hardin Memorial Hospital 7.875 10/01/14 166,110
250 Jefferson County, KY Capital Projects Corporation Revenue - Municipal Lease -
Series B 0.000 08/15/19 49,008
245 Kentucky State Property and Buildings Commission Revenue -
Project Number 48 8.000 08/01/08 268,277
</TABLE>
6 F-115 Kentucky
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Limited Term (continued)
<TABLE>
<CAPTION>
Face Face Market
Amount Description Rate Maturity Value
(000)
<C> <S> <C> <C> <C>
$ 325 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/11 $ 363,568
100 Western Kentucky University Revenue - Series 1990 J 7.400 05/01/10 112,346
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------------
450 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1996 A 4.600 07/01/04 436,792
Student Loan Revenue Bonds
--------------------------------------------------------------------------------------------------------------------------
500 Kentucky Higher Education Student Loan Corporation Revenue - Series B 6.800 06/01/03 539,755
50 Kentucky Higher Education Student Loan Corporation Revenue - Series 1993 B 5.000 06/01/02 49,338
75 Kentucky Higher Education Student Loan Corporation Review - Series 1994 6.050 06/01/00 77,906
Total Investments in Securities - Municipal Bonds (cost $10,350,766) - 101.0% 10,262,025
Excess of Liabilities over Other Assets - (1.0)% (105,247)
Total Net Assets - 100.0% $10,156,778
*Securities purchased on a "when issued" basis.
See notes to financial statements.
</TABLE>
Kentucky F-116 7
<PAGE>
[LOGO OF SHIP ART]
Kentucky Limited Term
Statement of Assets and Liabilities May 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
ASSETS: <C>
Investments, at market value (cost $10,350,766) $10,262,025
Receivable for Fund shares sold 4,000
Interest receivable 146,387
Other 90
Total assets 10,412,502
LIABILITIES:
Bank overdraft 1,116
Payable for investments purchased 202,417
Distributions payable 38,299
Accrued expenses 13,892
Total liabilities 255,724
NET ASSETS 10,156,778
Class A:
Applicable to 856,612 shares of beneficial interest
issued and outstanding $ 8,389,307
Net asset value per share $ $9.79
Class C:
Applicable to 180,501 shares of beneficial interest
issued and outstanding $ 1,767,471
Net asset value per share $ 9.79
</TABLE>
[LOGO OF SHIP ART]
Kentucky Limited Term For the period from September 14, 1995 to
Statement of Operations May 31, 1996
...............................................................................
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME - INTEREST $ 198,793
EXPENSES:
Distribution fees - Class A (Note E) 14,089
Distribution fees - Class C (Note E) 4,734
Investment advisory fees (Note E) 12,596
Custody and accounting fees 31,407
Transfer agent's fees 2,140
Registration fees 3,389
Legal fees 644
Audit fees 5,164
Trustee's fees 138
Shareholder services fees (Note E) 417
Other 34
Distribution and advisory fees waived (Note E) (16,941)
Expense subsidy (Note E) (40,302)
Total expenses before credit 17,509
Custodian fee credit (Note B) (2,592)
Net expenses 14,917
Net investment income 183,876
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions (32,692)
Change in unrealized appreciation (depreciation) of investments (88,741)
Net loss on investments (121,433)
Net increase in net assets resulting from operations $ 62,443
</TABLE>
See notes to financial statements.
8 F-117 Kentucky
<PAGE>
[LOGO OF SHIP ART]
Kentucky Limited Term
Statement of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
Period From
September 14, 1995 to
May 31, 1996
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 183,876
Net realized gain (loss) on security transactions (32,692)
Change in unrealized appreciation (depreciation) of investments (88,741)
Net increase in net assets resulting from operations 62,443
Distributions to Class A shareholders:
From net investment income (156,882)
Distributions to Class C shareholders:
From net investment income (27,984)
Net decrease in net assets from distributions to shareholders (184,866)
Fund share transactions (Note C):
Proceeds from shares sold 11,638,666
Net asset value of shares issued in reinvestment of distributions 111,313
Cost of shares reacquired (1,470,778)
Net increase in net assets from Fund share transactions 10,279,201
Total increase in net assets 10,156,778
NET ASSETS:
Beginning of period --
End of period $10,156,778
NET ASSETS CONSIST OF:
Paid-in surplus $10,278,211
Accumulated net realized gain (loss) on security transactions (32,692)
Unrealized appreciation (depreciation) of investments (88,741)
$10,156,778
</TABLE>
See notes to financial statements.
Kentucky F-118 9
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Triple Tax Exempt
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000 Kentucky State University Revenue - Consolidated Educational Buildings -
Series 1991 G 6.250% 05/01/10 $ 1,047,170
1,000 Kentucky State University Revenue - Consolidated Educational Buildings -
Series 1991 G 6.250 05/01/11 1,044,780
3,195 Lexington-Fayette Urban County Government - University of Kentucky Alumni
Association - Series 1994 6.750 11/01/17 3,463,156
4,320 Lexington-Fayette Urban County Government - University of Kentucky Alumni
Association - Series 1994 6.750 11/01/24 4,647,758
1,410 Morgan County, KY School District Building Revenue - Series 1994 6.000 09/01/14 1,424,312
700 Northern Kentucky University Revenue - Consolidated Educational Buildings 7.000 05/01/10 765,520
525 Western Kentucky University Revenue - Series 1992 K 6.100 05/01/10 539,112
560 Western Kentucky University Revenue - Series 1992 K 6.100 05/01/11 572,925
600 Western Kentucky University Revenue - Series 1992 K 6.100 05/01/12 611,580
Health Care
------------------------------------------------------------------------------------------------------------------------
715 Jefferson County, KY First Mortgage Revenue - Christian Church Homes -
Series 1994 6.125 11/15/13 665,393
3,210 Jefferson County, KY First Mortgage Revenue - Christian Church Homes -
Series 1994 6.125 11/15/18 2,880,879
1,240 Jefferson County, KY First Mortgage Revenue - Christian Church Homes -
Series 1994 6.000 11/15/09 1,204,350
Hospitals
------------------------------------------------------------------------------------------------------------------------
3,300 Daviess County, KY Hospital Revenue - Owensboro Daviess County Hospital -
Series 1992 A 6.250 08/01/22 3,362,964
3,280 Floyd County, KY Hospital Revenue - Highlands Hospital Corporation 7.500 08/01/10 3,485,722
4,000 Hopkins County, KY Hospital Revenue - Trover Clinic 6.625 11/15/11 4,290,520
1,190 Jefferson County, KY Health Facilities Revenue - Jewish Hospital Health Care
Services 6.500 05/01/15 1,232,293
12,785 Jefferson County, KY Health Facilities Revenue - Jewish Hospital Health Care
Services 6.550 05/01/22 13,320,180
7,800 Jefferson County, KY Insured Hospital Revenue - Alliant Health System,
Incorporated - Series 1992 6.436 10/23/14 8,112,624
900 Kentucky Development Finance Authority Hospital Revenue - Ashland Kings
Daughters Hospital 9.750 08/01/05 974,934
3,000 Kentucky Development Finance Authority Hospital Revenue - St. Luke Hospital -
Series 1989 A 7.500 10/01/12 3,175,560
1,750 Kentucky Development Finance Authority Hospital Revenue - Sisters of Charity -
Nazareth Health Corporation 7.375 11/01/16 1,872,552
500 Kentucky Development Finance Authority Hospital Revenue - Sisters of Charity -
Nazareth Health Corporation 7.375 11/01/16 545,290
2,000 Kentucky Development Finance Authority Hospital Revenue - St. Luke Hospital -
Series 1991 A 7.000 10/01/11 2,192,100
9,070 Kentucky Development Finance Authority Hospital Revenue - St. Luke Hospital -
Series 1991 A 7.000 10/01/21 9,848,387
1,000 Kentucky Development Finance Authority Hospital Revenue - St. Elizabeth
Medical Center 6.000 11/01/10 1,013,290
</TABLE>
10 F-119 Kentucky
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 610 Kentucky Development Finance Authority Hospital Revenue - Ashland Kings
Daughters Hospital 9.750% 08/01/11 $ 662,320
1,660 Kentucky Economic Development Finance Authority Medical Center
Improvement Revenue - Ashland Hospital - Series 1993A 6.125 02/01/12 1,713,286
5,000 Kentucky Economic Development Finance Authority Hospital Facilities Revenue -
St. Elizabeth Medical Center - Series 1993A 6.000 12/01/22 4,986,850
4,000 Kentucky Economic Development Finance Authority Hospital Facilities Revenue -
Baptist Health Care System - Series 1994 5.000 08/15/24 3,434,680
3,200 Lexington-Fayette Urban County Government - Kentucky Residential Facilities
Revenue - USHCSO Richmond Place Project 7.750 05/15/15 3,436,160
2,110 McCracken County, KY Hospital Facilities Revenue - Mercy Health System -
Series 1994 A 6.300 11/01/06 2,263,144
1,750 Winchester, KY Hospital Revenue - Clark County Hospital Project 7.750 04/01/13 1,811,842
Housing/Multifamily
-------------------------------------------------------------------------------------------------------------------------
2,500 Greater Kentucky Housing Assistance Corporation - Multifamily Mortgage
Revenue - FHA Insured Section 8 Assisted Project - Series 1993 6.250 07/01/24 2,507,850
1,000 Greater Kentucky Housing Assistance Corporation - Multifamily Revenue 7.125 01/01/24 1,036,490
Housing/Single Family
-------------------------------------------------------------------------------------------------------------------------
620 Kentucky Housing Corporation - Housing Revenue - Series A 7.625 01/01/09 649,066
2,525 Kentucky Housing Corporation - Housing Revenue - Series C 7.900 01/01/21 2,652,336
2,615 Kentucky Housing Corporation - Housing Revenue - Series B 7.800 01/01/21 2,734,035
1,000 Kentucky Housing Corporation - Housing Revenue - Series 1992 B 6.625 07/01/14 1,031,760
465 Kentucky Housing Corporation - Housing Revenue - Series 1991 C 6.600 01/01/11 481,898
805 Kentucky Housing Corporation - Housing Revenue - Series 1991 C 6.650 01/01/17 830,398
985 Kentucky Housing Corporation - Single Family Revenue - Series 1994 A 6.500 07/01/17 1,010,334
2,350 Kentucky Housing Corporation Revenue - Series 1994 C 6.400 01/01/17 2,414,836
2,000 Kentucky Housing Corporation - Housing Revenue - Series 1995 B 6.625 07/01/26 2,037,140
Industrial Development and Pollution Control
-------------------------------------------------------------------------------------------------------------------------
4,675 Ashland, KY Pollution Control Revenue - Ashland Oil Inc. - Series 1988 7.375 07/01/09 4,977,005
5,000 Ashland, KY Pollution Control Revenue - Ashland Oil Inc. - Series 1992 6.650 08/01/09 5,189,900
9,000 Ashland, KY Sewage and Solid Waste Revenue - Ashland Oil Inc. - Series 1995 7.125 02/01/22 9,374,130
4,360 Ashland, KY Solid Waste Revenue - Ashland Oil Inc. 7.200 10/01/20 4,532,656
10,985 Boone County, KY Pollution Control Revenue - Dayton Power and Light
Company - Series 1992 A 6.500 11/15/22 11,515,246
10,000 Boone County, KY Pollution Control Revenue - Cincinnati Gas and Electric -
Series 1994 A 5.500 01/01/24 9,406,100
5,030 Carroll County, KY Pollution Control Revenue - Kentucky Utilities Company -
Series 1992 B 6.250 02/01/18 5,115,108
1,700 Carroll County, KY Solid Waste Disposal Facilities Revenue - Kentucky Utility
Company Project - Series 1993 A 5.750 12/01/23 1,603,899
2,370 Hancock County, KY Solid Waste Disposal Facilities Revenue -
Willamette Industries, Incorporated Project - Series 1996 6.600 05/01/26 2,376,612
8,000 Henderson County, KY Solid Waste Disposal Revenue - MacMillan Bloedel -
Series 1995 7.000 03/01/25 8,230,080
</TABLE>
Kentucky F-120 11
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Jefferson County, KY Pollution Control Revenue - Louisville Gas and Electric
Company 7.450% 06/15/15 $ 1,091,430
1,000 Jefferson County, KY Pollution Control Revenue - Du Pont Nemours Company -
Series 1982 A 6.300 07/01/12 1,035,870
8,750 Jefferson County, KY Pollution Control Revenue - Louisville Gas and Electric
Company - Series 1993 B 5.625 08/15/19 8,319,938
1,000 Jefferson County, KY Pollution Control Revenue - Louisville Gas and Electric
Company - Series 1993 C 5.450 10/15/20 943,130
1,750 Jefferson County, KY Pollution Control Revenue - Louisville Gas and Electric
Company - Series 1995 A 5.900 04/15/23 1,698,498
1,500 Maysville, KY Industrial Development Revenue - Crystal Tissue Project 8.000 02/01/09 1,569,840
1,250 Mercer County, KY Collateralized Pollution Control Revenue - Kentucky
Utilities Company Project - Series 1992 A 6.250 02/01/18 1,263,500
1,500 Nicholasville, KY Industrial Development Revenue - Hoover Project 8.000 09/01/04 1,554,900
3,750 Perry County, KY Solid Waste Disposal Revenue - TJ International - Series 1994 7.000 06/01/24 3,796,988
4,240 Perry County, KY Solid Waste Disposal Revenue - TJ International - Series 1996 6.800 05/01/26 4,262,006
3,880 Trimble County, KY Pollution Control Revenue - Louisville Gas and Electric
Company - Series 1990 B 6.550 11/01/20 4,005,557
4,795 Trimble County, KY Pollution Control Revenue - Louisville Gas and Electric
Company - Series 1990 A 7.625 11/01/20 5,235,852
2,820 Wickliffe, KY Solid Waste Disposal Facility Revenue - Westvaco Corporation
Project - Series 1996 6.375 04/01/26 2,820,141
Municipal Appropriation Obligations
------------------------------------------------------------------------------------------------------------------------
430 Bardstown, KY Independent School District - School Building Revenue - Series 1992 6.375 05/01/17 447,144
725 Bell County, KY School District Finance Corporation 6.875 09/01/11 773,894
1,000 Boone County, KY School District Finance Corporation - Building Revenue -
Series C 6.750 09/01/11 1,080,220
1,215 Boone County, KY School District Finance Corporation - Building Revenue -
Series 1992 6.125 12/01/17 1,234,634
615 Boone County, KY School District Finance Corporation - Building Revenue -
Series 1993 A 6.000 02/01/18 614,200
1,595 Bowling Green, KY Municipal Corporation - Lease Revenue - Series 1994 6.500 12/01/14 1,696,075
565 Christian County, KY School District Finance Corporation - Building Revenue 6.750 06/01/10 598,776
600 Christian County, KY School District Finance Corporation - Building Revenue 6.750 06/01/11 634,524
505 Daviess County, KY School Building Finance Corporation District Revenue -
Series 1994 5.800 05/01/11 507,086
535 Daviess County, KY School Building Finance Corporation District Revenue -
Series 1994 5.800 05/01/12 535,134
570 Daviess County, KY School Building Finance Corporation District Revenue -
Series 1994 5.800 05/01/13 567,173
600 Daviess County, KY School Building Finance Corporation District Revenue -
Series 1994 5.800 05/01/14 593,646
1,645 Edgewood, KY Public Properties 6.700 12/01/21 1,761,203
465 Floyd County, KY Public Properties Corporation - First Mortgage Revenue -
Justice Center - Series 1995 A 5.500 09/01/17 443,131
1,260 Floyd County, KY Public Properties Corporation - First Mortgage Revenue -
Justice Center - Series 1995 A 5.550 09/01/23 1,181,036
</TABLE>
12 F-121 Kentucky
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$1,200 Floyd County, KY School District Finance Corporation - School Building
Revenue - Series 1995 5.500% 05/01/15 $1,114,692
360 Glasgow, KY Independent School District Finance Corporation - Series 1992 6.100 05/01/10 370,890
385 Glasgow, KY Independent School District Finance Corporation - Series 1992 6.100 05/01/11 395,126
405 Glasgow, KY Independent School District Finance Corporation - Series 1992 6.100 05/01/12 413,740
525 Hardin County, KY Buildings Commission Revenue - Detention Facility - Series 1994 6.200 12/01/11 547,108
1,775 Hardin County, KY Buildings Commission Revenue - Detention Facility - Series 1994 6.250 12/01/14 1,834,906
300 Hardin County, KY School District Finance Corporation - Building Revenue 6.800 06/01/10 320,787
1,250 Jefferson County, KY Economic Development Corporation - Lease Revenue - Series 1986 7.750 07/01/16 1,278,050
4,195 Jefferson County, KY School District Finance Corporation - School Building
Revenue - Series 1996 A 5.125 02/01/16 3,842,033
1,585 Jefferson County, KY Equipment Lease Purchase Revenue - Energy Systems
Project - Series 1987 9.000 06/01/03 1,609,556
291 Jefferson County, KY Equipment Lease Purchase Revenue - Energy Systems
Project - Series 1988 9.500 06/01/03 298,220
2,500 Jefferson County, KY Capital Projects Corporation Revenue - Municipal Lease -
Series B 0.000 08/15/08 1,051,250
1,000 Jeffersontown, KY Public Projects Refunding and Improvements -
Certificates of Participation - Series 1996 5.750 11/01/15 983,870
510 Jessamine County, KY School District Finance Corporation - Building Revenue 6.750 06/01/10 545,955
545 Jessamine County, KY School District Finance Corporation - Building Revenue 6.750 06/01/11 582,185
2,500 Jessamine County, KY School District Finance Corporation Revenue - Series 1994 6.125 06/01/19 2,543,025
5,650 Jessamine County, KY School Finance Corporation - School Building Revenue - Series 1996 5.500 01/01/21 5,309,588
1,290 Kenton County, KY Public Parks Corporation Revenue 7.000 03/01/08 1,391,949
1,070 Kenton County, KY Public Parks Corporation Revenue 7.100 03/01/10 1,158,179
815 Kenton County, KY School District Finance Corporation - Building Revenue 6.800 12/01/11 866,247
560 Kentucky Infrastructure Authority Revenue - Revolving Fund - Series D 7.200 06/01/11 614,309
500 Kentucky Infrastructure Authority Revenue - Revolving Fund - Series E 6.500 06/01/11 529,620
875 Kentucky Infrastructure Authority Revenue - Revolving Fund - Series H 6.500 06/01/12 911,496
1,000 Kentucky State Property and Buildings Commission Revenue - Project Number 59 -
Series 1995 5.625 11/01/15 958,380
400 Kentucky State Property and Buildings Commission Revenue - Project Number 40 -
Series 1991 6.875 11/01/07 435,132
250 Kentucky State Property and Buildings Commission Revenue - Project Number 53 -
Series 1991 6.625 10/01/07 271,040
2,075 Kentucky State Property and Buildings Commission Revenue - Project Number 56 -
Series 1994 6.000 09/01/14 2,087,388
1,000 Kentucky State Turnpike Authority - Economic Development Road Revenue - Series 1995 5.625 07/01/15 978,780
575 Kentucky State Turnpike Authority - Resource Recovery Road Revenue Refunding -
Series 1985 A 6.000 07/01/09 575,586
500 Kentucky State Turnpike Authority - Resource Recovery Road Revenue Refunding -
Series 1987 A 5.000 07/01/08 474,310
250 Laurel County, KY School District Finance Corporation - Building Revenue 7.000 03/01/10 266,510
</TABLE>
Kentucky F-122 13
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$1,000 Lawrence County, KY School District Finance Corporation Revenue - Series 1994 6.750% 11/01/14 $ 1,109,530
2,600 Lexington, KY Center Corporation Refunding and Improvement Mortgage Revenue -
Series 1993 A 0.000 10/01/11 1,034,748
2,550 Lexington, KY Center Corporation Refunding and Improvement Mortgage Revenue -
Series 1993 A 0.000 10/01/12 948,116
390 Lincoln County, KY School District Finance Corporation - Series 1992 6.200 05/01/10 406,446
410 Lincoln County, KY School District Finance Corporation - Series 1992 6.200 05/01/11 426,240
435 Lincoln County, KY School District Finance Corporation - Series 1992 6.200 05/01/12 439,289
6,165 Louisville, KY Airport Lease Revenue - Series A 7.875 02/01/19 6,726,447
1,525 McCracken County, KY Public Property Corporation Revenue - Court Facilities -
Series 1995 5.900 09/01/26 1,495,324
2,365 McCreary County, KY School DIstrict Finance Corporation - School Building Revenue -
Series 1995 5.600 08/01/16 2,262,974
305 Montgomery County, KY School District Finance Corporation - Building Revenue 6.800 06/01/09 325,069
325 Montgomery County, KY School District Finance Corporation - Building Revenue 6.800 06/01/10 345,361
350 Montgomery County, KY School District Finance Corporation - Building Revenue 6.800 06/01/11 371,140
10,500 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue - Series 1993 A 6.200 03/01/18 10,449,180
2,000 Northern Kentucky University Certificates of Participation - Student Housing Facilities 7.250 01/01/12 2,194,220
12,960 Pendleton County, KY Multi-County Lease Revenue Program - Series 1993 A 6.500 03/01/19 13,430,318
1,230 Perry County, KY School Building Revenue - School District Finance Corporation -
Series 1992 6.250 07/01/11 1,277,896
Municipal Revenue/Other
----------------------------------------------------------------------------------------------------------------------------
2,790 Louisville, KY Parking Authority of River City, Inc. - First Mortgage Revenue -
Series 1991 6.875 12/01/20 3,004,244
Municipal Revenue/Transportation
----------------------------------------------------------------------------------------------------------------------------
5,250 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky International Airport -
Series 1992 A 6.300 03/01/15 5,342,610
1,320 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky International Airport -
Series 1987 8.750 03/01/15 1,385,380
1,250 Kenton County, KY Airport Board Cincinnati/Northern Kentucky International Airport
Revenue - Series 1996 5.750 03/01/13 1,204,362
2,550 Louisville and Jefferson County, KY Regional Airport Authority System Revenue - Series
1993 A, B and C 5.600 07/01/13 2,492,344
5,000 Louisville and Jefferson County, KY Regional Airport Authority System Revenue -
Series 1995 A 5.625 07/01/25 4,678,200
Municipal Revenue/Utility
----------------------------------------------------------------------------------------------------------------------------
7,100 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/11 3,062,443
6,475 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/12 2,616,483
7,900 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/17 2,344,404
13,300 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/18 3,681,839
5,100 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/19 1,330,284
4,725 Owensboro, KY Electric Light and Power System Revenue - Series 1991 B 0.000 01/01/20 1,161,263
</TABLE>
14 F-123 Kentucky
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
- --------------------------------------------------------------------------------
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 6,515 Commonwealth of Puerto Rico Electric Power Authority - Series 1992 R 6.250% 07/01/17 $6,563,797
5,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 6.000 07/01/16 4,930,850
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------------
965 Campbell and Kenton Counties, KY Sanitation District Revenue - Series A 7.700 08/15/04 1,022,389
500 Campbell and Kenton Counties, KY Sanitation District Revenue - Series A 7.750 08/15/05 529,505
625 Danville, KY Multi-City Lease Revenue - Sewer System 6.875 12/01/10 673,331
1,750 Henderson, KY Water and Sewer Revenue - Series 1994 A 6.100 11/01/14 1,786,978
1,700 Kenton County, KY Water District Number 1 - Water District Refunding and Revenue -
Series 1992 6.375 02/01/12 1,796,084
1,000 Kenton County, KY Water District Number 1 - Water District Refunding and Revenue -
Series 1992 6.375 02/01/17 1,044,570
1,530 Kenton County, KY Water District Number 1 - Water District Refunding and Revenue -
Series 1992 B 6.000 02/01/17 1,557,035
2,040 Kenton County, KY Water District Number 1 Revenue - Series 1995 B 5.700 02/01/20 1,995,752
1,000 Kentucky Infrastructure Authority Revenue - Governmental Agencies Program - Series 1993 E 5.750 08/01/18 967,100
5,000 Kentucky Infrastructure Authority Revenue - Governmental Agencies Program - Series 1993 F 5.375 02/01/18 4,572,550
440 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1995 G 6.300 06/01/10 461,723
360 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1995 G 6.350 06/01/11 377,730
600 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1995 G 6.375 06/01/14 630,762
420 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1995 G 6.300 08/01/10 440,920
445 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1995 G 6.350 08/01/11 467,108
825 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1995 G 6.375 08/01/14 867,669
405 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1989 A 7.800 08/01/08 436,278
830 Lexington-Fayette Urban County Government - Kentucky Sewer System Revenue 7.600 07/01/07 892,258
900 Lexington-Fayette Urban County Government - Kentucky Sewer System Revenue 7.600 07/01/08 967,509
6,035 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue -
Sewer and Drainage System - Series 1993 B 5.500 05/15/21 5,684,065
3,840 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue -
Sewer and Drainage System - Series 1993 B 5.500 05/15/23 3,619,046
2,720 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue -
Sewer and Drainage System - Series 1994 A 6.750 05/15/19 2,926,992
2,070 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue -
Sewer and Drainage System - Series 1994 A 6.500 05/15/24 2,169,112
2,500 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue -
Sewer and Drainage System - Series 1994 A 6.750 05/15/25 2,690,250
3,865 Louisville and Jefferson County, KY Metropolitan Sewer District Revenue -
Sewer and Drainage System - Series 1996 A 5.400 05/15/22 3,604,886
500 Paducah, KY Waterworks Revenue 6.700 07/01/09 536,390
</TABLE>
Kentucky F-124 15
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
- --------------------------------------------------------------------------------
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------------
$ 1,005 Casey County, KY School District Finance Corporation - School Building Revenue -
Series 1995 5.750% 03/01/15 $ 999,201
1,070 Fleming County, KY School District Finance Corporation - School Building Revenue -
Series 1995 5.875 03/01/15 1,076,720
3,465 Hopkins County, KY School District Finance Corporation Revenue - Series 1994 6.200 06/01/19 3,513,025
500 Rockcastle County, KY School District Financing Corporation - School Building Revenue -
Series 1993 5.700 04/01/16 473,275
530 Rockcastle County, KY School District Financing Corporation - School Building Revenue -
Series 1993 5.700 04/01/17 500,961
560 Rockcastle County, KY School District Financing Corporation - School Building Revenue -
Series 1993 5.700 04/01/18 527,968
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------------
500 Covington, KY Municipal Properties Corporation - First Mortgage City Hall, Parking and
Park Revenue - Series 1988 A 8.250 08/01/10 554,630
1,370 Daviess County, KY Hospital Revenue - Mercy Health Care System 7.625 01/01/15 1,468,996
100 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/10 111,177
320 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/14 357,072
345 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/15 384,968
360 Florence, KY Public Properties Corporation Revenue - Recreational Facilities 7.000 03/01/16 401,706
2,750 Hardin County, KY Hospital Revenue - Hardin Memorial Hospital 7.875 10/01/14 3,045,350
16,750 Jefferson County, KY Capital Projects Corporation Revenue - Municipal Lease - Series B 0.000 08/15/19 3,283,502
680 Kenton County, KY Airport Revenue - Cincinnati/Northern Kentucky International Airport -
Series 1987 8.750 03/01/15 718,128
990 Kentucky Development Finance Authority Hospital Revenue - King Daughter 9.750 08/01/11 1,093,029
2,795 Kentucky Infrastructure Authority Revenue - Community Loan Program - Series B 7.850 09/01/18 3,063,516
1,595 Kentucky Infrastructure Authority Revenue - Governmental Agencies - Series 1989 A 7.800 08/01/08 1,774,182
985 Kentucky Local Correctional Facilities Construction Authority Revenue 7.000 11/01/14 1,043,391
1,955 Kentucky State Property and Buildings Commission Revenue - Project Number 48 8.000 08/01/08 2,140,745
4,875 Kentucky State Turnpike Authority - Economic Development Road Revenue -
Revitalization Project 7.250 05/15/10 5,353,725
410 Powell County, KY School Building Revenue 7.600 06/01/07 437,060
500 Richmond, KY Water, Gas and Sewer Revenue - Series B 7.400 07/01/15 540,700
955 Trimble County, KY Pollution Control Revenue - Louisville Gas and Electric Company -
Series 1990 A 7.625 11/01/20 1,079,522
1,990 Western Kentucky University Revenue - Housing and Dining System - Series 1990 L 7.400 12/01/10 2,239,327
940 Western Kentucky University Revenue - Series 1990 J 7.400 05/01/10 1,056,071
160 Whitley County, KY Public Properties Corporation Revenue - Series A 9.000 05/01/99 171,752
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------------
700 Commonwealth of Puerto Rico Highway Authority Revenue - Series 1990 Q 6.000 07/01/20 690,312
500 Commonwealth of Puerto Rico Infrastructure Financing Authority - Series A 7.750 07/01/08 539,915
</TABLE>
16 F-125 Kentucky
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds--Kentucky Triple Tax Exempt (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------------
$ 4,000 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1996 A 5.400% 07/01/25 $ 3,605,720
1,000 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue -
Series 1995 5.000 07/01/15 878,960
Total Investments in Securities - Municipal Bonds (cost $412,495,458) - 99.2% 428,017,344
Excess of Other Assets over Liabilities - 0.8% 3,438,032
Total Net Assets - 100.0% $431,455,376
See notes to financial statements.
</TABLE>
Kentucky F-126 17
<PAGE>
[LOGO OF SHIP ART]
Kentucky Triple Tax Exempt
Statement of Assets and Liabilities May 31, 1996
................................................................................
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at market value (cost $412,495,458) $428,017,344
Cash 2,552,061
Receivable for Fund shares sold 539,641
Interest receivable 6,813,789
Other 22,842
Total assets 437,945,677
LIABILITIES:
Payable for investments purchased 3,741,553
Payable for Fund shares reacquired 435,838
Distributions payable 2,005,312
Accrued expenses 307,598
Total liabilities 6,490,301
NET ASSETS 431,455,376
Class A:
Applicable to 37,970,215 shares of beneficial interest issued and outstanding $410,808,311
Net asset value per share $ 10.82
Class C:
Applicable to 1,909,156 shares of beneficial interest issued and outstanding $ 20,647,065
Net asset value per share $ 10.81
</TABLE>
[LOGO OF SHIP ART]
Kentucky Triple Tax Exempt
Statement of Operations For the year ended May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME - INTEREST $ 26,394,174
EXPENSES:
Distribution fees - Class A (Note E) 1,621,314
Distribution fees - Class C (Note E) 181,774
Investment advisory fees (Note E) 2,128,617
Custody and accounting fees 135,817
Transfer agent's fees 295,650
Registration fees 17,922
Legal fees 11,090
Audit fees 20,494
Trustees' fees 11,217
Shareholder services fees (Note E) 36,720
Other 12,317
Advisory fees waived (Note E) (1,328,971)
Total expenses before credits 3,143,961
Custodian fee credit (Note B) (47,192)
Net expenses 3,096,769
Net investment income 23,297,405
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 746,629
Change in unrealized appreciation (depreciation) of investments (7,775,753)
Net loss on investments (7,029,124)
Net increase in net assets resulting from operations $ 16,268,281
</TABLE>
See notes to financial statements.
18 F-127 Kentucky
<PAGE>
[LOGO OF SHIP ART]
Kentucky Triple Tax Exempt
Statements of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1996 May 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 23,297,405 $ 22,363,910
Net realized gain (loss) on security transactions 746,629 (802,146)
Change in unrealized appreciation (depreciation) of investments (7,775,753) 13,519,149
Net increase in net assets resulting from operations 16,268,281 35,080,913
Distributions to Class A shareholders:
From net investment income (22,405,836) (21,764,714)
Distributions to Class C shareholders:
From net investment income (950,670) (681,058)
Net decrease in net assets from distributions to shareholders (23,356,506) (22,445,772)
Fund share transactions (Note C):
Proceeds from shares sold 56,317,737 49,151,991
Net asset value of shares issued in reinvestment of distributions 13,719,431 13,372,844
Cost of shares reacquired (41,781,814) (45,538,335)
Net increase in net assets from Fund share transactions 28,255,354 16,986,500
Total increase in net assets 21,167,129 29,621,641
NET ASSETS:
Beginning of year 410,288,247 380,666,606
End of year $431,455,376 $410,288,247
NET ASSETS CONSIST OF:
Paid-in surplus $416,299,668 $388,103,415
Accumulated net realized gain (loss) on security transactions (366,178) (1,112,807)
Unrealized appreciation (depreciation) of investments 15,521,886 23,297,639
$431,455,376 $410,288,247
</TABLE>
See notes to financial statements.
Kentucky F-128 19
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
................................................................................
A. DESCRIPTION OF BUSINESS
The Flagship Kentucky Limited Term Municipal Bond Fund (Kentucky Limited
Term) and Kentucky Triple Tax Exempt Fund (Kentucky Triple 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 Kentucky
Limited Term Fund and diversified Kentucky Triple 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
September 14, 1995 and May 4, 1987, respectively. The Funds began to offer
Class C shares to the investing public on September 14, 1995 and October 4,
1993, 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 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 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.
20 F-129 Kentucky
<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. There were $202,321 and $0, respectively "when issued"
purchase commitments included in the Kentucky Limited Term and Kentucky
Triple Tax Exempt Fund's statements of investments at May 31, 1996.
C. Fund Shares
At May 31, 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>
Period From
September 14, 1995 to May 31, 1996
-----------------------------------
Shares Amount
<S> <C> <C>
Kentucky Limited Term
Class A:
Shares sold 993,553 $ 9,842,618
Shares issued on reinvestment 9,926 98,135
Shares reacquired (146,867) (1,455,747)
Net increase 856,612 $ 8,485,006
Class C:
Shares sold 180,695 $ 1,796,048
Shares issued on reinvestment 1,332 13,178
Shares reacquired (1,526) (15,031)
Net increase 180,501 $ 1,794,195
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1996 May 31, 1995
----------------------------- -----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Kentucky Triple Tax Exempt
Class A:
Shares sold 4,371,220 $ 48,186,156 4,074,794 $ 42,757,696
Shares issued on reinvestment 1,186,665 13,067,258 1,232,683 12,914,472
Shares reacquired (3,468,274) (38,150,351) (4,121,541) (42,839,225)
Net increase 2,089,611 $ 23,103,063 1,185,936 $ 12,832,943
</TABLE>
Kentucky F-130 21
<PAGE>
Notes to Financial Statements
................................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1996 May 31, 1995
----------------------------- -----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Kentucky Triple Tax Exempt
Class C:
Shares sold 739,589 $ 8,131,581 608,002 $ 6,394,295
Shares issued on reinvestment 59,216 652,173 43,768 458,372
Shares reacquired (330,172) (3,631,463) (260,606) (2,699,110)
Net increase 468,633 $ 5,152,291 391,164 $ 4,153,557
</TABLE>
<TABLE>
<CAPTION>
D. Purchases and Sales of Municipal Bonds
Purchases and sales of municipal bonds for the year ended May 31, 1996, aggregated:
<S> <C> <C>
Fund Purchases Sales
Kentucky Limited Term $ 13,069,962 $ 2,672,149
Kentucky Triple Tax Exempt $ 96,208,089 $70,107,181
</TABLE>
At May 31, 1996, cost for federal income tax purposes is $10,356,307 and
$412,278,231 for the Kentucky Limited Term and Kentucky Triple Tax Exempt
Funds, respectively, and net unrealized appreciation (depreciation)
aggregated ($94,282) and $15,739,113, respectively, which includes:
<TABLE>
<CAPTION>
Fund Unrealized Appreciation Unrealized Depreciation
<S> <C> <C>
Kentucky Limited Term $ 9,724 $ 104,006
Kentucky Triple Tax Exempt $18,409,520 $2,670,407
</TABLE>
At May 31, 1996, Kentucky Limited Term has available a capital loss
carryforward of approximately $27,200 to offset future net capital gains
expiring on May 31, 2004 and Kentucky Triple Tax Exempt has available
approximately $359,900 expiring 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 Funds, receives fees computed monthly on the average daily net assets of
the Funds at an annualized rate of 1/2 of 1%. During the year ended May 31,
1996, the Advisor, at its discretion, permanently waived advisory fees for
the Kentucky Limited Term and Kentucky Triple Tax Exempt Funds amounting to
$10,100 and $1,328,971, respectively. Included in accrued expenses at May 31,
1996 are accrued advisory fees of $91,552 for Kentucky Triple 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. During the year ended May 31, 1996, the Distributor, at its
discretion, permanently waived distribution fees for Kentucky Limited Term
amounting to $6,841. Included in accrued expenses at May 31, 1996 are accrued
distribution fees of $444, $139,372 and $16,889 for Kentucky
22 F-131 Kentucky
<PAGE>
Notes to Financial Statements
................................................................................
Limited Term Class C shares, and Kentucky Triple 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 year ended May 31, 1996, as follows:
<TABLE>
<CAPTION>
Fund Gross Commissions Paid to Other Dealers
<S> <C> <C>
Kentucky Limited Term $ 23,400 $ 19,200
Kentucky Triple Tax Exempt $1,057,100 $912,400
</TABLE>
For the year ended May 31, 1996, the Distributor received approximately
$200 and $7,300 of contingent deferred sales charges on redemptions for the
Kentucky Limited Term and Kentucky Triple Tax Exempt Funds, 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 Kentucky Limited Term
(approximately $29,400) will be reimbursed to the Advisor on a straight-line
basis over a period of three years beginning June 1, 1996. 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. Kentucky Triple Tax
Exempt may temporarily borrow up to $20 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 year ended May 31, 1996 was
approximately $285,600, at a weighted average annualized interest rate of
6.61%. At May 31, 1996, the Fund had no borrowings outstanding under the line
of credit.
Kentucky F-132 23
<PAGE>
[LOGO OF SHIP ART]
Kentucky Limited Term Selected data for each share of beneficial
Financial Highlights interest outstanding thoughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
September 14, 1995 to
CLASS A May 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 9.75
Income from investment operations:
Net investment income 0.31
Net realized and unrealized gain (loss) on securities 0.04
Total from investment operations 0.35
Less distributions:
From net investment income (0.31)
Total distributions (0.31)
Net asset value, end of period $ 9.79
Total return/(a)/ 5.45%
Ratios to average net assets (annualized where appropriate):
Actual net of waivers and reimbursements:
Expenses/(b)/ 0.37
Net investment income 4.37%
Assuming credits and no waivers and reimbursements:
Expenses 1.67
Net investment income 3.07%
Net assets at end of period (000's) $8,389
Portfolio turnover rate 47.52%
</TABLE>
(a) The total return shown does not include the effect of applicable front-
end sales charge and is annualized.
(b) During 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 0.31%.
24 F-133 Kentucky
<PAGE>
[LOGO OF SHIP ART]
Kentucky Limited Term Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
September 14, 1995 to
Class C May 31, 1996
- -------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 9.75
Income from investment operations:
Net investment income 0.29
Net realized and unrealized gain
(loss) on securities 0.04
Total from investment operations 0.33
Less distributions:
From net investment income (0.29)
Total distributions (0.29)
Net asset value, end of period $ 9.79
Total return(a) 5.12%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.64%
Net investment income 4.12%
Assuming credits and no
waivers or reimbursements:
Expenses
Net investment income 2.78%
Net assets at end of period (000AEs) $1,767
Portfolio turnover rate 47.52%
</TABLE>
(a) The total return shown does not include the effect of applicable contingent
deferred sales charge and is annualized.
(b) During 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 0.58%.
Kentucky F-134 25
<PAGE>
[LOGO OF SHIP ART]
Kentucky Triple Tax Exempt Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the year.
...............................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.99 $ 10.65 $ 11.06 $ 10.45 $ 10.19
Income from investment operations:
Net investment income 0.61 0.61 0.62 0.64 0.66
Net realized and unrealized gain (loss) on
Securities (0.17) 0.35 (0.40) 0.62 0.27
Total from investment operations 0.44 0.96 0.22 1.26 0.93
Less distributions:
From net investment income (0.61) (0.62) (0.63) (0.65) (0.66)
From net realized capital gains (0.01)
Total distributions (0.61) (0.62) (0.63) (0.65) (0.67)
Net asset value, end of year $ 10.82 $ 10.99 $ 10.65 $ 11.06 $ 10.45
Total return(a) 4.04% 9.42% 1.90% 12.41% 9.46%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses(b) 0.71% 0.68% 0.58% 0.61% 0.62%
Net investment income 5.50% 5.85% 5.60% 5.96% 6.39%
Assuming credits and no waivers or
reimbursements:
Expenses 1.02% 1.04% 1.03% 1.05% 1.05%
Net investment income 5.19% 5.49% 5.15% 5.52% 5.96%
Net assets at end of year (000's) $410,808 $394,457 $369,495 $309,223 $207,395
Portfolio turnover rate 16.69% 28.28% 12.26% 14.74% 5.07%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge.
(b) During 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 0.70%; prior year numbers
have not been restated to reflect these credits.
26 F-135 Kentucky
<PAGE>
[logo] Kentucky Triple Tax Exempt Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
Year Ended Year Ended October 4, 1993 to
Class C May 31, 1996 May 31, 1995 May 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.99 $ 10.65 $ 11.46
Income from investment operations:
Net investment income 0.54 0.55 0.36
Net realized and unrealized gain
(loss) on securities (0.17) 0.35 (0.81)
Total from investment operations 0.37 0.90 (0.45)
Less distributions:
From net investment income (0.55) (0.56) (0.36)
Total distributions (0.55) (0.56) (0.36)
Net asset value, end of period $ 10.81 $ 10.99 $ 10.65
Total return(a) 3.38% 8.82% (5.88%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 1.27% 1.23% 1.08%
Net investment income 4.93% 5.27% 4.96%
Assuming credits and no
waivers or reimbursements:
Expenses 1.57% 1.58% 1.65%
Net investment income 4.63% 4.92% 4.39%
Net assets at end of period (000's) $20,647 $15,831 $11,172
Portfolio turnover rate 16.69% 28.28% 12.26%
</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 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 1.26%; prior period numbers have not
been restated to reflect these credits.
Kentucky F-136 27
<PAGE>
[LOGO OF SHIP ART] Independent Auditors' Report
...............................................................................
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP KENTUCKY TAX EXEMPT FUNDS
We have audited the accompanying statements of assets and liabilities, including
the statements of investments in securities and net assets, of the Flagship
Kentucky Limited Term Municipal Bond Fund and the Flagship Kentucky Triple Tax
Exempt Fund as of May 31, 1996, the related statements of operations for the
period then ended, and the statements of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the Fund's custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Flagship
Kentucky Limited Term Municipal Bond Fund and the Flagship Kentucky Triple Tax
Exempt Fund at May 31, 1996, the results of their operations, the changes in
their net assets and the financial highlights for the respective stated periods,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 3, 1996
28 F-137 Kentucky
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,000 Grand Valley, MI State University Revenue - Series 1988 7.875% 10/01/08 $ 1,093,070
1,000 Michigan State University Board of Trustees - General Revenue - Series 1996 A 5.000 02/15/26 862,030
1,000 Oakland County, MI Economic Development Corporation Revenue -
Cranbrook Educational Community - Series 1994 C 6.900 11/01/14 1,076,930
1,000 Western Michigan University General Revenue - Series 1992 A 6.250 11/15/12 1,038,500
Health Care
--------------------------------------------------------------------------------------------------------------------------
420 Independence, MI Economic Development Corporation Revenue 9.400 08/01/17 433,007
1,200 Michigan State Hospital Finance Authority Revenue - Presbyterian Villages -
Series 1995 6.500 01/01/25 1,128,288
Hospitals
--------------------------------------------------------------------------------------------------------------------------
5,000 Dearborn, MI Economic Development Corporation Hospital Revenue -
Oakwood Obligated Group - Series 1995 A 5.750 11/15/15 4,885,500
500 Farmington Hills, MI Hospital Finance Authority - Botsford General Hospital -
Series 1992A 6.500 02/15/11 522,710
500 Farmington Hills, MI Hospital Finance Authority - Botsford General Hospital -
Series 1992A 6.500 02/15/22 516,430
1,940 Kalamazoo, MI Hospital Finance Authority Facility Revenue - Bronson Methodist
Hospital - Series 1992 A 6.375 05/15/17 1,970,982
1,290 Kent County, MI Hospital Facilities Revenue - Pine Rest Christian Hospital 6.500 11/01/10 1,354,810
1,000 Michigan State Hospital Finance Authority Revenue - Crittenton Hospital -
Series 1994 A 5.250 03/01/14 890,610
3,000 Michigan State Hospital Finance Authority Revenue - Memorial Hospital Owosso
Michigan - Series A 7.375 01/01/03 3,063,720
6,500 Michigan State Hospital Finance Authority Revenue - Detroit Medical Center -
Series 1993 A 6.500 08/15/18 6,593,535
1,000 Michigan State Hospital Finance Authority Revenue - Oakland General Hospital -
Series 1989 7.000 07/01/15 1,071,830
1,000 Michigan State Hospital Finance Authority Revenue - Sparrow Group 6.500 11/15/11 1,044,310
2,920 Michigan State Hospital Finance Authority Revenue - Detroit Medical Center
Obligated Group - Series 1993 B 5.500 08/15/23 2,610,538
1,000 Michigan State Hospital Finance Authority Revenue - Gratiot Community
Hospital, Alma, Michigan - Series 1995 6.100 10/01/07 978,330
3,000 Pontiac, MI Hospital Finance Authority Revenue - NOMC Group - Series 1993 6.000 08/01/18 2,597,940
5,165 Pontiac, MI Hospital Finance Authority Revenue - NOMC Group - Series 1993 6.000 08/01/23 4,407,914
250 Commonwealth of Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority Revenue -
Doctor Pila Hospital - Series 1995 5.875 08/01/12 250,468
2,000 Saginaw, MI Hospital Finance Authority Revenue - Saginaw General Hospital 7.625 10/01/08 2,123,860
500 Saginaw, MI Hospital Finance Authority Revenue - St. Luke's Hospital - Series C 6.750 07/01/17 532,425
3,500 University of Michigan University Revenues - Medical Service Plan 6.500 12/01/21 3,632,230
</TABLE>
4 F-170 Michigan
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Housing/Multifamily
-------------------------------------------------------------------------------------------------------------------------
$ 750 Grand Rapids, MI Housing Finance Authority - Multifamily 7.625% 09/01/23 $ 813,068
6,000 Michigan State Housing Development Authority - Section 8 - Series I 0.000 04/01/14 1,210,800
5,000 Michigan State Housing Development Authority Revenue - Rental Housing -
Series 1990 B 7.550 04/01/23 5,304,650
450 Michigan State Housing Development Authority Revenue - Rental Housing -
Series 1991 B 7.100 04/01/21 469,206
1,000 Michigan State Housing Development Authority Revenue - Rental Housing -
Series 1995 A and B 6.150 10/01/15 1,010,350
Housing/Single Family
-------------------------------------------------------------------------------------------------------------------------
730 Michigan State Housing Development Authority - Single Family -
Series 1989 A and B 7.700 12/01/16 757,149
1,280 Michigan State Housing Development Authority - Single Family -
Series 1990 A and B 7.500 06/01/15 1,345,997
3,250 Michigan State Housing Development Authority - Single Family -
Series 1990 C 7.550 12/01/15 3,409,672
2,000 Michigan State Housing Development Authority - Single Family -
Series 1994 A and B 6.450 12/01/14 2,044,320
3,930 Michigan State Housing Development Authority - Single Family -
Series 1994 C and D 6.500 06/01/16 4,007,853
500 Michigan State Housing Development Authority - Single Family -
Series 1995 A and B 6.800 12/01/16 513,240
Industrial Development and Pollution Control
-------------------------------------------------------------------------------------------------------------------------
5,000 Dickenson County, MI Economic Development Corporation - Pollution Control
Refunding Revenue - Champion International Corporation Project - Series 1993 5.850 10/01/18 4,655,400
2,500 Michigan State Strategic Fund Revenue - Ford Motor Company 7.100 02/01/06 2,799,150
5,000 Michigan Strategic Fund Pollution Control Revenue - General Motors -
Series 1995 6.200 09/01/20 4,991,950
3,500 Michigan State Strategic Fund Revenue - Detroit Edison Company - Series 1994 6.450 06/15/24 3,630,725
1,000 Monroe County, MI Economic Development Corporation - Limited Obligation
Revenue - Detroit Edison Company - Series 1992 AA 6.950 09/01/22 1,139,160
Municipal Revenue/Other
-------------------------------------------------------------------------------------------------------------------------
250 Michigan Municipal Bond Authority Revenue - Local Government - Series C 7.250 05/01/20 272,252
1,850 Michigan Municipal Bond Authority Revenue - Local Government - Series A 8.625 11/01/16 1,964,090
5,500 Michigan Municipal Bond Authority Revenue - Local Government 0.000 12/01/07 2,904,440
2,800 Michigan Municipal Bond Authority Revenue - Local Government -
Loan Program - Series 1991 C 0.000 06/15/08 1,418,340
3,000 Michigan Municipal Bond Authority Revenue - Local Government -
Loan Program - Series 1991 C 0.000 06/15/15 962,700
1,800 Michigan Municipal Bond Authority Revenue - Local Government -
Loan Program - Series 1991 C 0.000 06/15/12 694,152
1,000 Michigan State Building Authority Revenue - Series 1991 I 6.750 10/01/11 1,067,670
5,000 Michigan State Building Authority Revenue - Series 1991 I 6.250 10/01/20 5,046,250
6,585 Michigan State Building Authority Revenue - Series 1991 I 6.250 10/01/20 6,645,911
</TABLE>
Michigan F-171 5
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Municipal Revenue/Transportation
-------------------------------------------------------------------------------------------------------------------------
$ 750 Wayne Charter County, MI Airport Revenue - Detroit Metropolitan Airport -
Series 1994 A 5.875% 12/01/08 $ 772,815
Municipal Revenue/Utility
-------------------------------------------------------------------------------------------------------------------------
1,000 Bay City, MI Electric Utility System Revenue 6.600 01/01/12 1,062,080
300 Guam Power Authority Revenue - Series 1993 A 5.250 10/01/23 249,996
540 Michigan Public Power Agency Revenue - Belle River Project - Series 1993 A 5.250 01/01/18 482,917
3,000 Michigan State South Central Power Agency Supply System Revenue -
Series 1994 7.000 11/01/11 3,236,910
3,000 Commonwealth of Puerto Rico Electric Power Authority - Series 1995 X 5.500 07/01/25 2,744,760
Municipal Revenue/Water & Sewer
-------------------------------------------------------------------------------------------------------------------------
7,325 Detroit, MI Sewage System Revenue - Series 1995-A, B and C 5.000 07/01/25 6,322,574
4,000 Detroit, MI Sewage System Revenue - Series 1995-A, B and C 5.250 07/01/21 3,613,280
1,000 Detroit, MI Water Supply System Revenue - Series 1992 6.375 07/01/22 1,021,100
1,570 Detroit, MI Water Supply System Revenue - Series 1995 A 5.550 07/01/12 1,546,952
2,230 Detroit, MI Water Supply System Revenue - Series 1995 B 5.550 07/01/12 2,197,264
1,000 Grand Rapids, MI Sanitary Sewer System Improvement Revenue - Series 1990 7.000 01/01/16 1,075,760
3,250 Michigan Municipal Bond Authority Revenue - State Revolving Fund -
Series 1992 A 6.550 10/01/13 3,450,818
1,000 Michigan Municipal Bond Authority Revenue - State Revolving Fund - Series 1994 6.500 10/01/14 1,073,040
1,000 Michigan Municipal Bond Authority Revenue - State Revolving Fund - Series 1994 6.500 10/01/17 1,056,930
1,500 Portage Lake, MI Water and Sewage Authority - General Obligation - Series 1995 6.200 10/01/20 1,531,680
2,000 Western Townships Michigan Utility Authority - Sewer Disposal System 8.200 01/01/18 2,200,680
Non-State General Obligations
-------------------------------------------------------------------------------------------------------------------------
1,000 Albion, MI Public Schools - General Obligation - Series 1995 5.125 05/01/21 868,180
1,000 Belding, MI Area Schools - School Building and Site - General Obligation -
Series 1996 6.050 05/01/21 1,008,390
5,000 Brighton, MI Area School District - Series II 0.000 05/01/20 1,180,100
4,625 Cedar Springs, MI Public Schools - School Building and Site - General Obligation -
Series 1995 5.875 05/01/19 4,598,822
3,145 Chippewa Valley, MI Schools District - Macomb County, Michigan -
General Obligation Unlimited Tax - Series 1993 5.000 05/01/21 2,740,836
500 East Lansing, MI Building Authority 7.000 10/01/16 523,215
2,700 Flat Rock, MI Community School District - General Obligation - Series 1995 5.250 05/01/21 2,439,720
2,430 Garden City, MI School District - General Obligation - Series 1994 6.400 05/01/11 2,535,389
750 Hudsonville, MI Building Authority Revenue - Ottawa County - Series 1992 6.600 10/01/17 797,272
1,000 Ionia, MI Public Schools - General Obligation - Series 1995 5.300 05/01/25 904,390
1,000 * Jenison, MI Public Schools - Ottawa County, Michigan - Building and Site -
General Obligation - Series 1996 5.750 05/01/16 983,650
3,000 Kent County, MI Refuse Disposal System Revenue 8.400 11/01/10 3,212,700
2,000 Lansing, MI Building Authority - General Obligation - Series 1995 5.600 06/01/19 1,908,560
2,700 Livonia, MI General Obligation - Public Schools District - Series 1992 II 0.000 05/01/08 1,377,162
4,610 Mona Shores, MI Public Schools District - General Obligation - Series 1995 5.500 05/01/14 4,417,302
1,000 Mt. Pleasant, MI Public School District - General Obligation - Series 1994 6.100 05/01/10 1,029,160
</TABLE>
6 F-172 Michigan
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
-------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,600 Muskegon, MI Public Schools - General Obligation - Series 1995 5.250% 05/01/21 $ 1,441,952
1,000 Napoleon, MI Community Schools - General Obligation - Series 1995 5.500 05/01/20 939,290
1,000 Okemos, MI General Obligation - Public School District 0.000 05/01/17 283,400
1,020 Okemos, MI General Obligation - Public School District 0.000 05/01/18 272,156
1,095 Ovid-Elsie, MI Area Schools - General Obligation - Series 1995 5.600 05/01/21 1,041,389
2,635 Pontiac, MI Street Improvement Revenue 8.400 06/01/00 2,782,402
1,500 Reeths-Puffer, MI School District - General Obligation - Series 1995 5.750 05/01/15 1,469,460
750 South Lyon, MI Community School District - General Obligation - Series 1991 6.250 05/01/14 773,692
2,300 Traverse, MI Area Public Schools - General Obligation- Series 1995 5.700 05/01/20 2,210,024
2,500 Waterford, MI School District - General Obligation - Series 1995 6.250 06/01/13 2,571,100
2,470 Waterford, MI School District - General Obligation - Series 1995 6.375 06/01/14 2,559,562
5,000 Wayland, MI Union School District - General Obligation - Series 1994 6.250 05/01/14 5,137,200
750 Wayne County, MI Ecorse Creek Pollution Abatement Drain Number 1 -
Phase III - Drainage District - Series 1988 7.500 11/01/09 801,735
3,270 West Ottawa, MI Public Schools - General Obligation - Series 1992 0.000 05/01/17 926,718
1,725 Williamston, MI Community School District - General Obligation - Series 1996 5.500 05/01/25 1,633,368
1,850 Zeeland, MI Public Schools - General Obligation - Series 1994 B 6.050 05/01/19 1,859,471
Pre-refunded or Escrowed
-------------------------------------------------------------------------------------------------------------------------
1,895 Buena Vista, MI School District-School Building and Site-General Obligation
Unlimited Tax - Saginaw County, Michigan - Series 1991 7.200 05/01/16 2,117,568
1,000 Central Michigan University General Revenue 7.000 10/01/10 1,105,080
750 Detroit, MI General Obligation - Series 1991 8.000 04/01/11 866,752
300 Detroit, MI City School District - Wayne County School 7.750 05/01/10 337,599
1,650 Detroit, MI City School District - Wayne County, Michigan - School Building
and Site - Unlimited Tax General Obligation - Series 1991 7.150 05/01/11 1,843,298
1,000 Detroit, MI Sewer Disposal Revenue 7.125 07/01/19 1,085,700
2,000 Detroit, MI Water Supply System Revenue - Series 1990 7.250 07/01/20 2,221,260
3,000 Grand Rapids, MI Water Supply System Revenue - Series 1990 7.250 01/01/20 3,303,360
2,500 Haslett, MI Public School District 7.500 05/01/20 2,768,450
2,000 Huron Valley, MI School District - Series 1991 7.100 05/01/08 2,226,260
600 Ingham County, MI Building Authority - Series 1988 7.400 05/01/08 651,666
4,000 Lake Orion, MI Community School District - General Obligation - Series 1994 7.000 05/01/15 4,564,400
930 Marquette, MI City Hospital Finance Authority Revenue - Marquette General
Hospital - Series C 7.500 04/01/07 1,021,066
2,240 Marquette, MI City Hospital Finance Authority Revenue - Marquette Genera
Hospital - Series C 7.500 04/01/19 2,459,341
775 Mattawan, MI Consolidated School District 7.550 05/01/14 836,814
775 Mattawan, MI Consolidated School District 7.550 05/01/15 836,814
825 Menominee, MI Area Public School District 7.400 05/01/20 917,425
250 Michigan State Hospital Finance Authority Revenue - Henry Ford Hospital -
Series 1980 B 8.875 05/01/00 283,505
3,000 Michigan Higher Education Facilities Authority Revenue - Aquinas College -
Series 1991 7.350 05/01/11 3,147,210
1,000 Michigan State Hospital Finance Authority Revenue - Mercy Medical Hospital -
Series 1988 A 7.750 06/01/07 1,086,840
1,000 Michigan State Hospital Finance Authority Revenue - Henry Ford Health System -
Series 1990 A 7.000 07/01/10 1,100,650
</TABLE>
Michigan F-173 7
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
-------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 6,000 Michigan State Hospital Finance Authority Revenue - Oakwood Hospital -
Series 1990 7.100% 07/01/18 $ 6,630,660
800 Michigan State Hospital Finance Authority Revenue - Sisters of Mercy Health
Corporation - Series 1991 7.200 02/15/18 894,536
2,460 Oakland County, MI Economic Development Authority - Pontiac Osteopathic
Hospital 9.625 01/01/20 2,882,849
1,200 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.900 07/01/07 1,311,504
1,800 Commonwealth of Puerto Rico Highway Authority Revenue - Series 1990 Q 7.750 07/01/16 2,037,258
1,040 Rockford, MI Public Schools 7.375 05/01/19 1,146,881
620 Saginaw Valley State College - Michigan Housing and Auxiliary Facilities Revenue -
Series C 8.125 07/01/10 660,319
7,000 Vicksburg, MI Community Schools 0.000 05/01/20 1,525,650
Special Tax Revenue
-------------------------------------------------------------------------------------------------------------------------
1,000 Battle Creek, MI Downtown Development Authority - Series 1994 7.600 05/01/16 1,093,540
1,800 Battle Creek, MI Tax Increment Finance Authority - Series 1994 7.400 05/01/16 1,955,592
10,000 Detroit, MI Downtown Development Authority - Tax Increment -
Development Area Number 1 Projects - Series 1996 B, C-1, C-2 and D 6.250 07/01/25 9,763,800
1,650 Grand Rapids, MI Downtown Development Authority - Tax Increment Revenue -
Series 1994 6.875 06/01/24 1,790,894
3,985 Grand Rapids, MI Downtown Development Authority - Tax Increment Revenue -
Series 1994 0.000 06/01/17 1,123,690
3,495 Grand Rapids, MI Downtown Development Authority - Tax Increment Revenue -
Series 1994 0.000 06/01/18 927,853
510 Livingston County, MI Drainage District - Genoa-Oceola Sanitary Sewer Drain 6.000 05/01/08 524,214
15,000 Michigan State Trunk Line Fund - Series 1992 A and B 5.500 10/01/21 13,612,500
2,260 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series V 6.625 07/01/12 2,382,989
350 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1993 X 5.000 07/01/22 296,415
1,000 Puerto Rico Highway and Transportation Authority Revenue - Series 1996 Y and Z 5.500 07/01/36 907,680
800 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1993 W 5.500 07/01/15 777,864
State/Territorial General Obligations
-------------------------------------------------------------------------------------------------------------------------
3,125 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 3,218,125
2,370 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 2,449,466
Total Investments in Securities - Municipal Bonds (cost $276,084,666) - 99.1% 287,321,122
Excess of Other Assets over Liabilities - 0.9% 2,466,113
Total Net Assets - 100.0% $289,787,235
</TABLE>
*Securities purchased on a "when-issued" basis.
See notes to financial statements.
8 F-174 Michigan
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (cost $276,084,666) $287,321,122
Cash 2,494,667
Receivable for Fund shares sold 463,522
Interest receivable 4,339,468
Other 16,755
Total assets 294,635,534
LIABILITIES:
Payable for investments purchased 2,986,667
Payable for Fund shares reacquired 326,417
Distributions payable 1,306,604
Accrued expenses 228,611
Total liabilities 4,848,299
NET ASSETS 289,787,235
Class A:
Applicable to 21,856,306 shares of beneficial interest issued and outstanding $248,422,188
Net asset value per share $ 11.37
Class C:
Applicable to 3,644,334 shares of beneficial interest issued and outstanding $ 41,365,047
Net asset value per share $ 11.35
</TABLE>
[LOGO OF SHIP ART]
Statement of Operations For the year ended May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME - INTEREST $ 18,171,113
EXPENSES:
Distribution fees - Class A (Note E) 1,002,957
Distribution fees - Class C (Note E) 383,244
Investment advisory fees (Note E) 1,459,549
Custody and accounting fees 122,569
Transfer agent's fees 148,230
Registration fees 11,950
Legal fees 7,576
Audit fees 19,975
Trustees' fees 8,170
Shareholder services fees (Note E) 27,295
Other 8,757
Advisory fees waived (Note E) (586,307)
Total expenses before credits 2,613,965
Custodian fee credit (Note B) (25,944)
Net expenses 2,588,021
Net investment income 15,583,092
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 1,355,611
Change in unrealized appreciation (depreciation) of investments (7,054,615)
Net loss on investments (5,699,004)
Net increase in net assets resulting from operations $ 9,884,088
</TABLE>
See notes to financial statements.
Michigan F-175 9
<PAGE>
[LOGO OF SHIP ART]
Statements of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS Year Ended Year Ended
May 31, 1996 May 31, 1995
<S> <C> <C>
Operations:
Net investment income $ 15,583,092 $ 15,577,403
Net realized gain (loss) on security transactions 1,355,611 748,965
Change in unrealized appreciation (depreciation) of investments (7,054,615) 5,974,456
Net increase in net assets resulting from operations 9,884,088 22,300,824
Distributions to Class A shareholders:
From net investment income (13,728,134) (13,802,197)
Distributions to Class C shareholders:
From net investment income (1,986,821) (1,718,167)
Net decrease in net assets from distributions to shareholders (15,714,955) (15,520,364)
Fund share transactions (Note C):
Proceeds from shares sold 33,498,805 44,396,387
Net asset value of shares issued in reinvestment of distributions 8,757,179 8,840,102
Cost of shares reacquired (34,140,336) (45,549,587)
Net increase in net assets from Fund share transactions 8,115,648 7,686,902
Total increase in net assets 2,284,781 14,467,362
NET ASSETS:
Beginning of year 287,502,454 273,035,092
End of year $289,787,235 $287,502,454
NET ASSETS CONSIST OF:
Paid-in surplus $279,191,727 $271,150,903
Undistributed net investment income 57,039
Accumulated net realized gain (loss) on security transactions (640,948) (1,996,559)
Unrealized appreciation (depreciation) of investments 11,236,456 18,291,071
$289,787,235 $287,502,454
</TABLE>
See notes to financial statements.
10 F-176 Michigan
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
..............................................................................
A. Description of Business
The Flagship Michigan 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 an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on June 27, 1985. On June
22, 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.
Michigan F-177 11
<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 $982,500 "when-issued" purchase commitments included in the statement of
investments at May 31, 1996.
C. Fund Shares
At May 31, 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>
Year Ended Year Ended
May 31, 1996 May 31, 1995
------------------------- --------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Shares sold 2,144,177 $ 24,873,643 2,859,234 $ 31,899,426
Shares issued on reinvestment 648,404 7,527,122 691,869 7,703,995
Shares reacquired (2,538,104) (29,322,526) (3,424,769) (38,141,919)
Net increase 254,477 $ 3,078,239 126,334 $ 1,461,502
Class C:
Shares sold 745,632 $ 8,625,162 1,121,353 $ 12,496,961
Shares issued on reinvestment 106,101 1,230,057 102,187 1,136,107
Shares reacquired (414,411) (4,817,810) (674,994) (7,407,668)
Net increase 437,322 $ 5,037,409 548,546 $ 6,225,400
</TABLE>
D. Purchases and Sales of Municipal Bonds
Purchases and sales of municipal bonds for the year ended May 31, 1996,
aggregated $162,358,599 and $155,471,820, respectively. At May 31, 1996, cost
for federal income tax purposes is $276,365,632 and net unrealized
appreciation aggregated $10,955,490, of which $12,367,261 related to
appreciated securities and $1,411,771 related to depreciated securities.
At May 31, 1996, the Fund has available a capital loss carryforward of
approximately $360,500 to offset future net capital gains expiring on May 31,
2003.
12 F-178 Michigan
<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 year ended May 31,
1996, the Advisor, at its discretion, permanently waived $586,307 of its
advisory fees. Included in accrued expenses at May 31, 1996 are accrued
advisory fees of $73,831. 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 May 31, 1996 are accrued
distribution fees of $84,380 and $33,396 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 $552,600 for the year ended May 31, 1996, of which
approximately $477,100 was paid to other dealers. For the year ended May 31,
1996, the Distributor received approximately $7,800 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 $12 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 year ended May 31, 1996 was approximately
$652,600, at a weighted average annualized interest rate of 6.65%. At May 31,
1996, the Fund had no borrowings outstanding under the line of credit.
Michigan F-179 13
<PAGE>
[LOGO OF SHIP ART]
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the year.
................................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Class A May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.59 $ 11.31 $ 11.77 $ 11.12 $ 10.80
Income from investment operations:
Net investment income 0.63 0.65 0.66 0.68 0.69
Net realized and unrealized gain (loss) on
securities (0.22) 0.28 (0.43) 0.65 0.32
Total from investment operations 0.41 0.93 0.23 1.33 1.01
Less distributions:
From net investment income (0.63) (0.65) (0.66) (0.68) (0.69)
From net realized capital gains (0.01)
In excess of net realized capital gains (0.02)
Total distributions (0.63) (0.65) (0.69) (0.68) (0.69)
Net asset value, end of year $ 11.37 $ 11.59 $ 11.31 $ 11.77 $ 11.12
Total return(a) 3.61% 8.57% 1.87% 12.27% 9.74%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses(b) 0.82% 0.80% 0.75% 0.81% 0.81%
Net investment income 5.42% 5.82% 5.56% 5.85% 6.34%
Assuming credits and no waivers or
reimbursements:
Expenses 1.01% 1.03% 1.02% 1.02% 1.01%
Net investment income 5.23% 5.59% 5.29% 5.64% 6.14%
Net assets at end of year (000's) $248,422 $250,380 $242,993 $227,333 $176,584
Portfolio turnover rate 54.01% 36.57% 27.78% 9.55% 11.48%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge.
(b) During 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 0.81%; prior year numbers have not
been restated to reflect these credits.
14 F-180 Michigan
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
Year Ended Year Ended June 22, 1993 to
Class C May 31, 1996 May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.58 $ 11.30 $ 11.86
Income from investment operations:
Net investment income 0.56 0.58 0.54
Net realized and unrealized gain
(loss) on securities (0.22) 0.28 (0.52)
Total from investment operations 0.34 0.86 0.02
Less distributions:
From net investment income (0.57) (0.58) (0.55)
From net realized capital gains (0.01)
In excess of net realized capital gains (0.02)
Total distributions (0.57) (0.58) (0.58)
Net asset value, end of period $ 11.35 $ 11.58 $ 11.30
Total return/(a)/ 2.96% 7.98% 0.19%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 1.37% 1.35% 1.25%
Net investment income 4.86% 5.25% 4.89%
Assuming credits and no
waivers or reimbursements:
Expenses 1.56% 1.58% 1.61%
Net investment income 4.67% 5.02% 4.53%
Net assets at end of period (000's) $41,365 $37,122 $30,042
Portfolio turnover rate 54.01% 36.57% 27.78%
</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 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 1.36%; prior period numbers
have not been restated to reflect these credits.
Michigan F-181 15
<PAGE>
[LOGO OF SHIP ART] Independent Auditors' Report
................................................................................
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP MICHIGAN
TRIPLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments in securities and net assets, of the
Flagship Michigan Triple Tax Exempt Fund as of May 31, 1996, the related
statement of operations for the year then ended, and the statements of changes
in net assets and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the Fund's custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Flagship
Michigan Triple Tax Exempt Fund at May 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 3, 1996
16 F-182 Michigan
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
-----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$3,630 Missouri State Health and Educational Facilities Authority Revenue -
University Health Sciences - Series 1994 6.350% 06/01/14 $3,697,191
1,500 Missouri State Health and Educational Facilities Authority Revenue -
Saint Louis University High School - Series 1994 6.350 10/01/14 1,529,430
1,155 Northwest Missouri State University Recreational Facilities Revenue -
Series 1992 6.375 06/01/13 1,199,491
795 Northwest Missouri State University Housing System Improvement Revenue - 6.375 12/01/13 827,380
Series 1992
945 University of Puerto Rico System Revenue - Series 1995 N 0.000 06/01/09 471,517
500 University of Puerto Rico System Revenue - Series 1995 N 0.000 06/01/13 193,915
Health Care
-----------------------------------------------------------------------------------------------------------------------
365 Dent County, MO Industrial Development Authority Revenue -
Southeast Community Treatment Center Project- Series 1992 8.500 06/01/12 389,123
750 Farmington, MO Industrial Development Authority Revenue - 8.500 06/01/12 799,568
Southeast Community Treatment Center Project - Series 1992
1,000 Lee's Summit, MO Industrial Development Authority - Health Facilities Revenue -
John Knox Village - Series 1995 6.625 08/15/13 999,360
4,565 St. Louis County, MO Industrial Development Authority - Health Facilities Revenue -
Lutheran Health Care Association - Series 1992A 7.375 02/01/14 4,856,384
2,650 St. Louis County, MO Industrial Development Authority - Health Facilities Revenue -
Lutheran Health Care Association - Series 1992A 7.625 02/01/22 2,833,778
2,465 St. Louis County, MO Industrial Development Authority - Health Facilities Revenue - 6.250 08/01/28 2,447,819
Mother of Perpetual Help - Series 1995
Hospitals
-------------------------------------------------------------------------------------------------------------------------
400 Audrain County, MO Hospital Revenue - Audrain Medical Center 7.350 11/01/08 446,984
1,000 Jackson County, MO Industrial Development Authority Health Care Revenue -
St. Joseph Hospital - Series 1992 6.500 07/01/19 966,020
6,250 Jackson County, MO Industrial Development Authority Health Care Revenue -
St. Joseph Hospital - Series 1992 6.500 07/01/19 6,475,750
2,000 Jackson County, MO Industrial Development Authority Health Care Revenue -
St. Joseph Hospital - Series 1992 6.500 07/01/12 2,081,360
250 Joplin, MO Catholic Health Corporation Industrial Development Authority
Facilities Revenue - St. John's Regional Medical Center 7.125 06/01/14 260,880
2,565 Missouri State Health and Educational Facilities Authority Revenue -
Health Midwest - Series 1992B 6.250 02/15/12 2,629,228
5,355 Missouri State Health and Educational Facilities Authority Revenue -
Health Midwest - Series 1992B 6.250 02/15/22 5,452,568
555 Missouri State Health and Educational Facilities Authority Revenue -
Heartland Health Systems - Series 1992 6.875 11/15/04 577,494
2,000 Missouri State Health and Educational Facilities Authority Revenue - 6.250 06/01/07 2,129,280
SSM Health Care - Series 1992AA
2,000 Missouri State Health and Educational Facilities Authority Revenue -
SSM Health Care - Series 1992AA 6.250 06/01/16 2,042,860
1,000 Missouri State Health and Educational Facilities Authority Revenue -
Heartland Health Systems - Series 1992 6.350 11/15/17 1,028,920
</TABLE>
4 F-183 Missouri
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$1,475 Missouri State Health and Educational Facilities Authority Revenue -
Health Midwest System - Series 1994 B 6.250% 06/01/14 $1,518,070
2,125 Missouri State Health and Educational Facilities Authority Revenue -
BJC Health System - Series 1994 A 6.750 05/15/12 2,330,849
650 Missouri State Health and Educational Facilities Authority Revenue -
BJC Health System - Series 1994 A 6.500 05/15/20 671,612
6,300 Missouri State Health and Educational Facilities Authority Revenue -
Lester E. Cox Medical Centers - Series 1992 H 0.000 09/01/22 1,274,868
2,650 Missouri State Health and Educational Facilities Authority Revenue -
Lester E. Cox Medical Centers - Series 1992 H 0.000 09/01/17 736,064
5,690 Missouri State Health and Educational Facilities Authority Revenue -
Lester E. Cox Medical Centers - Series 1992 H 0.000 09/01/21 1,223,691
200 Missouri State Health and Educational Facilities Authority Revenue -
Heartland Health Systems - Series 1989 8.125 10/01/10 224,772
100 Missouri State Health and Educational Facilities Authority Revenue -
Lake of the Ozarks Hospital 8.000 02/15/11 104,978
300 Missouri State Health and Educational Facilities Authority Revenue -
C.E. Still Osteopathic Hospital 7.625 02/01/08 300,507
450 Commonwealth of Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority Revenue -
Doctor Pila Hospital - Series 1995 5.875 08/01/12 450,842
250 University of Missouri Revenue - Columbia Hospital and Clinics 6.500 11/01/11 261,290
Housing/Multifamily
-----------------------------------------------------------------------------------------------------------------------
3,000 Kansas City, MO Industrial Development Authority - Multifamily Housing Revenue -
Series 1995 6.300 07/01/20 2,992,410
2,000 Missouri State Economic Development Export and Infrastructure Board -
Multifamily Housing Revenue - Quality Hill 7.500 09/15/21 2,103,300
885 Missouri Housing Development Commission - Multifamily Housing Revenue -
Primm Place Apartments - Series 1995 A and B 6.250 12/01/17 868,601
2,000 St. Louis County, MO Housing Authority Revenue - Multifamily -
Kensington Square - Series 1995 6.650 03/01/20 2,052,240
500 St. Louis County, MO Industrial Development Authority - Multifamily Housing
Revenue - Series 1989 7.500 09/20/19 524,190
3,800 St. Louis County, MO Industrial Development Authority - Multifamily Housing
Revenue - Oak Forest II Apartments - Southfield Apartments - Series 1996 A and B 5.950 03/20/31 3,691,016
1,890 St. Louis, MO Land Clearance Redevelopment Authority - Multifamily
Mortgage Revenue - St. Louis Place Apartments - Series 1993 6.250 08/01/27 1,893,704
Housing/Single Family
-----------------------------------------------------------------------------------------------------------------------
165 Missouri State Housing Development Commission Revenue - Single Family -
Series 1990 A 7.625 02/01/22 171,998
1,100 Missouri State Housing Development Commission Revenue - Single Family -
Series 1990 B 7.750 06/01/22 1,155,363
1,655 Missouri State Housing Development Commission Revenue - Single Family -
Series 1991 A 7.375 08/01/23 1,743,542
535 Missouri State Housing Development Commission Revenue - Single Family -
Series 1994 A 6.700 12/01/07 546,069
</TABLE>
Missouri F-184 5
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$2,400 Missouri State Housing Development Commission Revenue - Single Family -
Series 1994 A 7.125% 12/01/14 $2,446,680
1,065 Missouri State Housing Development Commission Revenue - Single Family -
Series 1994 A 7.200 12/01/17 1,085,799
Industrial Development and Pollution Control
-----------------------------------------------------------------------------------------------------------------------
500 Jefferson, MO Industrial Development Revenue - Scholastic Incorporated -
Series 1992 7.200 04/01/03 505,660
2,275 Missouri State Industrial Development Revenue - Drury Inn 8.250 12/01/12 2,385,451
1,000 Missouri State Environmental and Energy Resource Authority Revenue -
American Cyanamid - Series 1994 5.800 09/01/09 1,032,910
1,500 Missouri State Environmental Improvement and Energy Resource Authority -
Union Electric Company Project 7.400 05/01/20 1,626,570
2,000 Puerto Rico Ports Authority - Special Facilities Revenue -
American Airlines, Incorporated Project - Series 1996 A 6.250 06/01/26 1,957,600
1,900 St. Louis, MO Industrial Development Authority - Sewage and Solid Waste
Disposal Facilities Revenue - Anheuser-Busch Project - Series 1995 5.875 11/01/26 1,846,705
Municipal Appropriation Obligations
-----------------------------------------------------------------------------------------------------------------------
2,285 Branson, MO Public Building Corporation - Leasehold Revenue -
City Hall and Fire Station - Series 1995 6.250 11/01/12 2,175,092
1,500 Clay County, MO Public Building Authority and Improvement Revenue -
Paradise Pointe Golf Course Project - Series 1992 7.625 05/15/14 1,632,930
1,435 Excelsior Springs, MO Facilities Authority - Leasehold Revenue - Series 1994 6.250 12/15/14 1,473,946
350 Jackson County, MO Lease ParticipationCertificate - Longview Recreation
Complex 8.000 11/01/07 372,134
2,000 Jackson County, MO Public Facilities Authority Leasehold Revenue -
Series 1994 6.125 12/01/15 2,031,080
2,200 Kansas City, MO Land Clearance For Redevelopment Authority Revenue -
Municipal Auditorium and Muehlebach Hotel Redevelopment - Series 1995 A 5.900 12/01/18 2,159,718
645 Kansas City, MO Municipal Assistance Corporation - Leasehold Improvement
Revenue - Truman Medical Center Charitable Foundation Project - Series 1991 A 7.000 11/01/09 676,534
695 Kansas City, MO Municipal Assistance Corporation - Leasehold Improvement
Revenue - Truman Medical Center Charitable Foundation Project - Series 1991 A 7.000 11/01/10 726,365
1,020 Lake St. Louis, MO Certificates of Participation - Public Facilities Revenue -
Municipal Golf Course 6.900 12/01/05 1,044,959
2,720 Lake St. Louis, MO Certificates of Participation - Public Facilities Revenue -
Municipal Golf Course 7.550 12/01/14 2,830,187
375 Missouri School Board Association Certificates of Participation 7.875 03/01/06 398,648
680 Missouri School Board Association Lease Participation - Valley Park 7.375 03/01/10 718,488
1,120 Missouri State Psychiatric Rehabilitation Center - Certificates of Participation -
Series 1995 A 6.000 11/01/15 1,092,370
1,000 St. Louis County, MO Regional Convention and Sports Complex Authority -
Series 1993 B 5.500 08/15/13 926,480
1,700 St. Louis County, MO Regional Convention and Sports Complex Authority -
Series 1993 B 5.750 08/15/21 1,560,464
1,410 St. Louis, MO Land Clearance Redevelopment Authority Revenue -
Station East Redevelopment Project - Series 1990 7.750 07/01/21 1,467,401
</TABLE>
6 F-185 Missouri
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 950 St. Louis, MO Municipal Finance Corporation - Leasehold Revenue
Improvement - Series 1992 6.250% 02/15/12 $ 979,450
1,000 St. Louis, MO Regional Convention and Sports Complex Authority - Series C 7.900 08/15/21 1,083,930
Municipal Revenue/Other
--------------------------------------------------------------------------------------------------------------------------
650 St. Louis County, MO Industrial Development Revenue Authority - Kiel
Center Multipurpose Arena - Series 1992 7.625 12/01/09 683,761
1,000 St. Louis County, MO Industrial Development Revenue Authority - Kiel
Center Multipurpose Arena - Series 1992 7.750 12/01/13 1,056,610
500 St. Louis County, MO Industrial Development Revenue Authority - Kiel
Center Multipurpose Arena - Series 1992 7.875 12/01/24 532,280
3,975 St. Louis, MO Parking Revenue - Series 1992 6.625 12/15/21 4,069,684
Municipal Revenue/Transportation
--------------------------------------------------------------------------------------------------------------------------
4,000 Kansas City, MO Airport Revenue - Series 1994 B 6.875 09/01/14 4,306,000
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------------
2,025 Higginsville, MO Electric System Revenue - Series 1994 A 6.750 06/01/16 2,157,415
250 Independence, MO Electric Utility Revenue 7.200 06/01/14 264,762
3,530 Commonwealth of Puerto Rico Electric Power Authority - Series 1995 X 5.500 07/01/25 3,229,668
2,000 Sikeston, MO Electric Revenue - Series 1992 6.200 06/01/10 2,135,460
4,000 Sikeston, MO Electric System Revenue - Series 1996 6.000 06/01/16 4,117,960
1,000 Sikeston, MO Electric System Revenue - Series 1996 6.000 06/01/13 1,035,700
750 Sikeston, MO Electric System Revenue - Series 1996 6.000 06/01/14 774,262
5,000 Sikeston, MO Electric System Revenue - Series 1996 5.000 06/01/22 4,387,450
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------------
380 Adair County, MO Public Water Supply District Number 1 - Waterworks Revenue 7.600 12/15/08 404,354
50 Boone County, MO Public Water Supply District Number 4 - Water System Revenue 7.100 08/01/04 53,416
50 Callaway County, MO Public Water Supply District Number 1 8.375 01/01/05 53,294
50 Carroll County, MO Public Water Supply District Number 1 8.000 03/01/09 54,092
50 Clay County, MO Public Water Supply District Number 6 8.200 06/01/01 50,638
50 DeKalb County, MO Public Water Supply District Number 001 8.000 01/01/09 53,578
400 East Central Missouri Water and Sewer System Authority Revenue - St. Charles
County Public Water Supply District Number 2 - Series 1992 7.000 08/01/08 412,876
50 Fulton, MO Waterworks Revenue 7.500 10/01/02 54,698
50 Hamilton, MO Waterworks Revenue 7.750 07/01/14 53,444
50 Kahoka, MO Water and Sewer System Revenue 8.000 01/01/05 52,630
50 Knox County, MO Public Water Supply District Number 1 - Water System Revenue 8.000 01/01/09 53,640
50 La Monte, MO Waterworks and Sewage System Revenue 8.000 03/01/04 54,152
50 Laclede County, MO Public Water Supply District Number 3 - Waterworks Revenue 8.125 01/01/07 52,107
1,000 Missouri State Economic Development Export and Infrastructure Board -
Community Water Company - Series 1992 7.125 05/01/17 1,016,260
</TABLE>
Missouri F-186 7
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$1,150 Missouri State Environmental Improvement and Energy Resource Authority -
Water Facility Revenue - St. Louis Water 6.900% 02/01/21 $1,203,716
750 Missouri State Environmental Improvement and Energy Resource Authority -
Water Pollution Control Revenue 7.000 10/01/10 800,378
3,600 Missouri State Environmental Improvement and Energy Resource Authority -
Water Pollution Control Revenue 6.875 06/01/14 3,834,000
2,000 Missouri State Environmental Improvement and Energy Resource Authority -
Water Pollution Control Revenue - State Revolving Fund Program - Series 1992A 6.550 07/01/14 2,087,720
600 Missouri State Environmental and Energy Resource Authority Revenue -
Water Pollution Control - Series 1994 A 7.200 07/01/16 667,296
1,000 Missouri State Environmental Improvement and Energy Resource Authority -
Water Pollution Control Revenue - Series 1995 B 6.050 07/01/16 1,011,220
500 Missouri State Environmental Improvement and Energy Resources Authority -
Water Pollution Control Revenue - State Revolving Fund Program -
Kansas City Project - Series 1996 A 5.750 01/01/16 490,195
125 Osceola, MO Sewer System Improvement Revenue 8.000 11/01/09 135,372
100 Pike County, MO Public Water Supply District Number 1 - Water Revenue 7.750 07/01/09 105,369
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------------
565 Chesterfield, MO General Obligation - Series 1995 6.300 02/15/14 584,815
1,025 Excelsior Springs, MO 40 School District Building Corporation -
Leasehold Revenue - Series 1994 0.000 03/01/14 360,780
1,000 Jefferson City, MO School District - General Obligation - Series 1991 A 6.700 03/01/11 1,112,540
100 Commonwealth of Puerto Rico Municipal Finance Agency - Series A 8.250 07/01/08 108,986
1,500 Troy, MO Lincoln County R-III School District - General Obligation - Series 1994 6.100 03/01/14 1,530,375
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------------
200 Callaway County, MO Public Water Supply District Number 2 8.500 03/01/10 210,848
9,000 Cape Girardeau County, MO Single Family Mortgage Revenue - Series 1983 0.000 12/01/14 2,984,130
1,850 Cape Girardeau, MO Waterworks System Revenue - Series 1992 6.400 03/01/12 1,990,304
100 Cass County, MO Public Water Supply District Number 2 8.000 10/01/10 109,049
750 Central Missouri State University Revenue 7.250 07/01/15 832,972
50 Clark County, MO Public Water Supply District Number 1 8.250 12/01/15 55,062
50 Concordia, MO Waterworks and Sewer System Revenue 8.375 07/01/08 54,130
50 Cooper County, MO Nursing Home - General Obligation 8.375 03/01/08 52,190
2,670 Green County, MO Single Family Mortgage Revenue 0.000 03/01/16 814,911
450 Jackson County, MO Industrial Development Authority Health Care Revenue -
St. Joseph Hospital 8.250 07/01/07 479,853
1,000 Jackson County, MO School District Number 002 - Series A 6.650 03/15/11 1,042,240
1,500 Jackson County, MO Single Family Mortgage Revenue - Series 1983 0.000 03/01/15 483,525
50 Johnson County, MO Public Water Supply District Number 1 Revenue 8.500 05/01/09 52,727
200 Johnson County, MO Public Water Supply District Number 2 Revenue 8.500 01/01/09 217,594
400 Kansas City, MO Airport Revenue - Series 1987 7.750 09/01/02 426,252
250 Kansas City, MO Airport Revenue - Series 1989 B 7.200 09/01/09 274,420
1,400 Kansas City, MO Municipal Assistance Corporation - Leasehold Refunding and
Improvement Revenue - H. Roe Bartle Convention Center Project - Series 1990 B-1 7.125 04/15/16 1,543,780
</TABLE>
8 F-187 Missouri
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 450 Kansas City, MO School District Building Corporation - Capital Improvement Project 7.900% 02/01/08 $ 486,418
2,500 Kirkwood, MO Industrial Development Authority Health Care System Revenue - St.
Joseph Hospital - Series 1992 6.500 07/01/12 2,741,175
50 Marion County, MO Public Water Supply District Number 1 - Water Revenue 8.250 01/01/12 55,268
625 Missouri School Board Association Lease Participation - North St. Francois County
- Series 1990 7.375 04/01/10 667,956
335 Missouri School Board Association Lease Participation - North St. Francois County
- Series 1990 7.000 04/01/10 355,224
225 Missouri State Health and Educational Facilities Authority Revenue - St. Louis
University - Series B 7.875 06/01/12 238,439
100 Missouri State Health and Educational Facilities Authority Revenue - General
Tuition - St. Louis University 7.250 06/01/09 109,506
100 Missouri State Health and Educational Facilities Authority Revenue - Bethesda
Health Group 7.875 04/01/08 107,420
300 Missouri State Health and Educational Facilities Authority Revenue - Bethesda
Health Group 8.000 04/01/13 322,887
450 Missouri State Health and Educational Facilities Authority Revenue - SSM Health
Care Project 7.750 06/01/16 489,078
650 Missouri State Health and Educational Facilities Authority Revenue - SSM Health
Care Project - Series 1990 B 7.000 06/01/15 750,347
395 Missouri State Health and Educational Facilities Authority Revenue - Sisters of
Mercy Health System 7.250 06/01/19 432,549
1,700 Missouri State Health and Educational Facilities Authority Revenue - Barnes
Hospital 7.125 12/15/20 1,894,973
500 Phelps County, MO Hospital Revenue - Phelps County Regional Medical Center 8.200 03/01/05 568,800
1,250 Phelps County, MO Hospital Revenue - Phelps County Regional Medical Center 8.300 03/01/20 1,426,250
750 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.000 07/01/19 805,972
1,230 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1992 T 6.625 07/01/18 1,359,605
1,000 St. Charles, MO School District - General Obligation - Series 1994 6.500 02/01/14 1,099,300
1,000 St. Louis County, MO GNMA Collateralized Mortgage Revenue - Certificates of
Receipt - Series 1993 H 5.400 07/01/15 943,900
1,000 St. Louis County, MO Regional Convention and Sports Complex Authority - Series B 7.000 08/15/11 1,123,520
200 St. Louis, MO Land Clearance Redevelopment Authority Revenue 7.400 08/15/04 213,226
500 St. Louis, MO Land Clearance Redevelopment Authority Revenue 7.600 08/15/07 535,275
445 St. Louis, MO School District - General Obligation - Series 1991 6.750 04/01/11 492,722
2,250 Sikeston, MO Electric Revenue - Series 1992 6.250 06/01/12 2,443,590
250 University of Missouri Revenue - Columbia Recreational Facilities 7.100 10/01/07 270,175
50 Vandalia, MO Water and Sewer System Revenue 7.625 04/01/06 55,471
50 Vandalia, MO Water and Sewer System Revenue 7.625 04/01/07 55,471
</TABLE>
Missouri F-188 9
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,095 Branson, MO Tax Increment Allocation - Branson Meadows - Series 1995 6.700% 11/01/07 $1,072,739
1,245 Branson, MO Tax Increment Allocation - Branson Meadows - Series 1995 6.950 11/01/09 1,230,284
1,500 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series V 6.625 07/01/12 1,581,630
500 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series V 5.750 07/01/18 474,830
3,535 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series
1993 X 5.000 07/01/22 2,993,792
9,000 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series
1996 Y and Z 5.000 07/01/36 7,499,430
1,400 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series
1993 W 5.500 07/01/15 1,361,262
State/Territorial General Obligations
---------------------------------------------------------------------------------------------------------------------------
2,400 Commonwealth of Puerto Rico Public Improvement - General Obligation - Series 1993 5.000 07/01/21 2,038,488
2,500 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.450 07/01/17 2,574,500
3,350 Commonwealth of Puerto Rico - General Obligation - Series 1994 6.500 07/01/23 3,462,326
1,800 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series 1995 5.000 07/01/19 1,552,410
1,500 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public
Education and Health Facilities - Series M 5.500 07/01/21 1,397,775
Student Loan Revenue Bonds
---------------------------------------------------------------------------------------------------------------------------
1,000 Missouri Higher Education Loan Authority - Student Loan Subordinate Lien
Revenue - Series 1992 6.500 02/15/06 1,018,040
4,190 Missouri State Higher Education Loan Authority - Student Loan Revenue - Series
1994 F 6.750 02/15/09 4,263,995
Total Investments in Securities - Municipal Bonds (cost $211,194,012) - 99.0% 216,806,785
Excess of Other Assets over Liabilities - 1.0% 2,129,676
Total Net Assets - 100.0% $218,936,461
</TABLE>
See notes to financial statements.
10 F-189 Missouri
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities May 31, 1996
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $211,194,012) $216,806,785
Receivable for investments sold 180,000
Receivable for Fund shares sold 254,671
Interest receivable 4,652,850
Other 11,856
Total assets 221,906,162
LIABILITIES:
Bank borrowings (Note G) 1,761,139
Payable for Fund shares reacquired 42,944
Distributions payable 989,461
Accrued expenses 176,157
Total liabilities 2,969,701
NET ASSETS: 218,936,461
Class A:
Applicable to 20,244,922 shares of beneficial interest
issued and outstanding $212,716,648
Net asset value per share $ 10.51
Class C:
Applicable to 592,367 shares of beneficial interest issued
and outstanding $ 6,219,813
Net asset value per share $ 10.50
</TABLE>
[LOGO OF SHIP ART]
Statement of Operations For the year ended May 31, 1996
................................................................................
<TABLE>
<S> <C>
INVESTMENT INCOME - INTEREST $ 13,429,637
EXPENSES:
Distribution fees - Class A (Note E) 851,451
Distribution fees - Class C (Note E) 48,302
Investment advisory fees (Note E) 1,092,915
Custodian's fees 112,867
Transfer agent's fees 163,575
Registration fees 14,544
Legal fees 5,647
Audit fees 16,836
Reimbursement of organizational expenses (Note F) 16,340
Trustees' fees 6,095
Shareholder services fees (Note E) 20,725
Other 6,529
Advisory fees waived (Note E) (598,909)
Total expenses before credits 1,756,917
Custodian fee credit (Note B) (37,307)
Net expenses 1,719,610
Net investment income 11,710,027
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on security transactions 1,089,042
Change in unrealized appreciation (depreciation) of
investments (5,482,503)
Net loss on investments (4,393,461)
Net increase in net assets resulting from operations $ 7,316,566
See notes to financial statements.
</TABLE>
Missouri F-190 11
<PAGE>
[LOGO OF SHIP ART]
Statements of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS Year Ended Year Ended
Operations: May 31, 1996 May 31, 1995
<S> <C> <C>
Operations:
Net investment income $ 11,710,027 $ 11,205,053
Net realized gain (loss) on security transactions 1,089,042 (2,995,152)
Change in unrealized appreciation (depreciation) of
investments (5,482,503) 7,465,017
Net increase in net assets resulting from operations 7,316,566 15,674,918
Distributions to Class A shareholders:
From net investment income (11,560,299) (11,116,432)
Distributions to Class C shareholders:
From net investment income (246,972) (151,944)
Net decrease in net assets from distributions to
shareholders (11,807,271) (11,268,376)
Fund share transactions (Note C):
Proceeds from shares sold 31,869,368 33,344,451
Net asset value of shares issued in reinvestment of
distributions 6,602,041 6,400,051
Cost of shares reacquired (24,122,187) (24,296,688)
Net increase in net assets from Fund share transactions 14,349,222 15,447,814
Total increase in net assets 9,858,517 19,854,356
NET ASSETS:
Beginning of year 209,077,944 189,223,588
End of year $218,936,461 $209,077,944
NET ASSETS CONSIST OF:
Paid-in surplus $217,908,015 $203,656,037
Accumulated net realized gain (loss) on security
transactions (4,584,327) (5,673,369)
Unrealized appreciation (depreciation) of investments 5,612,773 11,095,276
$218,936,461 $209,077,944
See notes to financial statements.
</TABLE>
12 F-191 Missouri
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
................................................................................
A. Description of Business
The Flagship Missouri 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 August 3, 1987. 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.
Missouri F-192 13
<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 May 31, 1996.
C. Fund Shares
At May 31, 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>
Year Ended Year Ended
May 31, 1996 May 31, 1995
------------------------- --------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Shares sold 2,711,275 $ 29,055,443 3,030,807 $ 31,183,676
Shares issued on reinvestment 601,080 6,446,529 613,522 6,311,985
Shares reacquired (2,194,192) (23,512,867) (2,358,031) (24,044,260)
Net increase 1,118,163 $ 11,989,105 1,286,298 $ 13,451,401
Class C:
Shares sold 262,545 $ 2,813,925 209,323 $ 2,160,775
Shares issued on reinvestment 14,502 155,512 8,579 88,066
Shares reacquired (56,931) (609,320) (24,434) (252,428)
Net increase 220,116 $ 2,360,117 193,468 $ 1,996,413
</TABLE>
D. Purchases and Sales of Municipal Bonds
Purchases and sales of municipal bonds for the year ended May 31, 1996,
aggregated $94,347,708 and $80,840,304, respectively. At May 31, 1996, cost
for federal income tax purposes is $211,247,526 and net unrealized
appreciation aggregated $5,559,259, of which $7,905,176 related to
appreciated securities and $2,345,917 related to depreciated securities.
At May 31, 1996, the Fund has available a capital loss carryforward of
approximately $4,530,800 to offset future net capital gains expiring on May
31, 2003.
14 F-193 Missouri
<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 year ended May 31,
1996, the Advisor, at its discretion, permanently waived $598,909 of its
advisory fees. Included in accrued expenses at May 31, 1996 are accrued
advisory fees of $55,822. 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 May 31, 1996 are accrued
distribution fees of $72,348 and $4,943 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 $631,600 for the year ended May 31, 1996, of which
approximately $544,700 was paid to other dealers. For the year ended May 31,
1996, the Distributor received approximately $1,300 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. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund (approximately
$83,600) have been reimbursed to the Advisor as of May 31, 1996.
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 $10 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 year ended May 31, 1996 was approximately
$388,300, at a weighted average annualized interest rate of 6.75%. At May 31,
1996, the Fund had $1,761,139 outstanding under the line of credit.
Missouri F-194 15
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the year.
................................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
CLASS A May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993 May 31, 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.72 $ 10.50 $ 10.87 $ 10.32 $ 10.04
Income from investment operations:
Net investment income 0.58 0.60 0.61 0.64 0.65
Net realized and unrealized gain (loss) on
securities (0.21) 0.22 (0.34) 0.60 0.29
Total from investment operations 0.37 0.82 0.27 1.24 0.94
Less distributions:
From net investment income (0.58) (0.60) (0.61) (0.63) (0.65)
From net realized capital gains (0.02) (0.06) (0.01)
In excess of net realized capital gains (0.01)
Total distributions (0.58) (0.60) (0.64) (0.69) (0.66)
Net asset value, end of year $ 10.51 $ 10.72 $ 10.50 $ 10.87 $ 10.32
Total return/(a)/ 3.51% 8.19% 2.42% 12.54% 9.70%
Ratios to average net assets:
Actual net of waivers and reimbursements:
Expenses/(b)/ 0.80% 0.67% 0.62% 0.55% 0.47%
Net investment income 5.37% 5.78% 5.52% 5.99% 6.39%
Assuming credits and no waivers or
reimbursements:
Expenses 1.05% 1.08% 1.06% 1.11% 1.13%
Net investment income 5.12% 5.37% 5.08% 5.43% 5.73%
Net assets at end of year (000's) $212,717 $205,089 $187,347 $144,775 $76,069
Portfolio turnover rate 37.66% 40.08% 34.30% 33.26% 31.73%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge.
(b) During 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 0.78%; prior year numbers have not
been restated to reflect these credits.
16 F-195 Missouri
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
Year Ended Year Ended February 2, 1994 to
Class C May 31, 1996 May 31, 1995 May 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.72 $10.50 $11.33
Income from investment operations:
Net investment income 0.51 0.53 0.02
Net realized and unrealized gain
(loss) on securities (0.21) 0.23 (0.83)
Total from investment operations 0.30 0.76 (0.81)
Less distributions:
From net investment income (0.52) (0.54) (0.02)
Total distributions (0.52) (0.54) (0.02)
Net asset value, end of period $10.50 $10.72 $10.50
Total return(a) 2.84% 7.60% (17.62%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 1.35% 1.20% 1.15%
Net investment income 4.79% 5.19% 4.44%
Assuming credits and no
waivers or reimbursements:
Expenses 1.60% 1.63% 1.61%
Net investment income 4.54% 4.76% 3.98%
Net assets at end of period (000's) $6,220 $3,989 $1,877
Portfolio turnover rate 37.66% 40.08% 34.30%
</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 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 1.33%; prior period numbers have not
been restated to reflect these credits.
Missouri F-196 17
<PAGE>
[LOGO OF SHIP ART]
Independent Auditors' Report
................................................................................
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP MISSOURI
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Missouri Double Tax Exempt Fund as of May 31, 1996, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the Fund's custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Flagship
Missouri Double Tax Exempt Fund at May 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 3, 1996
18 F-197 Missouri
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 300 Miami University, OH General Receipts 0.000% 12/01/06 $ 173,427
450 Miami University, OH General Receipts 0.000 12/01/08 228,105
2,050 Miami University Ohio State University Revenue 6.900 12/01/04 2,178,207
2,025 Ohio State Higher Educational Facilities Commission Revenue -
University of Dayton - Series 1992 6.600 12/01/17 2,154,215
2,545 Ohio State Higher Educational Facilities Commission Revenue -
Case Western Reserve 7.625 10/01/08 2,681,946
750 Ohio State Higher Educational Facilities Commission Revenue -
Case Western Reserve University - Series 1990 6.500 10/01/20 810,720
1,870 Ohio State Higher Educational Facilities Commission Revenue -
Case Western Reserve University - Series 1990 7.125 10/01/14 2,032,503
4,000 University of Puerto Rico System Revenue - Series 1995 N 0.000 06/01/09 1,995,840
1,230 Youngstown, OH State University General Receipts - Series 1994 A 6.000 12/15/16 1,239,507
Health Care
--------------------------------------------------------------------------------------------------------------------------
4,030 Cuyahoga County, OH Health Care Facilities Revenue - Altenheim Nursing Home 9.280 06/01/15 4,417,646
3,120 Franklin County, OH Health Care Facilities Revenue - Heinzerling Foundation -
Series 1995 6.200 11/01/20 2,983,968
2,825 Warren County, OH Hospital Facility Improvement Revenue - Otterbein Home
Project 7.200 07/01/11 3,027,411
Hospitals
--------------------------------------------------------------------------------------------------------------------------
500 Athens County, OH Community Mental Health Hospital - West Center - Series I 6.900 06/01/10 519,060
3,000 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 7.250 01/01/12 3,195,060
500 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 8.000 12/01/06 536,215
1,000 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 8.000 12/01/11 1,062,940
670 Clark County, OH Hospital Improvement Revenue - Community Hospital - Series A 9.100 04/01/97 687,762
1,000 Clermont County, OH Hospital Facilities Revenue - Mercy Health Care System -
Series 1993 B 5.875 09/01/15 984,610
3,000 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General Hospital -
Series 1994 5.500 08/15/14 2,860,440
250 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 6.250 08/15/14 249,970
5,500 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 6.250 08/15/24 5,399,295
7,000 Cuyahoga County, OH Hospital Facilities Revenue - Cleveland Clinic Foundation -
1988 A 8.000 12/01/15 7,338,240
3,000 Cuyahoga County, OH Hospital Facilities Revenue - Meridia Health System 7.250 08/15/19 3,215,220
1,500 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General
Hospital/Lutheran Medical Center - Series 1993 6.250 08/15/10 1,553,760
2,000 Cuyahoga County, OH Industrial Development Revenue - University Health
Care Center - Series 1991 7.300 08/01/11 2,186,140
2,010 Erie County, OH Hospital Improvement Revenue - Firelands Community Hospital -
Series 1992 6.750 01/01/08 2,087,003
2,000 Fairfield County, OH Hospital Improvement Revenue - Lancaster and Fairfield
Hospitals 5.375 06/15/12 1,916,000
4,775 Franklin County, OH Hospital Refunding and Improvement Revenue -
The Children's Hospital Project - Series 1996 A 5.875 11/01/25 4,628,646
</TABLE>
4 F-248 Ohio
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,350 Franklin County, OH Hospital Facilities Refunding Revenue - Riverside United Methodist
Hospital 7.250% 05/15/20 $1,466,762
1,500 Franklin County, OH Hospital Revenue - Holy Cross Hospital 7.625 06/01/09 1,654,290
3,500 Garfield Heights, OH Hospital and Improvement Revenue - Marymont Hospital - Series 1992A 6.700 11/15/15 3,627,645
3,000 Hamilton County, OH Hospital Facilities Revenue - Bethesda Hospital - Series 1992A 6.250 01/01/12 3,005,730
1,720 Hamilton County, OH Health System Revenue - Providence Hospital - Series 1992 6.875 07/01/15 1,735,222
2,325 Hancock County, OH Hospital Revenue - Blanchard Valley Hospital 7.625 11/15/14 2,483,007
2,500 Lake County, OH Hospital Facilities Revenue - Lake Hospital System - Series 1993 5.375 08/15/10 2,426,100
7,890 Lorain, OH Hospital Facilities Revenue - EMH Regional Medical Center - Series 1995 5.375 11/01/21 7,279,551
3,860 Lorain, OH Hospital Revenue - Lakeland Community Hospital - Series 1992 6.500 11/15/12 3,909,871
1,000 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical Center - Series A 6.750 08/15/20 1,085,760
1,500 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 8.125 12/01/11 1,606,425
3,000 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical Center - Series 1992 6.500 08/15/12 3,261,270
2,750 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 6.125 12/01/13 2,593,882
1,450 Lucas County, OH Hospital Improvement Revenue - St. Vincent Medical Center -
Series 1993B 5.375 08/15/17 1,337,045
2,750 Mahoning County, OH Hospital Facilities Improvement Revenue - YHA Project 7.000 10/15/14 2,974,978
500 Mansfield, OH Hospital Improvement Revenue - Mansfield General Hospital 6.700 12/01/09 538,285
1,250 Maumee, Ohio Hospital Facilities Revenue - St. Luke's Hospital - Series 1994 5.800 12/01/14 1,223,662
4,875 Miami County, OH Hospital Facilities Revenue - Upper Valley Medical Centers - Series A 8.375 05/01/13 5,092,815
4,000 Middleburg Heights, OH Hospital Revenue - Southwest General Health Center - Series 1995 5.625 08/15/15 3,860,840
2,000 Middleburg Heights, OH Hospital Revenue - Southwest General Health Center - Series 1995 5.750 08/15/21 1,935,240
5,000 Montgomery County, OH Hospital Facilities Revenue - Kettering Medical Center -
Series 1996 6.250 04/01/20 5,298,150
2,500 Montgomery County, OH Hospital Revenue - Sisters of Charity Health Care Systems -
Series 1992A 6.250 05/15/08 2,628,650
1,000 Muskingum County, OH Hospital Facilities Revenue - Bethesda Care System - Series 1996 5.400 12/01/16 936,470
1,725 Shelby County, OH Hospital Facilities and Improvement Revenue - Wilson Memorial Hospital 7.700 09/01/18 1,804,919
1,750 Trumbull County, OH Hospital Revenue - Trumbull Memorial Hospital - Series B 6.900 11/15/12 1,895,268
1,500 Washington County, OH Hospital Facilities Revenue - Marietta Area Health Care Project 7.375 09/01/12 1,568,955
1,500 Westerville, OH Minerva Park and Blendon Joint Township Hospital District Improvement
Revenue - St. Ann's Hospital - Series 1991A 7.100 09/15/21 1,650,090
</TABLE>
Ohio F-249 5
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
Housing/Multifamily
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,500 Fairlawn, OH Health Care Facilities Revenue - The Village at St. Edward 8.750% 10/01/19 $ 2,681,300
1,000 Ohio Capital Corporation for Housing - Multifamily Revenue 7.500 11/01/11 1,063,860
3,000 Ohio Capital Corporation for Housing - Multifamily Revenue 7.600 11/01/23 3,199,740
Housing/Single Family
- -----------------------------------------------------------------------------------------------------------------------------------
1,990 Ohio Housing Finance Agency - Residential Mortgage Revenue - Series 1994A-2 6.100 09/01/14 1,995,791
5,255 Ohio Housing Finance Agency - Residential Mortgage Revenue - Series 1994B-1 6.375 09/01/14 5,335,296
Industrial Development and Pollution Control
- -----------------------------------------------------------------------------------------------------------------------------------
2,125 Ashtabula County, OH Industrial Development Revenue - Ashland Oil - Series A 6.900 05/01/10 2,208,470
7,000 Ohio State Air Quality Development Authority Revenue - Columbus Southern Power Company -
Series 1985B 6.250 12/01/20 6,866,720
4,900 Ohio State Air Quality Development Authority Revenue - Ohio Power Company - Series B 7.400 08/01/09 5,124,077
1,000 Ohio State Air Quality Development Authority - Ashland Oil, Inc. - Series 1992 6.850 04/01/10 1,022,150
2,000 Ohio State Air Quality Development Authority Revenue - Dayton Power and Light Company -
Series 1995 6.100 09/01/30 1,996,920
4,500 Ohio State Water Development Authority Revenue - Cincinnati Gas - Series 1994A 5.450 01/01/24 4,202,415
7,050 Ohio State Water Development Authority Pollution Control Revenue - Ohio Edison Company 7.625 07/01/23 7,379,517
1,000 Summitt County, OH Industrial Development Authority Revenue - Century Products Inc. 7.750 11/01/05 1,041,500
1,650 Toledo-Lucas County, OH Port Authority Revenue - Cargill - Series 1992 7.250 03/01/22 1,811,056
Municipal Appropriation Obligations
- -----------------------------------------------------------------------------------------------------------------------------------
190 Ohio State Building Authority - Columbus State Office Building - Series B 8.800 04/01/00 196,772
1,500 Ohio State Building Authority - Correctional Facilities - Series B 7.125 09/01/09 1,538,910
1,500 Ohio State Building Authority Facilities - Juvenile Correction Building Fund -
Series 1994A 6.600 10/01/14 1,596,945
1,100 Ohio State Department of Transportation - Certificates of Participation - Panhandle Rail
Line 6.500 04/15/12 1,155,099
1,900 Ohio State Public Facilities Commission Higher Education - Capital Facilities Revenue -
Series 1989A 7.250 05/01/04 2,057,187
Municipal Revenue/Transportation
- -----------------------------------------------------------------------------------------------------------------------------------
7,000 Ohio State Turnpike Commission Revenue - Series 1994A 5.750 02/15/24 6,718,740
Municipal Revenue/Utility
- -----------------------------------------------------------------------------------------------------------------------------------
6,800 Cleveland, OH Public Power System Improvement Revenue - Series 1994A 7.000 11/15/24 7,470,888
2,250 Cleveland, OH Public Power System Improvement Revenue - Series 1994A 0.000 11/15/12 882,405
1,535 Cleveland, OH Public Power System Improvement Revenue - Series 1994A 0.000 11/15/13 565,816
10,685 Cleveland, OH Public Power System First Mortgage Revenue - Series 1994 7.000 11/15/17 11,754,889
1,900 Cleveland, OH Public Power System First Mortgage Revenue - Series 1994 7.000 11/15/17 2,090,247
1,000 Hamilton, OH Gas System Revenue - Series 1993A 5.000 10/15/18 892,340
</TABLE>
6 F-250 Ohio
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$13,520 Ohio Municipal Electric Generation Agency - Joint Venture 5 - Beneficial
Interest Certificates - Belleville Hydroelectric Project - Series 1993 5.375% 02/15/24 $12,486,802
1,545 Commonwealth of Puerto Rico Electric Power Authority - Series O 0.000 07/01/17 434,979
Municipal Revenue/Water & Sewer
--------------------------------------------------------------------------------------------------------------------------
2,000 Clermont County, OH Sewer System Revenue - Series 1993 5.200 12/01/21 1,806,840
6,000 Cleveland, OH Waterworks Revenue - First Mortgage - Series 1993 G 5.500 01/01/21 5,697,720
4,500 Cleveland, OH Waterworks Improvement and Refunding First Mortgage Revenue -
Series 1996 H 5.750 01/01/26 4,344,840
1,200 Greenville, OH Wastewater System Mortgage Revenue -Darke County -
Series 1992 6.350 12/01/17 1,236,504
1,000 Hamilton, OH Waterworks Revenue - Series A 6.400 10/15/10 1,050,780
775 Hubbard, OH - Sewer System Mortgage Revenue 8.800 11/15/17 837,217
795 Huber Heights, OH Water System Revenue - Series 1995 0.000 12/01/19 202,137
1,000 Mahoning Valley, OH Sanitary District - Series 1991 7.800 12/15/11 1,095,670
1,375 Mahoning Valley, OH Sanitary District - Series 1991 7.900 12/15/14 1,512,926
1,000 Mahoning Valley, OH Sanitary District - Series 1991 7.900 12/15/15 1,100,310
1,000 Mt. Gilead, OH Water System Revenue - Series 1992 7.200 12/01/17 1,080,800
190 Ohio State Water Development Authority Revenue - Pure Water and Improvement -
Series 1985 9.375 12/01/18 199,120
780 Orrville, OH Sewer Improvement Mortgage Revenue - Series 1994 6.000 12/01/11 798,915
500 Orrville, OH Sewer Improvement Mortgage Revenue - Series 1994 6.125 12/01/18 508,320
1,000 Ottawa County, OH Special Assessment - Portage-Catawba Island Sewer Project 7.000 09/01/11 1,098,880
750 Toledo, OH Sewerage System Mortgage Revenue - Series 1994 6.350 11/15/17 776,625
500 Toledo, OH Water System Mortgage Revenue - Series 1994 6.450 11/15/24 522,405
1,050 Warren County, OH Sewer System Revenue - Warren County Sewer District -
Series 1993 5.450 12/01/15 1,002,698
750 Warren County, OH Waterworks System Revenue - Series 1992 6.600 12/01/16 798,090
Non-State General Obligations
3,000 Adams County, OH Valley School District - General Obligation - Series 1995 7.000 12/01/15 3,436,260
5,635 Adams County, OH Valley School District - General Obligation - Series 1995 5.250 12/01/21 5,148,192
1,085 Amherst, OH Police and Jail Facility - General Obligation Unlimited Tax -
Series 1993 5.375 12/01/18 1,011,990
600 Anthony Wayne, OH Local School District - School Facilities Construction -
General Obligation - Series 1995 0.000 12/01/13 220,602
1,880 Avon Lake, OH City School District - General Obligation - Library Improvement -
Series 1993 5.650 12/01/13 1,831,139
2,905 Batavia, OH Local School District Board of Education - School Improvement -
Series 1995 6.300 12/01/22 2,998,599
1,570 Centerville, OH Recreational Facilities - Series 1993 5.800 12/01/20 1,529,965
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/04 146,162
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/05 147,034
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/06 147,638
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/07 147,996
125 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/08 148,548
130 Chesapeake-Union Exempt Village School District - Ohio Improvement Revenue 8.500 12/01/09 154,956
500 Cleveland, OH General Obligation - Series 1992 6.375 07/01/12 523,235
</TABLE>
Ohio F-251 7
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 4,745 Cleveland, OH General Obligation - Series 1994 6.625% 11/15/14 $ 5,098,597
590 Columbus, OH General Obligation - Series 1985 9.375 04/15/06 779,343
500 Columbus, OH General Obligation - Series 1985 9.375 04/15/07 668,225
200 Dayton, OH General Obligation 10.500 10/01/99 235,516
2,500 Delaware County, OH General Obligation - Sewer Improvement - Series 1995 5.250 12/01/15 2,346,225
1,000 Delaware County, OH City School District - School Facilities Construction and
Improvement - General Obligation - Series 1995 5.750 12/01/20 976,900
1,000 Delaware County, OH City School District - School Facilities Construction and
Improvement - General Obligation - Series 1995 0.000 12/01/10 441,420
1,000 Delaware County, OH City School District - School Facilities Construction and
Improvement - General Obligation - Series 1995 0.000 12/01/11 415,710
250 East Holmes, OH Local School District - General Obligation 7.700 12/01/08 272,135
850 Eastern Local School District Board of Education, OH - School Improvement -
General Obligation - Series 1995 6.250 12/01/13 906,219
1,250 Franklin County, OH Refunding General Obligation Limited Tax - Series 1993 5.375 12/01/20 1,177,862
1,575 Garaway, OH Local School District 7.200 12/01/14 1,735,634
620 Geauga County, OH General Obligation - Sewer District Improvement -
Bainbridge Water - Series 1995 6.850 12/01/10 688,547
1,200 Jefferson County, OH Human Services Building - General Obligation 6.625 12/01/14 1,284,684
1,885 Kent, OH General Obligation - Sewer System Improvement - Series 1992 6.500 12/01/10 1,971,672
1,070 Kettering, OH General Obligation 6.650 12/01/12 1,132,670
1,000 Kettering, OH City School District - General Obligation - Series 1994 5.250 12/01/22 913,430
1,000 Lakeview, OH Local School District - General Obligation - Series 1994 6.900 12/01/14 1,094,490
1,440 Lakewood, OH Various Purpose General Obligation - Series 1995 A and B 5.750 12/01/15 1,423,382
1,000 Lakota, OH Local School District - General Obligation - Series 1994 5.350 12/01/12 950,180
935 Logan-Hocking, OH Local School District - General Obligation - Hocking,
Perry and Vinton Counties - Series 1993A 0.000 12/01/07 506,630
590 Logan-Hocking, OH Local School District - General Obligation - Hocking,
Perry and Vinton Counties - Series 1993A 0.000 12/01/10 260,438
735 Marysville, OH Exempted Village School District - General Obligation -
Series 1995 0.000 12/01/10 324,444
865 Marysville, OH Exempted Village School District - General Obligation -
Series 1995 0.000 12/01/16 262,467
2,100 Miami County, OH General Obligation 6.350 12/01/17 2,176,650
2,200 North Royalton, OH City School District - General Obligation - Series 1994 6.000 12/01/14 2,242,328
2,400 North Royalton, OH City School District - General Obligation - Series 1994 6.100 12/01/19 2,443,440
500 Olmsted Falls, OH Local School District 7.050 12/15/11 551,535
1,500 Painesville, OH General Obligation - Waterworks Improvement 6.400 12/01/12 1,555,650
885 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/08 448,606
940 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/09 444,808
650 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/10 286,923
500 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/11 207,855
500 Pickerington, OH Local School District - General Obligation - Series 1993 0.000 12/01/13 183,835
1,665 Reynoldsburg, OH City School District - General Obligation 6.550 12/01/17 1,766,199
500 Sandusky County, OH General Obligation - Series 1994 6.200 12/01/13 519,550
1,200 Solon, OH City School District - School Improvement Refunding -
General Obligation Unlimited Tax - Series 1993 0.000 12/01/07 650,220
1,155 Solon, OH City School District - School Improvement Refunding -
General Obligation Unlimited Tax - Series 1993 5.300 12/01/13 1,115,418
</TABLE>
8 F-252 Ohio
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,100 Summit County, OH Various Purpose - General Obligation - Series 1996 A 5.250% 12/01/15 $ 1,026,256
1,000 Sylvania, OH City School District - General Obligation - Series 1992 6.600 06/01/16 1,061,130
1,000 Trumbull County, OH General Obligation - Series 1993 5.300 12/01/14 936,190
540 Trumbull County, OH General Obligation - Series 1994 6.200 12/01/14 554,672
1,300 Trumbull County, OH Correctional Facilities - General Obligation Limited
Tax - Series 1995 0.000 12/01/10 573,846
1,320 Twinsburg, OH City School District - General Obligation 6.700 12/01/11 1,421,072
1,830 Upper Arlington, OH City School District - Franklin County, OH -
General Obligation - Series 1996 0.000 12/01/11 760,749
1,870 Upper Arlington, OH City School District - Franklin County, OH -
General Obligation - Series 1996 0.000 12/01/12 731,507
800 Westerville, OH City School District - General Obligation Library -
Series 1995 5.600 12/01/18 771,280
1,000 Woodridge, OH Local School District - General Obligation - Series 1994 6.000 12/01/19 1,002,320
925 Wooster, OH City School District - General Obligation 6.500 12/01/17 964,821
1,650 Youngstown, OH General Obligation 7.550 12/01/11 1,782,330
300 Youngstown, OH General Obligation - Series 1994 6.125 12/01/14 305,934
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------------
2,000 Athens, OH Sewer System Revenue 7.300 12/01/14 2,048,520
1,660 Bedford, OH Hospital Improvement Revenue - Community Hospital of Bedford 8.500 05/15/09 1,891,188
1,400 Canton, OH General Obligation 7.875 12/01/08 1,545,068
3,085 Carroll County, OH Hospital Improvement Revenue - Timken Mercy
Medical Center 7.125 12/01/18 3,477,258
1,085 Clermont County, OH Hospital Facilities Revenue - Mercy Health
Care System - Series 1989 7.500 09/01/19 1,220,484
3,660 Clermont County, OH Hospital Facilities Revenue - Mercy Health
Care System - Series 1989 7.500 09/01/19 4,051,510
1,000 Clermont County, OH Sewer System Revenue - Series 1990 7.250 12/01/11 1,119,010
2,700 Clermont County, OH Sewer System Revenue - Series 1991 7.100 12/01/21 3,040,092
1,000 Clermont County, OH Waterworks System Revenue 8.200 12/01/12 1,080,630
1,010 Cleveland, OH General Obligation 7.500 08/01/08 1,155,248
1,010 Cleveland, OH General Obligation 7.500 08/01/09 1,155,248
790 Cleveland, OH City School District 8.250 12/01/08 933,820
3,775 Cleveland, OH Public Power System Improvement Revenue 8.375 08/01/17 4,042,157
2,000 Cuyahoga County, OH Hospital Facilities Revenue - University
Hospital Health System - Series 1989 6.875 01/15/19 2,154,040
4,000 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General Hospital 7.375 08/01/19 4,404,400
650 Cuyahoga County, OH Hospital Facilities Revenue - Mt. Sinai Medical Center 6.625 11/15/21 716,690
5,530 Cuyahoga County, OH Improvement Revenue - Medical Center Corporation 7.800 06/01/09 6,095,498
1,000 Cuyahoga Falls, OH Electric Distribution System Improvement Revenue 7.000 12/01/10 1,095,200
1,000 Delphos, OH Sewer System Revenue 7.250 09/01/20 1,113,930
2,600 Erie County, OH Franciscan Services Corporation - Providence Hospital 7.625 01/01/19 2,826,304
1,500 Findlay, OH Sewer System Revenue 7.200 08/01/11 1,640,955
1,000 Franklin County, OH Hospital Facilities Refunding Revenue - Riverside
United Methodist Hospital 7.600 05/15/20 1,121,260
500 Geauga County, OH Hospital Improvement Revenue - Geauga Hospital Association 8.700 11/15/04 532,150
1,200 Geauga County, OH Hospital Improvement Revenue - Geauga Hospital Association 8.750 11/15/13 1,277,712
6,750 Hamilton, OH Electric System Mortgage Revenue - Series B 8.000 10/15/22 7,439,108
720 Huber Heights, OH General Obligation 9.250 12/01/08 788,717
</TABLE>
OHIO F-253 9
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
<C> <S> <C> <C> <C>
$ 1,000 Hudson, OH Local School District - Series 1990 A 7.100% 12/15/13 $ 1,112,810
1,000 Hudson, OH Local School District - Series 1991 A 7.100 12/15/14 1,113,680
155 Logan County, OH General Obligation - Sanitary Sewer System Improvement -
Indian Lake Sewer District 7.750 12/01/02 178,408
155 Logan County, OH General Obligation - Sanitary Sewer System Improvement -
Indian Lake Sewer District 7.750 12/01/03 180,440
155 Logan County, OH General Obligation - Sanitary Sewer System Improvement -
Indian Lake Sewer District 7.750 12/01/04 182,111
155 Logan County, OH General Obligation - Sanitary Sewer System Improvement -
Indian Lake Sewer District 7.750 12/01/05 183,314
155 Logan County, OH General Obligation - Sanitary Sewer System Improvement -
Indian Lake Sewer District 7.750 12/01/06 184,041
1,075 Lorain, OH Sewer System Revenue 8.750 04/01/11 1,178,050
1,850 Massillon, OH City School District 7.200 12/01/11 2,066,450
3,000 Middleburg Heights, OH Hospital Improvement Revenue - Southwest General
Hospital - Series 1991 7.200 08/15/19 3,367,350
6,460 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series 1985 A 0.000 01/15/15 1,845,364
5,700 Ohio Housing Finance Agency - Single Family Mortgage Revenue - Series 1985 A 0.000 01/15/15 1,662,519
20 Ohio State Building Authority - Frank J. Lausche State Office Building - Series A 10.125 10/01/06 24,207
3,250 Ohio State Building Authority - Correctional Facilities - Series A 7.350 08/01/06 3,576,105
5,660 Ohio State Higher Educational Facilities Commission Revenue -
Case Western Reserve University Project - Series 1988 7.700 10/01/18 6,020,089
1,000 Ohio State Higher Educational Facilities Commission Revenue -
John Carroll University 9.250 10/01/07 1,087,820
4,630 Ohio State Water Development Authority Revenue - Pure Water and Improvement -
Series 1990 I 6.000 12/01/16 4,686,856
1,600 Pickerington, OH Local School District - General Obligation 7.250 12/01/13 1,790,416
2,000 Commonwealth of Puerto Rico - General Obligation - Series 1988 7.750 07/01/06 2,180,160
780 Commonwealth of Puerto Rico - General Obligation - Series 1988 8.000 07/01/07 853,952
1,000 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.900 07/01/07 1,092,920
3,600 Commonwealth of Puerto Rico Aqueduct and Sewer Authority Revenue - Series A 7.875 07/01/17 3,932,820
700 Commonwealth of Puerto Rico Highway Authority Revenue - Series 1990 Q 7.750 07/01/10 792,267
2,000 Commonwealth of Puerto Rico Electric Power Authority - Series K 9.375 07/01/17 2,158,060
4,000 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/21 4,474,680
1,250 Ross County, OH Hospital Revenue - Medical Center Hospital 7.500 12/01/14 1,344,025
605 Scioto County, OH General Obligation 7.150 08/01/11 672,591
750 Southwest Local School District - Ohio General Obligation 7.650 12/01/10 844,508
1,500 Stark County, OH Sanitary Sewer System Revenue 7.750 11/15/18 1,648,545
1,220 Trumbull County, OH Hospital Revenue - St. Joseph Riverside Hospital 7.750 11/01/13 1,307,413
1,000 University of Cincinnati - Ohio General Receipt Revenue - Series I 7.300 06/01/09 1,078,400
1,750 University of Toledo - Ohio General Receipt Revenue 7.700 06/01/18 1,900,168
1,000 Warren, OH General Obligation 8.625 11/15/13 1,117,480
</TABLE>
10 F-254 OHIO
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 550 Columbiana County, OH Jail Facilities Construction -
General Obligation - Series 1994 6.600% 12/01/17 $ 574,128
175 East Cleveland, OH Local Government Revenue 7.900 12/01/97 182,530
24,850 Puerto Rico Highway and Transportation Authority
Revenue - Series 1996 Y and Z 5.500 07/01/36 22,555,848
2,300 Commonwealth of Puerto Rico Highway and
Transportation Authority Revenue - Series 1993 W 5.500 07/01/15 2,236,359
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------------
750 Ohio State Full Faith and Credit General Obligation
Infrastructure Revenue - College Savings - Series 1995 6.200 08/01/13 783,750
2,000 Ohio State Full Faith and Credit General Obligation
Infrastructure Revenue - College Savings - Series 1995 6.200 08/01/14 2,083,260
7,640 Ohio State Capital Appreciation - Series 1993 0.000 08/01/13 2,863,090
2,000 Commonwealth of Puerto Rico Public Improvement -
General Obligation - Series 1996 A 5.400 07/01/25 1,802,860
220 Commonwealth of Puerto Rico - General Obligation
- Series 1988 8.000 07/01/07 238,687
2,700 Commonwealth of Puerto Rico Public Building Authority
Guaranteed Public Education and Health Facilities - Series M 5.500 07/01/21 2,515,995
Total Investments in Securities - Municipal
Bonds (cost $448,988,260) - 98.8% 472,251,349
Excess of Other Assets over Liabilities - 1.2% 5,765,622
Total Net Assets - 100.0% $478,016,971
</TABLE>
See notes to financial statements.
Ohio F-255 11
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (cost $448,988,260) $472,251,349
Receivable for investments sold 385,000
Receivable for Fund shares sold 401,724
Interest receivable 9,242,833
Other 28,280
Total Assets 482,309,186
LIABILITIES:
Bank overdraft 265,873
Payable for investments purchased 1,174,844
Payable for Fund shares reacquired 265,427
Distributions payable 2,182,483
Accrued expenses 403,588
Total Liabilities 4,292,215
NET ASSETS 478,016,971
Class A:
Applicable to 39,528,702 shares of beneficial interest
issued and outstanding $443,077,498
Net asset value per share $ 11.21
Class C:
Applicable to 3,117,471 shares of beneficial interest
issued and outstanding $ 34,939,473
Net asset value per share $ 11.21
</TABLE>
[LOGO OF SHIP ART]
Statement of Operations For the year ended May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME - INTEREST $ 30,528,053
EXPENSES:
Distribution fees - Class A (Note E) 1,802,234
Distribution fees - Class C (Note E) 307,322
Investment advisory fees (Note E) 2,421,117
Custody and accounting fees 178,414
Transfer agent's fees 292,215
Registration fees 20,431
Legal fees 12,228
Audit fees 22,143
Trustees' fees 12,810
Shareholder services fees (Note E) 45,750
Other 14,236
Advisory fees waived (Note E) (522,006)
Total expenses before credits 4,606,894
Custodian fee credit (Note B) (46,769)
Net expenses 4,560,125
Net investment income 25,967,928
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security transactions 1,077,770
Change in unrealized appreciation (depreciation) of investments (10,640,829)
Net loss on investments (9,563,059)
Net increase in net assets resulting from operations $ 16,404,869
</TABLE>
See notes to financial statements.
12 F-256 Ohio
<PAGE>
[LOGO OF SHIP ART]
Statements of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 25,967,928 $ 26,446,299
Net realized gain (loss) on security transactions 1,077,770 (3,578,718)
Change in unrealized appreciation (depreciation) of investments (10,640,829) 12,308,189
Net increase in net assets resulting from operations 16,404,869 35,175,770
Distributions to Class A shareholders:
From net investment income (24,658,411) (24,987,149)
Distributions to Class C shareholders:
From net investment income (1,590,477) (1,382,811)
Net decrease in net assets from distributions to shareholders (26,248,888) (26,369,960)
Fund share transactions (Note C):
Proceeds from shares sold 53,249,272 48,038,369
Net asset value of shares issued in reinvestment of distributions 15,315,498 15,361,718
Cost of shares reacquired (54,731,176) (69,123,935)
Net increase (decrease) in net assets from Fund share transactions 13,833,594 (5,723,848)
Total increase in net assets 3,989,575 3,081,962
NET ASSETS:
Beginning of year 474,027,396 470,945,434
End of year $478,016,971 $474,027,396
NET ASSETS CONSIST OF:
Paid-in surplus $459,094,346 $445,465,373
Undistributed net investment income 76,339
Accumulated net realized gain (loss) on security transactions (4,340,464) (5,418,234)
Unrealized appreciation (depreciation) of investments 23,263,089 33,903,918
$478,016,971 $474,027,396
</TABLE>
See notes to financial statements.
Ohio F-257 13
<PAGE>
[LOGO] Notes to Financial Statements
- --------------------------------------------------------------------------------
A. DESCRIPTION OF BUSINESS
The Flagship Ohio 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 June 27, 1985. On
August 3, 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.
14 F-258 Ohio
<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 May 31, 1996.
C. FUND SHARES
At May 31, 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>
YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 3,527,301 $ 40,460,865 3,620,183 $ 39,954,959
Shares issued on reinvestment 1,246,857 14,270,782 1,305,755 14,385,121
Shares reacquired (4,213,105) (48,146,969) (5,696,668) (62,325,986)
NET INCREASE (DECREASE) 561,053 $ 6,584,678 (770,730) $ (7,985,906)
CLASS C:
Shares sold 1,114,495 $ 12,788,407 734,040 $ 8,083,410
Shares issued on reinvestment 91,272 1,044,716 88,671 976,597
Shares reacquired (577,507) (6,584,207) (625,068) (6,797,949)
NET INCREASE 628,260 $ 7,248,916 197,643 $ 2,262,058
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the year ended May 31, 1996,
aggregated $157,639,637 and $147,632,393, respectively. At May 31, 1996, cost
for federal income tax purposes is $448,988,260 and net unrealized
appreciation aggregated $23,263,089, of which $25,347,863 related to
appreciated securities and $2,084,774 related to depreciated securities.
At May 31, 1996, the Fund has available capital loss carryforwards of
approximately $4,341,800 to offset future net capital gains in the amounts of
$10,100 through May 31, 1999, $753,000 through May 31, 2002, and $3,578,700
through May 31, 2003.
Ohio F-259 15
<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 year ended May 31,
1996, the Advisor, at its discretion, permanently waived $522,006 of its
advisory fees. Included in accrued expenses at May 31, 1996 are accrued
advisory fees of $158,615. 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 May 31, 1996 are accrued
distribution fees of $150,794 and $28,235 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 $931,000 for the year ended May 31, 1996, of which
approximately $806,600 was paid to other dealers. For the year ended May 31,
1996, the Distributor received approximately $12,300 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 $22 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 year ended May 31, 1996 was approximately
$649,700, at a weighted average annualized interest rate of 6.8%. At May 31,
1996, the Fund had no borrowings outstanding under the line of credit.
16 F-260 Ohio
<PAGE>
[LOGO] FINANCIAL HIGHLIGHTS Selected data for each share of beneficial
interest outstanding throughout the year.
<TABLE>
<CAPTION>
............................................................................................................................
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
CLASS A MAY 31, 1996 MAY 31, 1995 MAY 31, 1994 MAY 31, 1993 MAY 31, 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.43 $ 11.21 $ 11.59 $ 11.05 $ 10.72
Income from investment operations:
Net investment income 0.62 0.64 0.64 0.66 0.68
Net realized and unrealized gain
(loss) on securities (0.21) 0.22 (0.38) 0.54 0.33
TOTAL FROM INVESTMENT OPERATIONS
Less distributions:
From net investment income (0.63) (0.64) (0.64) (0.66) (0.68)
TOTAL DISTRIBUTIONS (0.63) (0.64) (0.64) (0.66) (0.68)
NET ASSET VALUE, END OF YEAR $ 11.21 $ 11.43 $ 11.21 $ 11.59 $ 11.05
Total return/a/ 3.59% 7.99% 2.24% 11.20% 9.77%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses/b/ 0.92% 0.95% 0.93% 0.96% 0.95%
Net investment income 5.41% 5.78% 5.48% 5.81% 6.24%
Assuming credits and no
waivers or reimbursements:
Expenses 1.02% 1.03% 1.02% 1.02% 0.99%
Net investment income 5.31% 5.70% 5.39% 5.75% 6.20%
Net assets at end of year (000's) $443,077 $445,566 $445,272 $410,467 $325,273
Portfolio turnover rate 30.93% 31.25% 9.14% 14.93% 17.50%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge.
(b) During 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 0.91%; prior year numbers have not
been restated to reflect these credits.
Ohio F-261 17
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Period From
Year Ended Year Ended August 3, 1993 to
CLASS C May 31, 1996 May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.43 $ 11.20 $ 11.69
Income from investment operations:
Net investment income 0.55 0.57 0.46
Net realized and unrealized gain
(loss) on securities (0.21) 0.23 (0.49)
TOTAL FROM INVESTMENT OPERATIONS 0.34 0.80 (0.03)
Less distributions:
From net investment income (0.56) (0.57) (0.46)
TOTAL DISTRIBUTIONS (0.56) (0.57) (0.46)
NET ASSET VALUE, END OF PERIOD $ 11.21 $ 11.43 $ 11.20
Total return/(a)/ 3.03% 7.50% (0.17%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses/(b)/ 1.47% 1.50% 1.46%
Net investment income 4.84% 5.21% 4.79%
Assuming credits and no
waivers or reimbursements:
Expenses 1.56% 1.58% 1.60%
Net investment income 4.75% 5.13% 4.65%
Net assets at end of period (000's) $34,939 $28,461 $25,674
Portfolio turnover rate 30.93% 31.25% 9.14%
</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 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 1.46%; prior period numbers have not
been restated to reflect these credits.
18 F-262 Ohio
<PAGE>
[LOGO OF SHIP ART]
Independent Auditors' Report
................................................................................
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP OHIO
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship Ohio
Double Tax Exempt Fund as of May 31, 1996, the related statement of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the Fund's custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Flagship Ohio
Double Tax Exempt Fund at May 31, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 3, 1996
Ohio F-263 19
<PAGE>
[LOGO OF SHIP ART]
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds
<TABLE>
<CAPTION>
Face
Amount Face Market
(000) Description Rate Maturity Value
Education
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 175 University of Puerto Rico System Revenue -
Series 1995 M 5.500% 06/01/15 $ 168,808
325 University of Puerto Rico System Revenue -
Series 1995 N 5.250 06/01/25 297,505
Hospitals
--------------------------------------------------------------------------------------------------------------------------
575 Commonwealth of Puerto Rico Industrial,
Tourist, Educational, Medical and
Environmental Control Facilities Financing
Authority Revenue - Hospital Auxilio Mutuo -
Series 1995 6.250 07/01/24 591,094
300 Commonwealth of Puerto Rico Industrial,
Tourist, Educational, Medical and
Environmental Control Facilities Financing
Authority Revenue - Doctor Pila Hospital -
Series 1995 5.875 08/01/12 300,561
100 Superior, WI Redevelopment Authority Revenue -
Superior Memorial Hospital - Series 1994 5.300 05/01/04 101,350
210 Superior, WI Redevelopment Authority Revenue -
Superior Memorial Hospital - Series 1994 5.300 11/01/04 212,835
300 Superior, WI Redevelopment Authority Revenue -
Superior Memorial Hospital - Series 1994 5.500 11/01/06 298,179
150 Superior, WI Redevelopment Authority Revenue -
Superior Memorial Hospital - Series 1994 5.600 11/01/07 151,827
175 Superior, WI Redevelopment Authority Revenue -
Superior Memorial Hospital - Series 1994 5.700 11/01/09 176,209
170 Superior, WI Redevelopment Authority Revenue -
Superior Memorial Hospital - Series 1994 5.800 05/01/10 171,535
Housing/Multifamily
--------------------------------------------------------------------------------------------------------------------------
25 Dane County, WI Housing Authority Revenue -
Forest Harbor Apartments - Series 1994 5.900 07/01/12 25,208
50 Dane County, WI Housing Authority Revenue -
Forest Harbor Apartments - Series 1994 5.950 07/01/13 49,999
50 Dane County, WI Housing Authority Revenue -
Forest Harbor Apartments - Series 1994 6.000 07/01/14 49,562
425 Madison, WI Community Development Authority
Revenue - Multifamily Housing - Nichols
Station II - Series 1995 4.950 12/01/07 421,676
Housing/Single Family
--------------------------------------------------------------------------------------------------------------------------
300 Puerto Rico Housing Bank and Finance Agency -
Single Family Mortgage Revenue - Portfolio I 6.250 04/01/29 301,281
300 Virgin Islands Housing Finance Authority
Revenue - Single Family - Series 1995 A and B 6.450 03/01/16 302,274
Industrial Development and Pollution Control
--------------------------------------------------------------------------------------------------------------------------
255 Menomonee Falls, WI Community Development
Authority Revenue - Herker Industries, Inc.
Project - Series 1996 5.200 03/01/07 250,308
300 Menomonee Falls, WI Community Development
Authority Revenue - Herker Industries, Inc.
Project - Series 1996 5.250 03/01/08 295,794
500 Puerto Rico Ports Authority - Special
Facilities Revenue - American Airlines,
Incorporated Project - Series 1996 A 6.250 06/01/26 489,400
</TABLE>
4 F-310 Wisconsin
<PAGE>
Statement of Investments in Securities and Net Assets May 31, 1996
................................................................................
Municipal Bonds (continued)
<TABLE>
<CAPTION>
Face Face Market
Amount Description Rate Maturity Value
(000)
Municipal Revenue/Other
--------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,500 Cudahy, WI Community Development Authority -
Redevelopment Lease Revenue - Series 1995 6.000% 06/01/11 $ 1,494,135
300 Madison, WI Community Development Authority
Revenue - Monona Terrace Community and
Convention Center - Series 1995 6.100 03/01/10 314,889
Municipal Revenue/Utility
--------------------------------------------------------------------------------------------------------------------------
315 Guam Power Authority Revenue - Series 1992 A 6.300 10/01/22 304,378
285 Guam Power Authority Revenue - Series 1993 A 5.250 10/01/23 237,496
125 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 6.375 07/01/24 128,025
115 Commonwealth of Puerto Rico Electric Power Authority - Series 1994 T 6.000 07/01/16 113,410
400 Commonwealth of Puerto Rico Electric Power Authority - Series 1995 X 5.500 07/01/25 365,968
300 Commonwealth of Puerto Rico Electric Power Authority Revenue - Series 1995 Z 5.250 07/01/21 267,090
125 Commonwealth of Puerto Rico Telephone Authority Revenue - Series 1993 M 5.400 01/01/08 123,386
Non-State General Obligations
--------------------------------------------------------------------------------------------------------------------------
150 Commonwealth of Puerto Rico Municipal Finance Agency - Series A 8.250 07/01/08 163,479
650 Commonwealth of Puerto Rico Municipal Finance Agency - Series 1994 A 6.000 07/01/14 661,765
Pre-refunded or Escrowed
--------------------------------------------------------------------------------------------------------------------------
790 Commonwealth of Puerto Rico - Public Improvement - Series 1992 6.800 07/01/21 880,810
625 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue -
Series 1992 T 6.500 07/01/22 686,431
125 Commonwealth of Puerto Rico Public Building Authority Guaranteed Public Education and
Health Facilities - Series K 6.875 07/01/21 140,189
Special Tax Revenue
--------------------------------------------------------------------------------------------------------------------------
300 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series V 6.625 07/01/12 316,326
400 Commonwealth of Puerto Rico Highway and Transportation Authority Revenue - Series 1993W 5.500 07/01/15 388,932
600 Wisconsin Center District - Junior Dedicated Tax Revenue - Series 1996 B 5.700 12/15/20 579,483
State/Territorial General Obligations
--------------------------------------------------------------------------------------------------------------------------
100 Commonwealth of Puerto Rico - Public Improvement - General Obligation -
Series 1995 5.375 07/01/22 93,553
Total Investments in Securities - Municipal Bonds (cost $11,829,063) - 96.3% 11,915,150
Excess of Other Assets over Liabilities - 3.7% 454,995
Total Net Assets - 100.0% $ 12,370,145
See notes to financial statements.
</TABLE>
WISCONSIN F-311 5
<PAGE>
[LOGO OF SHIP ART]
Statement of Assets and Liabilities May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (cost $11,829,063) $ 11,915,150
Cash 98,196
Receivable for Fund shares sold 209,045
Interest receivable 241,958
Other 303
Total assets 12,464,652
LIABILITIES:
Payable for Fund shares reacquired 19,595
Distributions payable 53,573
Accrued expenses 21,339
Total liabilities 94,507
NET ASSETS:
Applicable to 1,287,769 shares of beneficial interest issued
and outstanding $ 12,370,145
Net asset value per share $ 9.61
</TABLE>
[LOGO OF SHIP ART]
Statement of Operations For the year ended May 31, 1996
................................................................................
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME - INTEREST $ 625,748
EXPENSES:
Distribution fees (Note E) 44,164
Investment advisory fees (Note E) 55,421
Custody and accounting fees 41,870
Transfer agent's fees 18,330
Registration fees 3,606
Legal fees 774
Audit fees 5,475
Trustees' fees 229
Shareholder services fees (Note E) 2,922
Other 387
Advisory fees waived (Note E) (55,421)
Expense subsidy (Note E) (47,172)
Total expenses before credits 70,585
Custodian fee credit (Note B) (6,490)
Net expenses 64,095
Net investment income 561,653
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions (9,379)
Change in unrealized appreciation (depreciation) of investments (229,560)
Net loss on investments (238,939)
Net increase in net assets resulting from operations $ 322,714
</TABLE>
See notes to financial statements.
6 F-312 WISCONSIN
<PAGE>
[LOGO OF SHIP ART]
Statements of Changes in Net Assets
................................................................................
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS Year Ended Year Ended
Operations: May 31, 1996 May 31, 1995
<S> <C> <C>
Net investment income $ 561,653 $ 231,737
Net realized gain (loss) on security transactions (9,379) (53,926)
Change in unrealized appreciation (depreciation) of investments (229,560) 315,647
Net increase in net assets resulting from operations 322,714 493,458
Distributions to shareholders:
From net investment income (567,424) (227,772)
Net decrease in net assets from distributions to shareholders (567,424) (227,772)
Net increase in net assets from Fund share transactions (Note C) 4,336,613 8,012,556
Total increase in net assets 4,091,903 8,278,242
NET ASSETS:
Beginning of year 8,278,242
End of year $12,370,145 $ 8,278,242
NET ASSETS CONSIST OF:
Paid-in surplus $12,347,363 $ 8,012,556
Undistributed net investment income 3,965
Accumulated net realized gain (loss) on security transactions (63,305) (53,926)
Unrealized appreciation (depreciation) of investments 86,087 315,647
$12,370,145 $ 8,278,242
</TABLE>
See notes to financial statements.
Wisconsin F-313 7
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
................................................................................
A. Description of Business
The Flagship Wisconsin 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 June 1, 1994.
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-trusts 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.
8 F-314 WISCONSIN
<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 May 31, 1996.
C. Fund Shares
At May 31, 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>
Year Ended Year Ended
May 31, 1996 May 31, 1995
--------------------- ----------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 548,166 $ 5,370,133 870,892 $8,245,900
Shares issued on reinvestment 34,403 338,221 9,567 89,742
Shares reacquired (140,063) (1,371,741) (35,196) (323,086)
Net increase 442,506 $ 4,336,613 845,263 $8,012,556
</TABLE>
D. Purchases and Sales of Municipal Bonds
Purchases and sales of municipal bonds for the year ended May 31, 1996,
aggregated $9,210,335 and $5,106,880, respectively. At May 31, 1996, cost for
federal income tax purposes is $11,829,063 and net unrealized appreciation
aggregated $86,087, of which $181,588 related to appreciated securities and
$95,501 related to depreciated securities.
At May 31, 1996, the Fund has available a capital loss carryforward of
approximately $63,300 to offset future net capital gains in the amounts of
$53,900 through May 31, 2003 and $9,400 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 year ended May 31,
1996, the Advisor, at its discretion, permanently waived all of its advisory
fees amounting to $55,421. 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 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
May 31, 1996 are accrued distribution fees of $4,105. 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 shares of
approximately $169,600 for the year ended May 31, 1996, of which
approximately $148,300 was paid to other dealers. Certain officers and
trustees of the Trust are also officers and/or directors of the Distributor
and/or Advisor.
Wisconsin F-315 9
<PAGE>
Notes to Financial Statements
...............................................................................
F. Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$98,000) is being reimbursed to the Advisor on a straight-line basis over a
period of three years beginning June 1, 1996. 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.
10 F-316 Wisconsin
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
................................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1996 May 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value beginning of year $ 9.79 $ 9.58
Income from investment operations:
Net investment income 0.50 0.49
Net realized and unrealized gain
(loss) on securities (0.18) 0.21
Total from investment operations 0.32 0.70
Less distributions:
From net investment income (0.50) (0.49)
Total distributions (0.50) (0.49)
Net asset value at end of year $ 9.61 $ 9.79
Total return/(a)/ 3.35% 7.36%
Ratios to average net assets:
Actual net of waivers and
reimbursements:
Expenses/(b)/ 0.64% 0.39%
Net investment income 5.02% 5.25%
Assuming credits and no
waivers or reimbursements:
Expenses 1.51% 2.31%
Net investment income 4.15% 3.33%
Net assets at end of year (000's) $12,370 $8,278
Portfolio turnover rate 46.99% 51.74%
</TABLE>
(a) The total returns shown do not include the effect of applicable
front-end sales charge.
(b) During 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 0.58%; prior period numbers have not
been restated to reflect these credits.
Wisconsin F-317 11
<PAGE>
[LOGO OF SHIP ART] Independent Auditors' Report
................................................................................
TO THE SHAREHOLDERS AND TRUSTEES
FLAGSHIP WISCONSIN
DOUBLE TAX EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the statement of investments in securities and net assets, of the Flagship
Wisconsin Double Tax Exempt Fund as of May 31, 1996, the related statement of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the Fund's custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Flagship
Wisconsin Double Tax Exempt Fund at May 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 3, 1996
12 F-318 Wisconsin
<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>
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. Form of Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.
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 authorizing, among oth-
ers, James J. Wesolowski and Gifford R. Zimmerman to execute the Reg-
istration Statement.
99(b). Certified copy of Resolution of Board of Trustees authorizing 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.
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 Kansas Municipal Bond Fund
<S> <C>
Class A Shares............................................ 2,500
Class B Shares............................................ 0
Class C Shares............................................ 0
Class R Shares............................................ 0
Nuveen Flagship Kentucky Municipal Bond Fund
Class A Shares............................................ 10,865
Class B Shares............................................ 0
Class C Shares............................................ 720
Class R Shares............................................ 0
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Class A Shares............................................ 112
Class C Shares............................................ 56
Class R Shares............................................ 0
Nuveen Flagship Michigan Municipal Bond Fund
Class A Shares............................................ 4,071
Class B Shares............................................ 0
Class C Shares............................................ 557
Class R Shares............................................ 1,251
Nuveen Flagship Missouri Municipal Bond Fund
Class A Shares............................................ 5,626
Class B Shares............................................ 0
Class C Shares............................................ 137
Class R Shares............................................ 0
Nuveen Flagship Ohio Municipal Bond Fund
Class A Shares............................................ 9,880
Class B Shares............................................ 0
Class C Shares............................................ 772
Class R Shares............................................ 5,587
Nuveen Flagship Wisconsin Municipal Bond Fund
Class A Shares............................................ 581
Class B Shares............................................ 0
Class C Shares............................................ 0
Class R Shares............................................ 0
</TABLE>
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;
C-2
<PAGE>
(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, 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.
C-3
<PAGE>
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.
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
C-4
<PAGE>
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 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
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Richard P. Davis Vice President None
One South Main Street
Dayton, OH 45402
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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ----------------------------------------------------------------------------------
<S> <C> <C>
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.
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.
C-6
<PAGE>
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 Reg-
istrant'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 10TH DAY OF
JANUARY, 1997.
NUVEEN FLAGSHIP MULTISTATE TRUST IV
/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
-------------------------------
O. Walter Renfftlen Vice President and January 10, 1997
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal /s/ Gifford R. Zimmerman
Executive Officer) By____________________________
Anthony T. Dean President and Trustee Gifford R. Zimmerman
Lawrence H. Brown Trustee Attorney-in-Fact
Anne E. Impellizzeri Trustee
Margaret K. Rosenheim Trustee January 10, 1997
Peter R. Sawers Trustee
</TABLE>
Robert P. Bremner Trustee
William J. Schneider Trustee
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. Form of Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company.
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 1(b)
NUVEEN FLAGSHIP MULTISTATE TRUST IV
AMENDED AND RESTATED ESTABLISHMENT AND
DESIGNATION OF SERIES OF SHARES OF BENEFICIAL INTEREST
WHEREAS, pursuant to Section 2 of Articles IV of the Declaration of Trust
dated July 1, 1996 (the "Declaration"), of Nuveen Flagship Multistate Trust IV,
a Massachusetts business trust (the "Trust"), the Trustees of the Trust, on July
10, 1996, established and designated certain series of Shares (as defined in the
Declaration) of the Trust by the execution of an instrument establishing and
designating such series and setting forth the special and relative rights of
such series;
WHEREAS, the Trustees of the Trust now desire to amend and restate such
instrument in order to establish and designate additional series of Shares;
NOW THEREFORE, the Trustees of the Trust, this 9th day of October, 1996,
hereby establish and designate seven series of Shares (each a "Fund") to have
the special and relative rights described below.
1. The following seven Funds are established and designated:
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond
Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of each
<PAGE>
-2-
Fund shall be redeemable, shall be entitled to one vote (or fraction thereof in
respect of a fractional share) on matters on which Shareholders of that Fund may
vote in accordance with the Declaration, shall represent a pro rata beneficial
interest in the assets allocated or belonging to such Fund, and shall be
entitled to receive its pro rata share of the net assets of such Fund upon
liquidation of such Fund, all as provided in Article IV, Sections 2 and 5 of the
Declaration. The proceeds of the sale of Shares of each Fund, together with any
income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to such Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to such Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rules, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among each
Fund as set forth in Article IV, Section 5 of the Declaration.
5. The designation of the seven Funds hereby shall not impair the power
of the Trustees from time to time to designated additional series of Shares of
the Trust.
6. Subject to the applicable provisions of the 1940 Act and the
provisions of Article IV, Sections 2 and 5 of the Declaration, the Trustees
shall have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of each Fund now or hereafter created or
to otherwise change the special relative rights of each Fund designated hereby
without any action or consent of the Shareholders.
IN WITNESS WHEREOF, the undersigned, being a majority of the Trustees of
the Trust, have executed this instrument as of the 11th day of October, 1996.
<PAGE>
-3-
/s/ Anthony T. Dean /s/ Timothy R. Schwertfeger
- ------------------------ -----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
________________________ _____________________________
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
________________________ _____________________________
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 9th day of October, 1996.
/s/ Olivia Rubio
- -------------------------------- ------------------------------
"OFFICIAL SEAL" Notary Public
Olivia Rubio My Commission Expires: _______
Notary Public, State of Illinois
My Commission Expires 2/25/97
- --------------------------------
<PAGE>
-4-
________________________ _____________________________
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Lawrence H. Brown
- ------------------------ -----------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
________________________ _____________________________
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 10th day of October, 1996.
/s/ Olivia Rubio
- -------------------------------- ------------------------------
"OFFICIAL SEAL" Notary Public
Olivia Rubio My Commission Expires: _______
Notary Public, State of Illinois
My Commission Expires 2/25/97
- --------------------------------
<PAGE>
-5-
- ------------------------ -----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Anne E. Impellizerri
- ------------------------ -----------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
________________________ _____________________________
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 11th day of October, 1996.
/s/ Olivia Rubio
- -------------------------------- ------------------------------
"OFFICIAL SEAL" Notary Public
Olivia Rubio My Commission Expires: _______
Notary Public, State of Illinois
My Commission Expires 2/25/97
- --------------------------------
<PAGE>
-6-
- ------------------------ -----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
________________________ _____________________________
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Margaret K. Rosenheim
- ------------------------- -----------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 11th day of October, 1996.
/s/ Olivia Rubio
- -------------------------------- ------------------------------
"OFFICIAL SEAL" Notary Public
Olivia Rubio My Commission Expires: _______
Notary Public, State of Illinois
My Commission Expires 2/25/97
- --------------------------------
<PAGE>
-7-
- ------------------------ -----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
________________________ _____________________________
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Peter R. Sawers
- ----------------------- -----------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 11th day of October, 1996.
/s/ Olivia Rubio
- -------------------------------- ------------------------------
"OFFICIAL SEAL" Notary Public
Olivia Rubio My Commission Expires: _______
Notary Public, State of Illinois
My Commission Expires 2/25/97
- --------------------------------
<PAGE>
EXHIBIT 4
Number Class [ ] Shares
Nuveen Flagship Multistate Trust IV
[Name of Series]
Organized Under the Laws of the Commonwealth of Massachusetts
This is to certify that See Reverse for
Certain Definitions
is the owner of
CUSIP [ ]
Fully Paid and Non-Assessable Class [ ] Shares
___________________________________________________________________________
of beneficial interest, with the par value of one-cent ($.01) each, of the [Name
of Series] series of the Nuveen Flagship Multistate Trust IV (herein called the
"Trust") transferable on the books of the Trust by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. The shares represented by this certificate are issued and held subject
to all of the provisions of the Declaration of Trust establishing the Trust as a
Massachusetts business trust and any amendments thereto and any designation of
classes, and the By-Laws of the Trust, and any amendments thereto, copies of
which are on file with the Transfer Agent, to all of which the holder by
acceptance hereof expressly assents. This certificate is executed on behalf of
the Trust by the officers as officers and not individually and the obligations
hereof are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the Trust.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS THE FACsimile signatures of its duly authorized officers.
Dated:
Nuveen Flagship Multistate Trust IV
Assistant Secretary, Nuveen Flagship Chairman Nuveen Flagship
Multistate Trust IV Multistate Trust IV
<PAGE>
EXHIBIT 4
Nuveen Flagship Multistate Trust IV
[Name of Series]
Nuveen Flagship Multistate Trust IV (the "Trust") will furnish to any
shareholder, upon request and without charge, a full statement of the
designations, preferences, limitation as to dividends, qualifications and terms
and conditions of redemption and relative rights and preferences of the shares
of each class or series of the Trust authorized to be issued, so far as they
have been determined, and the authority of the Board of Trustees to determine
the relative rights and preferences of subsequent classes or series. Any such
request should be addressed to the Secretary of the Trust.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ___________ Custodian ____________ under Uniform gifts
(Cust) (Minor)
to Minors Act ____________
(State)
Additional abbreviations may also be used though not in the above list.
__________________________________________________________________________
For value received,____________ hereby sell, assign and transfer unto
_____________________________________
Please insert social security or other identifying number of assignee
___________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
_____________________________________________________________________________
___________________________________________________________________ Shares of
beneficial interest represented by the within certificate, and do hereby
irrevocably constitute and appoint _________________________________________
________________________________________________________________Attorney to
<PAGE>
transfer the said shares on the books of the within-named Trust with full power
of substitution in the premises.
Dated, _________________________ NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in every
particular, without alteration or
enlargement or any change whatever.
Owner___________________________ The signature(s) must be guaranteed by one
of the following entities: U.S. bank,
trust company, credit union, savings
association, or foreign bank having a U.S.
correspondent bank: a U.S. registered
securities dealer or broker, municipal
securities dealer or broker, or government
securities dealer or broker; or a national
securities exchange, registered securities
association or clearing agency.
Signature of Co-Owner, if any
_________________________________
Signature(s) guaranteed by:
________________________________________________________________________________
PLEASE NOTE: This document contains a watermark when viewed at an angle. It is
invalid without this watermark: NUVEEN
________________________________________________________________________________
This Space Must Not Be Covered In Any Way
<PAGE>
EXHIBIT 5
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
AGREEMENT made as of the 1st day of February, l997, by and between NUVEEN
FLAGSHIP MULTISTATE TRUST IV, a Massachusetts business trust (the "Fund"), and
NUVEEN ADVISORY CORP., a Delaware corporation (the "Adviser").
W I T N E S S E T H
- - - - - - - - - -
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for,
and to manage the investment and reinvestment of the assets of each of the
Fund's series as set forth on Exhibit A attached hereto (the "Portfolios") or as
may exist from time to time in accordance with the Fund's investment objective
and policies and limitations relating to such Portfolio, and to administer the
Fund's affairs to the extent requested by and subject to the supervision of the
Board of Trustees of the Fund for the period and upon the terms herein set
forth. The investment of the assets of each Portfolio shall be subject to the
Fund's policies, restrictions and limitations with respect to securities
investments as set forth in the Fund's registration statement on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of l940 covering the
Fund's Portfolios' shares of beneficial interest, including the Prospectus and
Statement of Additional Information forming a part thereof, all as filed with
the Securities and Exchange Commission and as from time to time amended, and all
applicable laws and the
<PAGE>
regulations of the Securities and Exchange Commission relating to the management
of registered open-end, management investment companies.
The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and administrative services (other than such services, if any, provided by the
Fund's custodian, transfer agent and shareholder service agent, and the like)
for the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions,
and to assume the obligations herein set forth for the compensation herein
provided. The Adviser shall, for all purposes herein provided, be deemed to be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Fund in any
way, nor otherwise be deemed an agent of the Fund.
2. For the services and facilities described in Section l, the Fund will pay to
the Adviser, at the end of each calendar month, an investment management fee
related to each of the Fund's Portfolios. For each Portfolio, calculated
separately, except the Nuveen Flagship Kentucky Limited Term Municipal Bond
Fund, the fees shall be computed at the rate of:
RATE NET ASSETS
------ ----------
.5500% For the first $125 million
.5375% For the next $125 million
.5250% For the next $250 million
.5125% For the next $500 million
.5000% For the next $1 billion
.4750% For assets over $2 billion
2
<PAGE>
For Nuveen Flagship Kentucky Limited Term Municipal Bond Fund, the fees shall be
computed at the rate of:
RATE NET ASSETS
------ ----------
.4500% For the first $125 million
.4375% For the next $125 million
.4250% For the next $250 million
.4125% For the next $500 million
.4000% For the next $1 billion
.3750% For assets over $2 billion
For the month and year in which this Agreement becomes effective, or terminates,
and for any month and year in which a Portfolio is added or eliminated from the
Fund, there shall be an appropriate proration on the basis of the number of days
that the Agreement shall have been in effect, or the Portfolio shall have
existed, during the month and year, respectively. The services of the Adviser
to the Fund under this Agreement are not to be deemed exclusive, and the Adviser
shall be free to render similar services or other services to others so long as
its services hereunder are not impaired thereby.
3. In addition to the services and facilities described in Section 1, the
Adviser shall assume and pay, but only to the extent hereinafter provided, the
following expenses related to the Nuveen Flagship Ohio Municipal Bond Fund
Portfolio only: (x) any expenses for services rendered by a custodian for the
safekeeping of the Portfolio's securities or property, for keeping its books of
account, for calculating the net asset value of the Portfolio as provided in the
Declaration of Trust of the Fund, and any other charges of the custodian; and
(y) the cost and expenses of the Portfolio's; operations, including compensation
of the trustees, transfer,
3
<PAGE>
dividend disbursing and shareholder service agent expenses, legal fees, expenses
of independent accountants, costs of share certificates, expenses of preparing,
printing and distributing reports to shareholders and governmental agencies, and
all fees payable to Federal, State, or other governmental agencies on account of
the registration of securities issued by the Portfolio, filing of corporate
documents or otherwise. Nothwithstanding the foregoing, the Adviser shall not be
obligated to assume or pay interest, taxes, fees incurred in acquiring and
disposing of portfolio securities or extraordinary expenses of the Portfolio.
The Portfolio shall not incur any obligation for management or administrative
expenses which the Portfolio intends the Adviser to assume and pay hereunder
without first obtaining the written approval of the Adviser.
The foregoing enumerated expenses for the Nuveen Flagship Ohio Municipal
Bond Fund Portfolio are hereby assumed by the Adviser to the extent they,
together with the Adviser's fee payable hereunder (but excluding interest,
taxes, fees incurred in acquiring and disposing of portfolio securities and
extraordinary expenses), exceed during any fiscal year .75 of 1% of the
Portfolio's average net assets for such year; to the extent they do not exceed
such percentages, such expenses shall be properly chargeable to that Portfolio.
If, at the end of any month, the expenses of the Portfolio properly chargeable
to the income account on a year-to-date basis shall exceed the appropriate
percentage of average net assets, the payment to the Adviser for that month
shall be reduced and, if necessary, the Adviser shall assume and pay expenses
pursuant hereto so that the total year-to-date net expense will not exceed such
percentage. As of the end of the Portfolio's fiscal year the foregoing
computation and
4
<PAGE>
assumption of expenses shall be readjusted, if necessary, so that the expenses
assumed and paid by the Adviser, if any, are such, and the aggregate
compensation payable to the Adviser related to the Portfolio for the year,
(otherwise equal to the percentage set forth in Section 2 hereof of the average
net asset value as determined and described herein throughout the fiscal year)
is diminished as may be necessary, so that the total amount of expenses of the
Portfolio borne by the Fund shall not exceed the applicable expense limitation.
The net asset value of each Portfolio shall be calculated as provided in the
Declaration of Trust of the Fund. On each day when net asset value is not
calculated, the net asset value of a share of beneficial interest of a Portfolio
shall be deemed to be the net asset value of such share as of the close of
business on the last day on which such calculation was made for the purpose of
the foregoing computations.
4. Regardless of any of the above provisions, the Adviser guarantees that the
total expenses of each Portfolio in any fiscal year, exclusive of taxes,
interest, brokerage commissions, and extraordinary expenses such as litigation
costs, shall not exceed, and the Adviser undertakes to pay or refund to the
Portfolio any amount up to but not greater than the aggregate fees received by
the Adviser under this Agreement for such fiscal year, the limitation imposed by
any jurisdiction in which the Fund continues to offer and sell shares of the
Portfolio after exceeding such limitation. Except as otherwise agreed to by the
Fund or the Adviser or unless otherwise required by the law or regulation of any
state, any reimbursement by the Adviser to a Portfolio
5
<PAGE>
under this section shall not exceed the management fee payable to the Adviser by
a Portfolio under this Agreement.
5. The Adviser shall arrange for officers or employees of the Adviser to serve,
without compensation from the Fund, as trustees, officers or agents of the Fund,
if duly elected or appointed to such positions, and subject to their individual
consent and to any limitations imposed by law.
6. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested in
the Fund otherwise than as trustees, officers or agents.
7. The Adviser shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6
<PAGE>
8. The Adviser currently manages other investment accounts and funds, including
those with investment objectives similar to the Fund, and reserves the right to
manage other such accounts and funds in the future. Securities considered as
investments for a Portfolio of the Fund may also be appropriate for other
Portfolios or for other investment accounts and funds that may be managed by the
Adviser. Subject to applicable laws and regulations, the Adviser will attempt
to allocate equitably portfolio transactions among the Fund's Portfolios and the
portfolios of its other investment accounts and funds purchasing securities
whenever decisions are made to purchase or sell securities by a Portfolio and
another fund's portfolio or one or more of such other accounts or funds
simultaneously. In making such allocations, the main factors to be considered
by the Adviser will be the respective investment objectives of the Fund
Portfolio or Portfolios purchasing such securities and such other accounts and
funds, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Fund Portfolios and
such other accounts and funds, the size of investment commitments generally held
by the Fund Portfolios and such accounts and funds, and the opinions of the
persons responsible for recommending investments to the Fund and such other
accounts and funds.
9. This Agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and shall continue in
force from year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
Investment Company Act of l940.
7
<PAGE>
This Agreement shall automatically terminate in the event of its assignment, and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser upon sixty (60) days' written notice to the other party. The
Fund may effect termination by action of the Board of Trustees, or, with respect
to any Fund Portfolio, by vote of a majority of the outstanding voting
securities of that Portfolio, accompanied by appropriate notice.
This Agreement may be terminated, at any time, without the payment of any
penalty, by the Board of Trustees of the Fund, or, with respect to any Fund
Portfolio, by vote of a majority of the outstanding voting securities of that
Portfolio, in the event that it shall have been established by a court of
competent jurisdiction that the Adviser, or any officer or director of the
Adviser, has taken any action which results in a breach of the covenants of the
Adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation, described in Section
2, earned prior to such termination.
10. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
8
<PAGE>
11. The Adviser and its affiliates reserve the right to grant, at any time, the
use of the name "Nuveen" or the name "Flagship", or any approximation or
abbreviation thereof, to any other investment company or business enterprise.
Upon termination of this Agreement by either party, or by its terms, the Fund
shall thereafter refrain from using any name of the Fund which includes "Nuveen"
or "Flagship" or any approximation or abbreviation thereof, or is sufficiently
similar to such name as to be likely to cause confusion with such name, and
shall not allude in any public statement or advertisement to the former
association.
12. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for receipt of such notice.
13. The Fund's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This Agreement is executed on behalf of the Fund
by the Fund's officers as officers and not individually and the obligations
imposed upon the Fund by this Agreement are not binding upon any of the Fund's
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Fund.
9
<PAGE>
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
NUVEEN FLAGSHIP MULTISTATE TRUST IV
by: __________________________
Vice President
Attest: ________________________
Assistant Secretary
NUVEEN ADVISORY CORP.
by: __________________________
Vice President
Attest: ________________________
Assistant Secretary
10
<PAGE>
Exhibit A
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
11
<PAGE>
EXHIBIT 6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the 1st day of February, 1997 between NUVEEN
FLAGSHIP MULTISTATE TRUST IV, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Fund"), and JOHN NUVEEN & CO. INCORPORATED,
a Delaware corporation (the "Underwriter").
W I T N E S S E T H
- - - - - - - - - -
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the
distribution of shares of beneficial interest, par value $.01 per share,
including such series or classes of shares as may now or hereafter be authorized
(the "Shares"), in jurisdictions wherein Shares may legally be offered for sale;
provided, however, that the Fund, in its absolute discretion, may: (a) issue or
sell Shares directly to holders of Shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; and (b) issue or
sell Shares at net asset value in connection with merger or consolidation with,
or acquisition of the assets of, other investment companies or similar
companies.
2. The Underwriter hereby accepts appointment as agent for the distribution of
the Shares and agrees that it will use its best efforts to sell such part of the
authorized Shares remaining unissued as from time to time shall be effectively
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and State laws and regulations and to the
Declaration of Trust of the Fund.
3. The Fund agrees that it will use its best efforts to keep effectively
registered under the Securities Act for sale, as herein contemplated, such
Shares as the Underwriter shall reasonably request and as the Securities and
Exchange Commission shall permit to be so registered.
4. Notwithstanding any other provision hereof, the Fund may terminate, suspend,
or withdraw the offering of the Shares, or Shares of any series or class,
whenever, in its sole discretion, it deems such action to be desirable.
5. The Underwriter shall sell Shares to, or through, brokers, dealers, banks or
other qualified financial intermediaries (hereinafter referred to as "dealers"),
or others, in such manner not inconsistent with the provisions hereof and the
then effective Registration Statement of the Fund under the Securities Act (and
related Prospectus and Statement of Additional Information) as the Underwriter
may determine from time to time, provided that no dealer, or other person, shall
be appointed nor authorized to act as agent of the Fund without the prior
consent of the Fund. The Underwriter shall have the right to enter into
agreements with brokers, dealers and banks (referred to herein as "dealers") of
its choice for the sale of Shares and fix therein the portion of
<PAGE>
the sales charge which may be allocated to such dealers; provided that the Fund
shall approve the form of such agreements and shall evidence such approval by
filing said form and any amendments thereto as attachments to this Agreement,
which shall be filed as an exhibit to the Fund's currently effective
registration statement under the Securities Act. Shares sold to dealers shall be
for resale by such dealers only at the public offering price(s) set forth in the
Fund's then current Prospectus. The current forms of such agreements are
attached hereto as Exhibits 1, 2 and 3.
6. Shares offered for sale, or sold by the Underwriter, shall be so offered or
sold at a price per Share determined in accordance with the then current
Prospectus relating to the sale of Shares except as departure from such prices
shall be permitted by the rules and regulations of the Securities and Exchange
Commission. Any public offering price shall be the net asset value per Share
plus a sales charge of not more than 4.75% of such public offering price.
Shares may be sold at net asset value without a sales charge to such class or
classes of investors or in such class or classes of transactions as may be
permitted under applicable rules of the Securities and Exchange Commission and
as described in the then current Prospectus of the Fund. The net asset value
per Share of each series or class shall be calculated in accordance with the
Declaration of Trust of the Fund and shall be determined in the manner, and at
the time, set forth in the then current Prospectus of the Fund relating to such
Shares.
7. The price the Fund shall receive for all Shares purchased from the Fund
shall be the net asset value used in determining the public offering price
applicable to the sale of such Shares. The excess, if any, of the sales price
over the net asset value of Shares sold by the Underwriter as agent shall be
retained by the Underwriter as a commission for its services hereunder. Out of
such commission, the Underwriter may allow commissions or concessions to dealers
in such amounts as the Underwriter shall determine from time to time. Except as
may be otherwise determined by the Underwriter and the Fund from time to time,
such commissions or concessions shall be uniform to all dealers.
8. The Underwriter shall issue and deliver, or cause to be issued and
delivered, on behalf of the Fund such confirmations of sales made by it as
agent, pursuant to this Agreement, as may be required. At, or prior to, the
time of issuance of Shares, the Underwriter will pay, or cause to be paid, to
the Fund the amount due the Fund for the sale of such Shares. Certificates
shall be issued, or Shares registered on the transfer books of the Fund, in such
names and denominations as the Underwriter may specify.
9. The Fund will execute any and all documents, and furnish any and all
information, which may be reasonably necessary in connection with the
qualification of the Shares for sale (including the qualification of the Fund as
a dealer, where necessary or advisable) in such states as the Underwriter may
reasonably request (it being understood that the Fund shall not be required,
without its consent, to comply with any requirement which, in its opinion, is
unduly burdensome).
2
<PAGE>
10. The Fund will furnish to the Underwriter, from time to time, such
information with respect to the Fund and the Shares as the Underwriter may
reasonably request for use in connection with the sale of Shares. The
Underwriter agrees that it will not use or distribute, nor will it authorize
dealers or others to use, distribute or disseminate, in connection with the sale
of such Shares, any statements other than those contained in the Fund's current
Prospectus and Statement of Additional Information, except such supplemental
literature or advertising as shall be lawful under Federal and State securities
laws and regulations, and that it will furnish the Fund with copies of all such
material.
11. The Underwriter shall order Shares from the Fund only to the extent that it
shall have received purchase orders therefor. The Underwriter will not make,
nor authorize any dealers or others, to make: (a) any short sale of Shares; or
(b) any sale of Shares to any officer or trustee of the Fund, nor to any officer
or trustee of the Underwriter, or of any corporation or association furnishing
investment advisory, managerial, or supervisory services to the Fund, nor to any
such corporation or association, unless such sales are made in accordance with
the then current Prospectus relating to the sale of such Shares.
12. In selling Shares for the account of the Fund, the Underwriter will in all
respects conform to the requirements of all Federal and State laws and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
relating to such sales, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by the Underwriter or any
employee, representative, or agent of the Underwriter. The Underwriter will
observe and be bound by all the provisions of the Declaration of Trust of the
Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given by the
Fund to the Underwriter) which at the time in any way require, limit, restrict,
prohibit or otherwise regulate any action on the part of the Underwriter.
13. The Underwriter will require each dealer to conform to the provisions hereof
and of the Registration Statement (and related Prospectus) at the time in effect
under the Securities Act with respect to the public offering price of the
Shares, and neither the Underwriter nor any such dealer shall withhold the
placing of purchase orders so as to make a profit thereby.
14. The Fund will pay, or cause to be paid, expenses (including the fees and
disbursements of its own counsel) of any registration of Shares under the
Securities Act, expenses of qualifying or continuing the qualification of the
Shares for sale and, in connection therewith, of qualifying or continuing the
qualification of the Fund as a dealer or broker under the laws of such states as
may be designated by the Underwriter under the conditions herein specified, and
expenses incident to the issuance of the Shares such as the cost of Share
certificates, issue taxes, and fees of the transfer and shareholder service
agent. The Underwriter will pay, or cause to be paid, all expenses (other than
expenses which any dealer may bear pursuant to any agreement with the
Underwriter) incident to the sale and distribution of the Shares issued or sold
hereunder, including, without limiting the generality of the foregoing, all:
(a) expenses of printing and distributing any Prospectus and Statement of
Additional Information and of preparing, printing
3
<PAGE>
and distributing or disseminating any other literature, advertising and selling
aids in connection with such offering of the Shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, printing and distribution of any report or other communication to
holders of Shares in their capacity as such), and (b) expenses of advertising in
connection with such offering. No transfer taxes, if any, which may be payable
in connection with the issue or delivery of Shares sold as herein contemplated,
or of the certificates for such Shares, shall be borne by the Fund, and the
Underwriter will indemnify and hold harmless the Fund against liability for all
such transfer taxes.
15. This agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and will continue from
year to year thereafter, but only so long as such continuance is specifically
approved, at least annually, in the manner required by the Investment Company
Act of 1940. Either party hereto may terminate this agreement on any date by
giving the other party at least six months' prior written notice of such
termination, specifying the date fixed therefor. Without prejudice to any other
remedies of the Fund in any such event, the Fund may terminate this agreement at
any time immediately upon any failure of fulfillment of any of the obligations
of the Underwriter hereunder.
Without prejudice to any other remedies of the Fund in any such event, the Fund
may terminate this Agreement at any time immediately upon any failure of
fulfillment of any of the obligations of the Underwriter hereunder.
16. This agreement shall automatically terminate in the event of its assignment.
17. Any notice under this agreement shall be in writing, addressed, and
delivered or mailed, postage pre-paid, to the other party at such address as
such other party may designate for the receipt of such notice.
18. The Declaration of Trust of the Fund on file with the Secretary of State of
the Commonwealth of Massachusetts was executed on behalf of the Fund by the
initial trustees of the Fund and not individually, and any obligation of the
Fund shall be binding only upon the assets of the Fund (or applicable series
thereof) and shall not be binding upon any trustee, officer or shareholder of
the Fund. Neither the authorization of any action by the trustees or
shareholders of the Fund nor the execution of this agreement on behalf of the
Fund shall impose any liability upon any Trustee, officer or shareholder of the
Fund.
4
<PAGE>
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this agreement
to be executed on its behalf as of the day and year first above written.
NUVEEN FLAGSHIP MULTISTATE TRUST IV
By____________________
Vice President
Attest:
_________________________
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By____________________
Vice President
Attest:
_________________________
Assistant Secretary
5
<PAGE>
EXHIBIT 8
TABLE OF CONTENTS
Page
----
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 3
4. Delivery and Registration of the Property 4
5. Voting Rights 5
6. Receipt and Disbursement of Money 5
6A. Advances By Custodian 7
7. Receipt and Delivery of Securities 8
8. Use of Securities Depository or the Book Entry System 9
9. Segregated Account 11
10. Instructions Consistent With The Declaration, etc. 12
11. Transaction Not Requiring Instructions, 15
Collection of Income and Other Payments 15
Miscellaneous Transactions 16
12. Transactions Requiring Instructions 16
13. Purchase of Securities 19
14. Sale of Securities 20
15. Not In Use 20
16. Records 20
17. Cooperation with Accountants 21
18. Reports to Fund Independent Public Accountants 21
19. Confidentiality 21
20. Equipment Failures 22
21. Right to Receive Advice 22
22. Compliance with Governmental Rules and Regulations 23
23. Compensation 23
24. Indemnification 23
25. Responsibility of Chase Manhattan Bank 25
26. Collection of Income 26
27. Ownership Certificates for Tax Purposes 26
28. Effective Period; Terminations and Amendment 27
29. Successor Custodian 28
30. Notices 29
31. Further Actions 29
32. Amendments 29
33. Additional Funds 29
34. Miscellaneous 30
35. Declaration of Trust 30
<PAGE>
EXHIBIT 8
CUSTODY AGREEMENT
=================
THIS AGREEMENT is made as of the 1st day of February, 1997 by and between
NUVEEN FLAGSHIP MULTISTATE TRUST IV (the "Fund"), and THE CHASE MANHATTAN BANK.
W I T N E S S E T H
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interest in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund currently has authorized the seven series listed on
Appendix A (such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 33,
being herein referred to as the "Fund(s)):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints The Chase Manhattan Bank to act
as custodian of its portfolio securities, cash and other property on the terms
set forth in this Agreement. The Chase Manhattan Bank accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Section 23 of this Agreement.
2. DELIVERY OF DOCUMENTS. The Fund has furnished The Chase Manhattan
Bank with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the appointment
of The Chase Manhattan Bank as Custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
1
<PAGE>
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Proper
Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Declaration of Trust filed with the State of Massachusetts
and all amendments thereto (such Declaration of Trust as currently in effect and
from time to time, be amended, are herein called the "Declaration");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) Resolutions of the Fund's Board of Trustees appointing the investment
advisor of the Fund and resolutions of the Fund's Board of Trustees and the
Fund's Shareholders approving the proposed Investment Advisory Agreement between
the Fund and the advisor (the "Advisory Agreement");
(f) The Advisory Agreement;
(g) The Fund's Registration Statement on Form N-1A under the 1940 Act and
the Securities Act of 1933, as amended ("the 1933 Act") as filed with the SEC;
and
(h) The Fund's most recent prospectus and statement of additional
information including all amendments and supplements thereto (the "Prospectus").
Upon request the Fund will furnish The Chase Manhattan Bank with copies
of all amendments of or supplements to the foregoing, if any. The Fund will
also furnish The Chase Manhattan Bank upon request with a copy of the opinion of
counsel for the Fund with respect to the validity of the Shares and the status
of such Shares under the 1933 Act filed with the SEC, and any other applicable
federal law or regulation.
2
<PAGE>
3. DEFINITIONS.
(a) "Authorized Person". As used in this Agreement, the term "Authorized
Person" means the Fund's President, Treasurer and any other person, whether or
not any such person is an officer or employee of the Fund, duly authorized by
the Board of Trustees of the Fund to give Proper Instructions on behalf of the
Fund as set forth in resolutions of the Fund's Board of Trustees.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
System" means a book-entry system authorized by the U.S. Department of Treasury,
its successor or successors and its nominee or nominees.
(c) "Proper Instructions". Proper Instructions as used herein means a
writing signed or initialed by two or more persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if The Chase Manhattan Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
such oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and The Chase Manhattan Bank are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by The Chase Manhattan Bank pursuant to any three-party agreement which
requires a segregated asset account in accordance with Section 9.
(d) "Property". The term "Property", as used in this Agreement, means:
3
<PAGE>
(i) any and all securities and other property of the Fund which the
Fund may from time to time deposit, or cause to be deposited, with The
Chase Manhattan Bank or which The Chase Manhattan Bank may from time
to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by The Chase Manhattan Bank from time to time from or on
behalf of the Fund.
(e) "Securities Depository". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Company's Board of Trustees approving deposits by The Chase
Manhattan Bank therein.
4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Fund will deliver or
cause to be delivered to The Chase Manhattan Bank all securities and all moneys
owned by it, including payments of interest, principal and capital distributions
and cash received for the issuance of its Shares, at any time during the period
of this Agreement, except for securities and monies to be delivered to any
subcustodian appointed pursuant to Section 7 hereof. The Chase Manhattan Bank
will not be responsible for such securities and such monies until actually
received by it. All securities delivered to The Chase Manhattan Bank or to any
such subcustodian (other than in bearer form) shall be registered in the name of
the Fund or in the name of a nominee of the Fund or in the name of The Chase
Manhattan Bank or any nominee of The Chase Manhattan Bank (with or without
indication of fiduciary
4
<PAGE>
status) or in the name of any subcustodian or any nominee of such subcustodian
appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in
form for transfer satisfactory to The Chase Manhattan Bank.
5. VOTING RIGHTS. With respect to all securities, however registered, it
is understood that the voting and other rights and powers shall be exercised by
the Fund. The Chase Manhattan Bank's only duty shall be to mail for delivery on
the next business day to the Fund any documents received, including proxy
statements and offering circulars, with any proxies for securities registered in
a nominee name executed by such nominee. Where warrants, options, tenders or
other securities have fixed expiration dates, the Fund understands that in order
for The Chase Manhattan Bank to act, The Chase Manhattan Bank must receive the
Fund's instructions at its offices in New York, addressed as The Chase Manhattan
Bank may from time to time request, by no later than noon (NY City time) at
least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as The Chase Manhattan Bank may reasonably
notify the Fund). Absent The Chase Manhattan Bank's timely receipt of such
instructions, such instruments will expire without liability to The Chase
Manhattan Bank.
6. RECEIPT AND DISBURSEMENT OF MONEY.
(a) The Chase Manhattan Bank shall open and maintain a custody account for
the Fund, subject only to draft or order by The Chase Manhattan Bank acting
pursuant to the terms of this Agreement, and shall hold in such account, subject
to the provisions hereof, all cash received by it from or for the Fund other
than cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the 1940 Act. Funds held by The Chase
Manhattan Bank for the Fund may be deposited by it to its credit at The Chase
Manhattan Bank in the Banking Department of The Chase Manhattan Bank or in such
other banks or trust companies as it may in its discretion deem necessary or
desirable; provided,
5
<PAGE>
however, that every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act, and that each such bank or trust company shall be
approved by vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by The Chase Manhattan Bank in its capacity as Custodian and
shall be withdrawable by The Chase Manhattan Bank only in that capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) The Chase Manhattan Bank
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities, options, futures contracts or options
on futures contracts for the Fund as provided in Section 13 hereof; (ii) in the
case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) in the case of repurchase agreements entered into between the Fund
and The Chase Manhattan Bank, or another bank, or a broker-dealer which is a
member of The National Association of Securities Dealers, Inc. ("NASD"), either
(a) against delivery of the securities either in certificate form or through an
entry crediting The Chase Manhattan Bank's account at the Federal Reserve Bank
with such securities or (b) against delivery of the receipt evidencing purchase
by the Fund of securities owned by The Chase Manhattan Bank along with written
evidence of the agreement by The Chase Manhattan Bank to repurchase such
securities from the Fund; (iv) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund; (v) for the payment of dividends
or other distributions on shares declared pursuant to the governing documents of
the Fund, or for the payment of interest, taxes, administration, distribution or
advisory fees or expenses which are to be borne by the Fund under the terms of
this Agreement, any Advisory Agreement, or any
6
<PAGE>
administration agreement; (vi) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Fund and held
by or to be delivered to The Chase Manhattan Bank; (vii) to a subcustodian
pursuant to Section 7 hereof; (viii) for such common expenses incurred by the
Fund in the ordinary course of its business, including but not limited to
printing and mailing expenses, legal fees, accountants fees, exchange fees; or
(ix) for any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
(c) The Chase Manhattan Bank is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Fund.
6A. ADVANCES BY CUSTODIAN. The Custodian may from time to time agree to
advance cash to the Fund, without interest, for the fund's other proper
corporate purposes. If the Custodian advances cash for any purpose, the Fund
shall and hereby does grant to the Custodian a security interest in Fund
securities equal in value to the amount of the cash advance but in no event
shall the value of securities in which a security interest has been granted
exceed 20% of the value of the Fund's total assets at the time of the pledge;
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to reasonably dispose of any securities
in which it has a security interest to the extent necessary to obtain
reimbursement.
7
<PAGE>
7. RECEIPT AND DELIVERY OF SECURITIES.
(a) Except as provided by Section 8 hereof, The Chase Manhattan Bank shall
hold and physically segregate all securities and noncash Property received by it
for the Fund. All such securities and non-cash Property are to be held or
disposed of by The Chase Manhattan Bank for the Fund pursuant to the terms of
this Agreement. In the absence of Proper Instructions accompanied by a
certified resolution authorizing the specific transaction by the Fund's Board,
The Chase Manhattan Bank shall have no power or authority to withdraw, deliver,
assign, hypothecate, pledge or otherwise dispose of any such securities and
investments, except in accordance with the express terms provided for in this
Agreement. In no case may any Trustee, officer, employee or agent of the Fund
withdraw any securities. In connection with its duties under this Section 7,
The Chase Manhattan Bank may, at its own expense, enter into subcustodian
agreements with other banks or trust companies for the receipt of certain
securities and cash to be held by The Chase Manhattan Bank for the account of
the Fund pursuant to this Agreement; provided that each such bank or trust
company has an aggregate capital, surplus and undivided profits, as shown by its
last published report, of not less than twenty million dollars ($20,000,000) and
that such bank or trust company agrees with The Chase Manhattan Bank to comply
with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder. The Chase Manhattan Bank will be liable for acts or
omissions of any subcustodian. The Chase Manhattan Bank shall employ sub-
custodians upon receipt of Proper Instructions, but only in accordance with an
applicable vote by the Board of Trustees of the Fund.
(b) Promptly after the close of business on each day The Chase Manhattan
Bank shall furnish the Fund with confirmations and a summary of all transfers to
or from the account of the Fund during said day. Where securities are
transferred to the account of the Fund established at a Securities Depository or
Book Entry
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System pursuant to Section 8 hereof, The Chase Manhattan Bank shall also by
book-entry or otherwise identify as belonging to such Fund the quantity of
securities in a fungible bulk of securities registered in the name of The Chase
Manhattan Bank (or its nominee) or shown in The Chase Manhattan Bank's account
on the books of a Securities Depository or Book-Entry System. At least monthly
and from time to time, The Chase Manhattan Bank shall furnish the Fund with a
detailed statement of the Property held for the Fund under this Agreement.
8. USE OF SECURITIES DEPOSITORY OR BOOK-ENTRY SYSTEM. The Fund shall
deliver to The Chase Manhattan Bank a certified resolution of the Board of
Trustees of the Fund approving, authorizing and instructing The Chase Manhattan
Bank on a continuous and ongoing basis until instructed to the contrary by
Proper Instructions actually received by The Chase Manhattan Bank (i) to deposit
in a Securities Depository or Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or
Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation settlements of purchases and
sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of The Chase Manhattan Bank in the Securities Depository or Book Entry
System (the "Account") and (2) be segregated from any assets and cash controlled
by The Chase Manhattan Bank in other than a fiduciary or custodian capacity but
may be commingled with other assets held in such capacities. The Chase
Manhattan Bank will effect payment for securities and receive and deliver
securities in accordance with accepted industry practices as set forth in (b)
below, unless the Fund has given
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The Chase Manhattan Bank Proper Instructions to the contrary. The records of The
Chase Manhattan Bank with respect to securities of the Fund maintained in a
Securities Depository or Book Entry System shall identify by book entry those
securities belonging to the Fund.
(b) The Chase Manhattan Bank shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities Depository or
Book Entry System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of The Chase Manhattan Bank to
reflect such payment and transfer for the account of the Fund. Upon receipt of
Proper Instructions, The Chase Manhattan Bank shall transfer securities sold for
the account of the Fund upon (i) receipt of advice from the Securities
Depository or Book Entry System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
The Chase Manhattan Bank to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities Depository or Book Entry
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by The Chase Manhattan Bank and be provided to
the Fund at its request. Upon request, The Chase Manhattan Bank shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in a Securities Depository
or Book Entry System for the account of the Fund.
(c) The Chase Manhattan Bank shall provide the Fund with any report
obtained by The Chase Manhattan Bank on the Securities Depository or Book Entry
System's accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities Depository or Book Entry
System;
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(d) All Books and records maintained by The Chase Manhattan Bank which
relate to the Fund participation in a Securities Depository or Book-Entry System
will at all times during The Chase Manhattan Bank's regular business hours be
open to the inspection of the Fund's duly authorized employees or agents, and
the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
(e) Anything to the contrary in this Agreement notwithstanding, The Chase
Manhattan Bank shall be liable to the Fund for any loss or damage to the Fund
resulting from any negligence, misfeasance or misconduct of The Chase Manhattan
Bank or any of its agents or of any of its or their employees in connection with
its or their use of the Securities Depository or Book Entry Systems or from
failure of The Chase Manhattan Bank or any such agent to enforce effectively
such rights as it may have against such Securities Depository or Book Entry
System; at the election of the Fund, it shall be entitled to be subrogated to
the rights of The Chase Manhattan Bank with respect to any claim against the
Securities Depository or Book Entry System or any other person which The Chase
Manhattan Bank may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any such loss or damage.
9. SEGREGATED ACCOUNT. The Chase Manhattan Bank shall upon receipt of
Proper Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by The
Chase Manhattan Bank pursuant to Section 8 hereof, (i) in accordance with the
provisions of any agreement among the Fund, The Chase Manhattan Bank and a
broker dealer registered under the Securities and Exchange Act of 1934 and a
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing
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Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
10. INSTRUCTIONS CONSISTENT WITH THE DECLARATION, ETC.
(a) Unless otherwise provided in this Agreement, The Chase Manhattan Bank
shall act only upon Proper Instructions. The Chase Manhattan Bank may assume
that any Proper Instructions received hereunder are not in any way inconsistent
with any provision of the Declaration or By-Laws or any vote or resolution of
the Fund's Board of Trustees or any committee thereof. The Chase Manhattan Bank
shall be entitled to rely upon any Proper Instructions actually received by The
Chase Manhattan Bank pursuant to this Agreement. The Fund agrees that The Chase
Manhattan Bank shall incur no liability in acting in good faith upon Proper
Instructions given to The Chase Manhattan Bank, except to the extent such
liability was incurred as a result of The Chase Manhattan Bank's negligence or
willful misconduct. In accord with instructions from the Fund, as
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required by accepted industry practice or as The Chase Manhattan Bank may elect
in effecting the execution of Fund instructions, advances of cash or other
Property made by The Chase Manhattan Bank, arising from the purchase, sale,
redemption, transfer or other disposition of Property of the Fund, or in
connection with the disbursement of funds to any party, or in payment of fees,
expenses, claims or liabilities owed to The Chase Manhattan Bank by the Fund, or
to any other party which has secured judgment in a court of law against the Fund
which creates an overdraft in the accounts or over-delivery of Property, shall
be deemed a loan by The Chase Manhattan Bank to the Fund, payable on demand,
bearing interest at such rate customarily charged by The Chase Manhattan Bank
for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or other
security devices to be used with respect to instructions which the Fund may give
by telephone, telex, TWX, facsimile transmission, bank wire or other
teleprocess, or through an electronic instruction system, shall be processed in
accordance with terms and conditions for the use of such arrangements, methods
or devices as The Chase Manhattan Bank may put into effect and modify from time
to time. The Fund shall safeguard any test keys, identification codes or other
security devices which The Chase Manhattan Bank makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by The Chase Manhattan Bank or by the Fund as a result of The Chase
Manhattan Bank's acting in accordance with instructions from any unauthorized
person using the proper security device except to the extent such loss,
liability or damage was incurred as a result of The Chase Manhattan Bank's
negligence or willful misconduct. The Chase Manhattan Bank may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Fund. In the
event that the Fund uses The Chase Manhattan Bank's Asset Management system or
any successor electronic
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communications or information system, the Fund agrees that The Chase Manhattan
Bank is not responsible for the consequences of the failure of that system to
perform for any reason, beyond the reasonable control of The Chase Manhattan
Bank, or the failure of any communications carrier, utility, or communications
network. In the event that system is inoperable, the Fund agrees that it will
accept the communication of transaction instructions by telephone, facsimile
transmission on equipment compatible to The Chase Manhattan Bank's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
(c) The Chase Manhattan Bank shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the maturity
of futures contracts purchased or sold by the Fund) received by The Chase
Manhattan Bank from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, The Chase Manhattan Bank shall transmit
promptly by facsimile to the Fund all written information received by The Chase
Manhattan Bank from issuers of the securities whose tender or exchange is sought
and from the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Fund shall notify The Chase Manhattan Bank at
least three business days prior to the date on which The Chase Manhattan Bank is
to take such action or upon the date such notification is first received by the
Fund, if later. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of such
property, The Chase Manhattan Bank is authorized to allot the called portion to
the respective beneficial holders of the Property in such manner deemed to be
fair and equitable by The Chase Manhattan Bank in its sole discretion.
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11. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. The Chase Manhattan Bank is
authorized to take the following action without Proper Instructions:
(a) Collection of Income and Other Payments. The Chase Manhattan Bank
shall:
(i) collect and receive on a timely basis for the account of the
Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and similar
items, included or to be included in the Property of the Fund, and
promptly advise the Fund of such receipt and shall credit such income,
as collected, to the Fund. From time to time, The Chase Manhattan
Bank may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Fund or The
Chase Manhattan Bank. Any such crediting and posting shall be at the
Fund's sole risk, and The Chase Manhattan Bank shall be authorized to
reverse any such advance posting in the event it does not receive good
funds from any such payor, central depository, broker or agent of the
Customer. The Chase Manhattan Bank agrees to promptly notify the Fund
of the reversal of any such advance posting.
(ii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same
day as received;
(iii) receive and hold for the account of the Fund all securities
received by the Fund as a result of a stock dividend, share split-up
or reorganization, merger, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities issued
15
<PAGE>
with respect to any portfolio securities of the Fund held by The Chase
Manhattan Bank hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vi) to effect an exchange of the securities where the par value
is changed, and to surrender securities at maturity or upon an earlier
call for redemption, or when securities otherwise become payable,
against payment therefore in accordance with accepted industry
practice. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of
such property, The Chase Manhattan Bank is authorized to allot the
called portion to the respective beneficial holders of the Property in
such manner deemed to be fair and equitable by The Chase Manhattan
Bank in its sole discretion.
(b) Miscellaneous Transactions. The Chase Manhattan Bank is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor for examination by a dealer selling for the account
of the Fund in accordance with street delivery custom.
12. TRANSACTIONS REQUIRING INSTRUCTIONS. In addition to the actions
requiring Proper Instructions set forth herein, upon receipt of Proper
Instructions and not otherwise, The Chase Manhattan Bank, directly or through
the use of a Securities Depository or Book-Entry System, shall:
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(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
issuer of securities or corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents, and cash, if any,
as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
The Chase Manhattan Bank of the monies borrowed, or upon receipt of adequate
collateral as agreed upon by the Fund and The Chase Manhattan Bank which may be
in the form of cash or obligations issued by the U.S. government, its agencies
or instrumentalities, except that in cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization, further securities may be released for that purpose; and pay such
loan upon re-delivery to it
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of the securities pledged or hypothecated therefore and upon surrender of the
note or notes evidencing the loan; and
(f) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Funds;
(g) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund; and
(h) Deliver securities against payment or other consideration or written
receipt therefore for transfer of securities into the name of the Fund or The
Chase Manhattan Bank or a nominee of either, or for exchange or securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to The Chase Manhattan Bank;
(i) Exchange securities in temporary form for securities in definitive
form;
(j) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to The Chase Manhattan Bank;
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(k) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(l) Deliver securities pursuant to any other proper corporate purpose, but
only upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee signed by an
officer of the Funds and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
13. PURCHASE OF SECURITIES. Promptly after each purchase of securities,
options, futures contracts or options on futures contracts by the investment
advisor, the Fund shall deliver to The Chase Manhattan Bank (as Custodian)
Proper Instructions specifying with respect to each such purchase: (a) the name
of the issuer and the title of the securities, (b) the number of shares of the
principal amount purchased and accrued interest, if any, (c) the dates of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made and (g) the Fund name. The Chase Manhattan
Bank shall upon receipt of securities purchased by or for the Fund registered in
the name of the Fund or in the name of a nominee of The Chase Manhattan Bank or
of the Fund or in proper form for transfer or upon receipt of evidence of title
to options, futures contracts or options on futures contracts purchased by the
Fund, pay out of the moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Proper Instructions. Except as specifically stated otherwise in this
Agreement, in any and every case where payment for purchase of securities for
the account of the Fund is made by
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The Chase Manhattan Bank in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so pay in advance,
The Chase Manhattan Bank shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by The
Chase Manhattan Bank.
14. SALE OF SECURITIES. Promptly after each sale of securities by the Fund
at the instruction of the investment advisor, the Fund shall deliver to The
Chase Manhattan Bank (as Custodian) Proper Instructions, specifying with respect
to each such sale; (a) the name of the issuer and the title of the security, (b)
the number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
the Fund upon such sale, (f) the name of the broker through whom or the person
to whom the sale was made and (g) the Fund name. The Chase Manhattan Bank shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Proper Instructions. Subject to the foregoing, The Chase
Manhattan Bank may accept payment in such form as shall be satisfactory to it,
and may deliver securities and arrange for payment in accordance with the
customs prevailing among dealers in securities.
15. NOT IN USE.
16. RECORDS. The books and records pertaining to the Fund which are in the
possession of The Chase Manhattan Bank shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act,
as amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during The Chase Manhattan Bank's normal business
hours, and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the Fund, copies of any such books and
records
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shall be provided by The Chase Manhattan Bank to the Fund or the Fund's
authorized representative at the Fund's expense.
17. COOPERATION WITH ACCOUNTANTS. The Chase Manhattan Bank shall cooperate
with the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's Form N-1A, Form N-SAR and other reports to the
Securities and Exchange Commission and with respect to any other requirement of
such Commission.
18. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Chase Manhattan
Bank shall provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities deposited
and/or maintained in a Securities Depository or Book Entry System, relating to
the services provided by The Chase Manhattan Bank under this Contract; such
reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
19. CONFIDENTIALITY. The Chase Manhattan Bank agrees on behalf of itself
and its employees to treat confidentially and as the proprietary information of
the Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after
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prior notification to and approval in writing by the Fund, which approval shall
not be unreasonably withheld and may not be withheld where The Chase Manhattan
Bank may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund. Nothing contained herein,
however, shall prohibit The Chase Manhattan Bank from advertising or soliciting
the public generally with respect to other products or services, regardless of
whether such advertisement or solicitation may include prior, present or
potential Shareholders of the Fund.
20. EQUIPMENT FAILURES. In the event of equipment failures beyond The
Chase Manhattan Bank's control, The Chase Manhattan Bank shall, at no additional
expense to the Fund, take reasonable steps to minimize service interruptions but
shall not have liability with respect thereto. The Chase Manhattan Bank shall
enter into and shall maintain in effect with appropriate parties one or more
agreements making reasonable provisions for back up emergency use of electronic
data processing equipment to the extent appropriate equipment is available.
21. RIGHT TO RECEIVE ADVICE.
(a) Advice of Fund. If The Chase Manhattan Bank shall be in doubt as to
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund clarification or advice.
(b) Advice of Counsel. If The Chase Manhattan Bank shall be in doubt as to
any question of law involved in any action to be taken or omitted by The Chase
Manhattan Bank, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the Fund or The Chase Manhattan Bank, at the
option of The Chase Manhattan Bank).
(c) Conflicting Advice. In case of conflict between directions or advice
received by The Chase Manhattan Bank pursuant to sub-paragraph (a) of this
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paragraph and advice received by The Chase Manhattan Bank pursuant to
subparagraph (b) of this paragraph, The Chase Manhattan Bank shall be entitled
to rely on and follow the advice received pursuant to the latter provision
alone.
(d) Protection of The Chase Manhattan Bank. The Chase Manhattan Bank shall
be protected in any action or inaction which it takes or omits to take in
reliance on any directions or advice received pursuant to subparagraphs (a) or
(b) of this section which The Chase Manhattan Bank, after receipt of any such
directions or advice, in good faith believes to be consistent with such
directions or advice. However, nothing in this paragraph shall be construed as
imposing upon The Chase Manhattan Bank any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to The Chase Manhattan Bank's properly taking
or omitting to take such action. Nothing in this subsection shall excuse The
Chase Manhattan Bank when an action or omission on the part of The Chase
Manhattan Bank constitutes willful misfeasance, bad faith, negligence or
reckless disregard by The Chase Manhattan Bank of its duties under this
Agreement.
22. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Fund assumes
full responsibility for insuring that the contents of each Prospectus of the
Fund complies with all applicable requirements of the 1933 Act, the 1940 Act,
and any laws, rules and regulations of governmental authorities having
jurisdiction.
23. COMPENSATION. As compensation for the services rendered by The Chase
Manhattan Bank during the term of this Agreement, the Fund will pay to The Chase
Manhattan Bank, in addition to reimbursement of its out-of-pocket expenses,
monthly fees as outlined in Exhibit A.
24. INDEMNIFICATION. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless The Chase Manhattan Bank and its nominees from all
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taxes, charges, expenses, assessments, claims, and liabilities (including,
without limitation, liabilities arising under the 1933 Act, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities and
blue sky laws, all as or to be amended from time to time) and expenses,
including (without limitation) attorney's fees and disbursements (hereafter
"liabilities and expenses"), arising directly or indirectly from any action or
thing which The Chase Manhattan Bank takes or does or omits to take or do (i) at
the request or on the direction of or in reliance on the advice of the Fund, or
(ii) upon Proper Instructions, provided, that neither The Chase Manhattan Bank
nor any of its nominees or sub-custodians shall be indemnified against any
liability to the Fund or to its Shareholders (or any expenses incident to such
liability) arising out of (x) The Chase Manhattan Bank's or such nominee's or
sub-custodian's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties under this Agreement or any agreement between The Chase
Manhattan Bank and any nominee or subcustodian or (y) The Chase Manhattan Bank's
own negligent failure to perform its duties under this Agreement. The Chase
Manhattan Bank similarly agrees to indemnify and hold harmless the Fund from all
liabilities and expenses arising directly or indirectly from The Chase Manhattan
Bank's or such nominee's or sub-custodian's willful misfeasance, bad faith,
negligence or reckless disregard in performing its duties under this agreement.
In the event of any advance of cash for any purpose made by The Chase Manhattan
Bank resulting from orders or Proper Instructions of the Fund, or in the event
that The Chase Manhattan Bank or its nominee or subcustodian shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's or sub-custodian's own negligent action, negligent failure
to act, willful misconduct, or reckless disregard, the Fund shall
24
<PAGE>
promptly reimburse The Chase Manhattan Bank for such advance of cash or such
taxes, charges, expenses, assessments claims or liabilities.
25. RESPONSIBILITY OF THE CHASE MANHATTAN BANK. In the performance of its
duties hereunder, The Chase Manhattan Bank shall be obligated to exercise care
and diligence and to act in good faith to insure the accuracy and completeness
of all services performed under this Agreement. The Chase Manhattan Bank shall
be responsible for its own negligent failure or that of any subcustodian it
shall appoint to perform its duties under this Agreement but to the extent that
duties, obligations and responsibilities are not expressly set forth in this
Agreement, The Chase Manhattan Bank shall not be liable for any act or omission
which does not constitute willful misfeasance, bad faith, or negligence on the
part of The Chase Manhattan Bank or such subcustodian or reckless disregard of
such duties, obligations and responsibilities. Without limiting the generality
of the foregoing or of any other provision of this Agreement, The Chase
Manhattan Bank in connection with its duties under this Agreement shall, so long
as and to the extent it is in the exercise of reasonable care, not be under any
duty or obligation to inquire into and shall not be liable for or in respect of
(a) the validity or invalidity or authority or lack thereof of any advice,
direction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which The Chase Manhattan Bank
believes to be genuine, (b) the validity of the issue of any securities
purchased or sold by the Fund, the legality of the purchase or sale thereof or
the propriety of the amount paid or received therefor, (c) the legality of the
issue or sale of any Shares, or the sufficiency of the amount to be received
therefore, (d) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor, (e) the legality of the declaration or payment
of any dividend or distribution on Shares, of (f) delays or errors or loss of
data occurring by reason of circumstances beyond The Chase Manhattan Bank's
control, including acts of civil
25
<PAGE>
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in Section 20), flood or catastrophe,
acts of God, insurrection, war, riots, or failure of the mail, transportation,
communication or power supply.
26. COLLECTION OF INCOME. The Chase Manhattan Bank shall collect on a
timely basis all income and other payments with respect to registered securities
held hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by The Chase Manhattan Bank or
its agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, The Chase
Manhattan Bank shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section 9 shall be the
responsibility of the Fund. The Chase Manhattan Bank will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
27. OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Chase Manhattan Bank
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities of the Fund held by it and in connection with
transfers of securities.
26
<PAGE>
28. EFFECTIVE PERIOD; TERMINATION AND AMENDMENT.
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that The Chase Manhattan Bank shall not act under Section 8 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities Depository or Book Entry System, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended;
provided further, however, that the Fund shall not amend or terminate this
Agreement in contravention of any applicable federal or state regulations, or
any provision of the Declaration of Trust, and further provided, that the Fund
may at any time by action of its Board of Trustees (i) substitute another bank
or trust company for The Chase Manhattan Bank by giving notice as described
above to The Chase Manhattan Bank, or (ii) immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for The Chase
Manhattan Bank by the Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to The Chase
Manhattan Bank such compensation as may be due as of the date of such
termination and shall likewise reimburse The Chase Manhattan Bank for its costs,
expenses and disbursements.
27
<PAGE>
29. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of Trustees of the
Fund, The Chase Manhattan Bank shall, upon termination, deliver to such
successor custodian at the office of the custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Fund's securities held in a
Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, The Chase Manhattan Bank
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
The Chase Manhattan Bank on or before the date when such termination shall be
come effective, then The Chase Manhattan Bank shall have the right to deliver to
a bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
The Chase Manhattan Bank and all instruments held by The Chase Manhattan Bank
relative thereto and all other property held by it under this Agreement and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities Depository or Book Entry System. Thereafter, such bank
or trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of The Chase Manhattan Bank after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of
28
<PAGE>
the Board of Trustees to appoint a successor custodian, The Chase Manhattan Bank
shall be entitled to fair compensation for its services during such period as
The Chase Manhattan Bank retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of The Chase Manhattan Bank shall remain in full force and effect.
30. NOTICES. All notices and other communications (collectively referred
to as "Notice" or "Notices") in this section hereunder shall be in writing and
shall be first sent by telegram, cable, telex, or facsimile sending device and
thereafter by overnight mail for delivery on the next business day. Notices
shall be addressed (a) if to The Chase Manhattan Bank, at The Chase Manhattan
Bank's address, 4 New York Plaza, 3rd Floor, New York, New York, 10004,
facsimile number (212) 623-8997; (b) if to the Fund, at the address of the Fund
Attention: Controller, facsimile number (312) 917-8049; or (c) if to neither of
the foregoing, at such other address as shall have been notified to the sender
of any such Notice or other communication. Notices sent by overnight mail shall
be deemed to have been given the next business day. Notices sent by messenger
shall be deemed to have been given on the day delivered, and notices sent by
confirming telegram, cable, telex or facsimile sending device shall be deemed to
have been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
31. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
32. AMENDMENTS. This Agreement or any part hereof may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
33. ADDITIONAL FUNDS. In the event that the Fund establishes one or more
series of Shares in addition to the series listed on Appendix A, with respect to
which
29
<PAGE>
it desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a Fund
hereunder.
34. MISCELLANEOUS. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors.
35. DECLARATION OF TRUST. The Fund's Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts. This agreement is executed
on behalf of the Fund by the Fund's officers as officers and not individually
and the obligations imposed upon the Fund by this Agreement are not binding upon
any of the Fund's Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Fund.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE CHASE MANHATTAN BANK
Attest:___________________________ By: ___________________________
THOMAS V. DIBELLA PETER C. ARRIGHETTI
VICE PRESIDENT SENIOR VICE PRESIDENT
NUVEEN FLAGSHIP MULTISTATE
TRUST IV
Attest:___________________________ By: ___________________________
GIFFORD R. ZIMMERMAN O. WALTER RENFFTLEN
ASSISTANT GENERAL COUNSEL VICE PRESIDENT &
CONTROLLER
31
<PAGE>
Appendix A
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
32
<PAGE>
EXHIBIT A
---------
CUSTODY SERVICE FEE
-------------------
ADMINISTRATION AND MAINTENANCE FEE
- ----------------------------------
.01375% (1 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
.0075% (3/4 Basis Point) on third $10 billion
.005% (1/2 Basis Point) on remainder
TRANSACTION FEES
- ----------------
$15.00 Per Book Entry Transaction
$25.00 Per Physical Transaction
$35.00 Per Future Contract or Option wire
$8.00 Per outgoing Wire Transfer for ETFs
$5.00 Per incoming and outgoing Wire Transfer for Open
End and Money Market Funds
NOTES:
1. Schedule should be applied to total assets for all Exchange Traded funds,
Open End Load Funds, and Money Market Funds.
2. Add $5.00 per book entry transaction and physical transaction if Custody
inputs trades.
BALANCES
--------
1. During each month, daily net overdrafts are offset by daily net cash
balances dollar for dollar with no penalty or charge for daily net
overdrafts.
2. At the end of each month, the net overdraft for the month incurs an
overdraft charge computed as follows:
The negative net cumulative balance plus 10% reserves multiplied by
the average monthly Fed Funds rate divided by 365 days.
33
<PAGE>
3. Net credit balance at month end carries forward and is eligible for offset
with overdrafts in the next month. The carry forward net credit balance
incurs a 10% reduction. Carry forward balances expire at the end of each
portfolio's fiscal year end for "fully invested funds"; for new funds not
fully invested, the credit balance carries forward until the fund become
fully invested. Each series of the Fund will use its best efforts to keep
its cumulative balances at each calendar quarter end below $50 million.
4. Nuveen Institutional Advisory Corp. or Nuveen Advisory Corp. will be
responsible for promptly advising The Chase Manhattan Bank of the date a
new fund becomes fully invested.
5. Effective January 1, 1996, FDIC charges will be no longer applied to the
portfolios.
6. Overdrafts are permissible only as a means of compensating for positive
balances.
7. Due to FDIC capitalization requirements, overdrafts are not permissible on
June 30th and December 31st.
34
<PAGE>
EXHIBIT 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
(Name of Mutual Fund, Trust or Company)
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Terms of Appointment; Duties of the Bank......................... 1
2. Fees and Expenses ............................................... 3
3. Representations and Warranties of the Bank....................... 4
4. Representations and Warranties of the Fund....................... 4
5. Indemnification.................................................. 6
6. Covenants of the Fund and the Bank............................... 8
7. Termination of Agreement......................................... 9
8. Additional Funds................................................. 9
9. Assignment....................................................... 9
10. Amendment........................................................10
11. Massachusetts Law to Apply...................................... 10
12. Merger of Agreement............................................. 10
13. No Liability of Shareholders, Trustees, Officers, Etc........... 10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 199 , by and between Nuveen
Flagship Multistate Trust IV, a business trust, having its principal office and
place of business at (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and[A
WHEREAS, the Fund intends to initially offer shares in series, the
(NAME EACH PORTFOLIO) (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 10, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as
its transfer agent, dividend disbursing agent, custodian of certain retirement
plans and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the
Bank to act as, and the Bank agrees to act as its transfer agent for
the Fund's authorized and issued common shares, $.01 par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios,
as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of
<PAGE>
the Fund authorized pursuant to resolutions adopted
by the Board of Trustees (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation
thereof to the Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner
such monies as instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing.
2
<PAGE>
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank
shall: (i) perform the customary services of a transfer agent,
dividend disbursing agent, custodian of certain retirement plans
and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies,
mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident
alien accounts, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information
and (ii) provide a system which will enable the Fund to monitor
the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt
from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system prior
to activation and thereafter monitor the daily activity for each
State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by
the Fund and the daily reporting of such transactions to the Fund
as provided above.
(d) Procedures applicable to certain of these services may be
established from time to time by agreement between the Fund and
the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an
annual maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be changed
from time to time subject to mutual written agreement between the Fund
and the Bank.
3
<PAGE>
2.2 In addition to the fee paid under Section 2.1 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank
for out-of-pocket expenses or advances incurred by the Bank
for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the
consent of the Fund, will be reimbursed by the Fund on behalf of the
applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7) days prior
to the mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
4
<PAGE>
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios will be effective on or before the
effective date of this agreement and will remain effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of the Fund being
offered for sale.
5
<PAGE>
5. Indemnification
5.1 The Bank shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or
willfull misconduct.
(b) Refusal or failure to comply with the terms of this agreement, or
which arise out of the Fund's lack of good faith, negligence or
willful misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents
which (i) are received by the Bank or its agents or
6
<PAGE>
furnished to it on behalf of the Fund, and (ii) have been
prepared maintained or performed by the Fund or any other person
or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in
such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
5.2 The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless said
errors are caused by its negligence, bad faith, or willful misconduct or
that of its employees.
5.3 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the Fund
on behalf of the applicable Portfolio for any action taken or omitted
by it in reliance upon such instructions or upon the opinion of such
counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on
behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents
or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
5.4 In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.6 In order that the indemnification provisions contained in this Section
5 shall apply, upon the assertion of a claim for which the Fund may
be required to indemnify the Bank, the Bank shall promptly notify the
Fund of such assertion, and shall keep the Fund advised with respect to
all developments concerning such claim. The Fund shall have the option
to participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or
7
<PAGE>
6. Covenants of the Fund and the Bank
6.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
6.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
6.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services to
be performed by the Bank hereunder are the property of the Fund and
will be preserved, maintained and made available in accordance with
such Section and Rules, and will be surrendered promptly to the Fund on
and in accordance with its request.
6.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required by
law.
6.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify
the Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. The Bank reserves the right,
8
<PAGE>
however, to exhibit the Shareholder records to any person whenever it
is advised by its counsel that it may be held liable for the failure to
exhibit the Shareholder records to such person.
7. Termination of Agreement
7.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
7.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material
will be borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
8. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to (LIST FUNDS) with respect to which it desires to
have the Bank render services as transfer agent under the terms hereof,
it shall so notify the Bank in writing, and if the Bank agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
9. Assignment
9.1 Except as provided in Section 9.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
9.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
9.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is
duly registered as a transfer agent pursuant to Section 17A(c)(2) of
the Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)") or
(ii) a BFDS subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(2); provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor
as it is for its own acts and omissions.
9
<PAGE>
10. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.
11. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
12. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
13. No Liability of Shareholders, Trustees, Officers, Etc.
The Trustees have authorized the execution of this contract in their
capacity as Trustees and not individually and the bank acknowledges
and agrees that neither the shareholders, trustees, officers, employees
and other agents of the Trust and the Funds shall personally be bound
by or be liable hereunder, nor shall any resort to their personal
property be had for the satisfaction of any obligation or claim
hereunder.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
NUVEEN FLAGSHIP MULTISTATE TRUST IV
BY:_____________________________
ATTEST:
_____________________________
STATE STREET BANK AND TRUST COMPANY
BY:_____________________________
Executive Vice President
ATTEST:
_____________________________
<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
Michigan Tax-Free Value Fund, 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 IV.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 7, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 8, 1996, for the Nuveen Tax-Free Bond Fund, Inc., comprising the
Nuveen Ohio Tax-Free Value Fund, 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 IV.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 7, 1997
<PAGE>
EXHIBIT 15
Nuveen Flagship Municipal Trust
Nuveen Flagship Multistate Trust I
Nuveen Flagship Multistate Trust II
Nuveen Flagship Multistate Trust III
Nuveen Flagship Multistate Trust IV
Plan of Distribution and Service
Pursuant to Rule 12b-1
January 30, 1997
Whereas, Nuveen Flagship Municipal Trust, Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III and
Nuveen Flagship Multistate Trust IV, each a Massachusetts business trust (each,
a "Fund"), engages in business as an open-end management investment company and
is registered under the Investment Company Act of 1940, as amended (the "Act");
Whereas, each Fund is authorized to and may or does issue shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets (each Fund's series together with all other such series subsequently
established by a Fund being referred to herein individually as a "Series" and
collectively as the "Series");
Whereas, each Fund has outstanding the Series set forth on Exhibit A;
Whereas, each Fund, on behalf of each Series, employs John Nuveen & Co.
Incorporated (the "Distributor") as distributor of the shares of each Series of
each Fund (the "Shares") pursuant to a Distribution Agreement dated as of
February 1, 1997;
Whereas, each Fund is authorized to issue Shares in four different classes
("Classes"): Class A, Class B, Class C and Class R (although not all Series will
issue all Classes of Shares).
Whereas, each Fund, on behalf of its Series, desires to adopt a Plan of
Distribution and Service pursuant to Rule 12b-1 under the Act ("Rule 12b-1"),
and the Board of Trustees of each Fund has determined that there is a reasonable
likelihood that adoption of this Plan of Distribution and Service will benefit
the Fund and its shareholders;
Whereas, each Fund, on behalf of its Series, has adopted a Multiple Class
Plan Pursuant to Rule 18f-3 (the "Rule 18f-3 Plan") to enable the various
Classes of Shares to be granted
<PAGE>
different rights and privileges and to bear different expenses, and has an
effective registration statement on file with the SEC containing a Prospectus
describing such Classes of Shares;
Whereas, as described in the Rule 18f-3 Plan, the purchase of Class A
Shares is generally subject to an up-front sales charge, as set forth in the
Fund's Prospectus and Statement of Additional Information, and the purchase of
Class B and Class C Shares will not be subject to an up-front sales charge, but
in lieu thereof the Class B Shares will be subject to an asset-based
distribution fee (and a declining contingent deferred sales charge) and Class C
Shares will be subject to an asset-based distribution fee (and a one-year
contingent deferred sales charge), as described in the Prospectus for the
Shares; and
Whereas, Shares representing an investment in Class B will automatically
convert to Class A Shares 8 years after the investment, as described in the
Prospectus for the Shares;
Now, Therefore, each Fund, on behalf of its Series, hereby adopts, and the
Distributor hereby agrees to the terms of, this Plan of Distribution and Service
(the "Plan") in accordance with Rule 12b-1, on the following terms and
conditions:
1. (a) Each Fund, on behalf of its Series, is authorized to compensate the
Distributor for services performed and expenses incurred by the
Distributor in connection with the distribution of Shares of Class A,
Class B and Class C of the Fund and the servicing of accounts holding
such Shares.
(b) The amount of such compensation paid during any one year shall consist
of:
(i) with respect to Class A Shares, a Service Fee not to exceed .20
% of average daily net assets of the Class A Shares of the
Fund;
(ii) with respect to Class B Shares, a Service Fee not to exceed
.20% of average daily net assets of the Class B Shares of the
Fund, plus a Distribution Fee not to exceed .75% of average
daily net assets of the Class B Shares of the Fund; and
(iii) (A) with respect to Class C Shares of Long-Term and
Intermediate series, a Service Fee not to exceed .20% of
average daily net assets of the Class C Shares of the Fund,
plus a Distribution Fee not to exceed .55% of average daily net
assets of the Class C Shares of the Fund; and
(B) with respect to Class C Shares of Limited-Term series, a
Service Fee not to exceed .20% of average daily net assets of
the Class C Shares of the
-2-
<PAGE>
Fund, plus a Distribution Fee not to exceed .35% of average
daily net assets of the Class C Shares of the Fund.
Such compensation shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Trustees may
determine.
(c) With respect to Class A Shares, the Distributor shall pay any Service
Fees it receives under the Plan for which a particular underwriter,
dealer, broker, bank or selling entity having a Dealer Agreement in
effect ("Authorized Dealer", which may include the Distributor) is the
dealer of record to such Authorized Dealers to compensate such
organizations for providing services to shareholders relating to their
investment. The Distributor may retain any Service Fees not so paid.
(d) With respect to the Class B Shares, the Distributor:
(i) shall retain the Distribution Fee to compensate it for costs
associated with the distribution of the Class B Shares,
including the payment of broker commissions to Authorized
Dealers (which may include the Distributor) who were the dealer
of record with respect to the purchase of those shares; and
(ii) shall pay any Service Fees it receives under the Plan for which
a particular Authorized Dealer is the dealer of record (which
may include the Distributor) to such Authorized Dealers to
compensate such organizations for providing services to
shareholders relating to their investment; provided, however,
that the Distributor shall be entitled to retain, for the first
year after purchase of the Class B Shares, the Service Fee to
the extent that it may have pre-paid the Service Fee for that
period to the Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(e) With respect to the Class C Shares, the Distributor:
(i) shall pay the Distribution Fee it receives under the Plan with
respect to Class C Shares for which a particular Authorized
Dealer is the dealer of record (which may include the
Distributor) to such Authorized Dealers to compensate such
organizations in connection with such share sales; provided,
however, that the Distributor shall be entitled to retain, for
the
-3-
<PAGE>
first year after purchase of the Class C Shares, the
Distribution Fee to the extent that it may have pre-paid the
Distribution Fee for that period to the Authorized Dealer of
record; and
(ii) shall pay any Service Fees it receives under the Plan for which
a particular Authorized Dealer is the dealer of record (which
may include the Distributor) to such Authorized Dealers to
compensate such organizations for providing services to
shareholders relating to their investment; provided, however,
that the Distributor shall be entitled to retain, for the first
year after purchase of the Class C Shares, the Service Fee to
the extent that it may have pre-paid the Service Fee for that
period to the Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(f) Services for which such Authorized Dealers may receive Service Fee
payments include any or all of the following: maintaining account records for
shareholders who beneficially own Shares; answering inquiries relating to the
shareholders' accounts, the policies of the Fund and the performance of their
investment; providing assistance and handling transmission of funds in
connection with purchase, redemption and exchange orders for Shares; providing
assistance in connection with changing account setups and enrolling in various
optional fund services; producing and disseminating shareholder communications
or servicing materials; the ordinary or capital expenses, such as equipment,
rent, fixtures, salaries, bonuses, reporting and recordkeeping and third party
consultancy or similar expenses, relating to any activity for which payment is
authorized by the Board; and the financing of any other activity for which
payment is authorized by the Board.
(g) Payments of Distribution or Service Fees to any organization as of any
month-end (or other period-end, as appropriate) will not exceed the appropriate
amount based on the annual percentages set forth in subparagraphs (c), (d) and
(e) above, based on average net assets of accounts for which such organization
appeared on the records of the Fund and/or its transfer agent as the
organization of record during the preceding month (period).
2. This Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved by votes of a majority of both (a) the
Board of Trustees of the Fund, and (b) those Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of the Plan or any agreements
related to it (the "Rule 12b-1 Trustees") cast in person at a meeting (or
meetings) called for the purpose of voting on the Plan and such related
Agreement(s).
-4-
<PAGE>
3. This Plan shall remain in effect until August 1, 1997, and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The Distributor shall provide to the Board of Trustees of the Fund
and the Board shall review, at least quarterly, a written report of
distribution- and service-related activities, Distribution Fees, Service Fees,
and the purposes for which such activities were performed and expenses incurred.
5. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of a majority (as defined in the Act) of the
outstanding voting Shares of a Series of the Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable by a Series with respect to Class A, Class B or Class C
Shares under paragraph 1 hereof unless such amendment is approved by a vote of
at least a majority (as defined in the Act) of the outstanding voting Shares of
that Class of Shares of the Series. No material amendment to the Plan shall be
made unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Trustees who are not such interested
persons.
8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
-5-
<PAGE>
EXHIBIT A
TO Plan of Distribution and Service Pursuant to Rule 12b-1
NUVEEN FLAGSHIP MUNICIPAL TRUST
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST I
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Oklahoma 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
Nuveen Flagship Virginia Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST II
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen California Intermediate Municipal Bond Fund *
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST III
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST IV
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
* Funds not currently offered which will be described in a Trust's N-1A
registration statement but not included in the publicly-disseminated prospectus
<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%.
(degrees)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.
1
<PAGE>
B. Yield Calculations
1. Kansas Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 463,559.97 - 6
Yield = 2[ ( $56,783.51] + 1 - 1
------------------------ ) ]
=
4.81%[ 9,609,861.15 X
$ 10.67]
2. Kentucky Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,978,670.48 - 6
Yield = 2[ ( $265,440.28] + 1 - 1
-------------------------- ) ]
=
4.63%[ 38,444,160.37 X
$ 11.66]
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 110,530.45 - 6
Yield = 2[ ( $25,595.07] + 1 - 1
------------------------ ) ]
=
4.29%[ 2,147,527.97 X
$ 11.16]
3. Kentucky Limited Term Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 28,797.05 - 6
Yield = 2[ ( $3,463.72] + 1 - 1
--------------------- ) ]
=
4.23%[ 708,003.14 X
$ 10.23]
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 6,651.85 - 6
Yield = 2[ ( $1,202.93] + 1 - 1
---------------------- ) ]
=
4.04%[ 163,542.12 X
$ 9.97]
4. Michigan Municipal Bond Fund
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,138,056.80 - 6
Yield = 2[ ( $154,466.55] + 1 - 1
------------------------ ) ]
=
4.42%[ 21,853,979.06 X
$ 12.33]
The following is the 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 222,019.54 - 6
Yield = 2[ ( $ 45,152.17] + 1 - 1
------------------------- ) ]
=
4.26%[ 4,263,416.65 X
$ 11.79]
2
<PAGE>
5. Missouri Municipal Bond Fund:
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,012,586.18 - 6
Yield = 2[ ( $159,016.62] + 1 - 1
-------------------------- ) ]
=
4.56%[ 19,905,745.15 X $ 11.38]
The following is the 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 32,130.43 - 6
Yield = 2[ ( $8,138.28] + 1 - 1
---------------------- ) ]
=
4.22%[ 631,630.42 X
$ 10.89]
6. Ohio Municipal Bond Fund:
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,982,346.01 - 6
Yield = 2[ ( $366,338.14] + 1 - 1
------------------------- ) ]
=
4.13%[ 39,221,221.90 X
$ 12.07]
The following is the 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 171,935.04 - 6
Yield = 2[ ( $49,428.79] + 1 - 1
------------------------ ) ]
=
3.77%[ 3,401,778.62 X
$ 11.56]
7. Wisconsin Municipal Bond Fund:
The following is the 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 60,117.48 - 6
Yield = 2[ ( $6,643.59] + 1 - 1
----------------------- ) ]
=
4.60%[ 1,364,362.21 X
$ 10.33]
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 in-
come tax rate)
B. Taxable Equivalent Yield Calculations
Based on combined federal and state income tax rates of 0.0% for Kansas, Ken-
tucky, Kentucky Limited and Wisconsin, 43.5% for Michigan, 43.0% for Missouri,
and 44.0% for Ohio, the Taxable Equivalent Yields for the Class A Shares, Class
C Shares and Class R Shares, where applicable, for the 30-day period ended No-
vember 30, 1996, are as follows:
Class A Shares Class C Shares Class R Shares
--------------- --------------- ---------------
Kansas Municipal 4.67% n/a n/a
Bond Fund: ------- = 8.67% ------- = n/a ------- = n/a
1 - n/a n/a
.445
Kentucky Municipal 4.63% 4.29% n/a
Bond Fund: ------- ------- -------
1 - = 8.12% 1 - = 7.53% n/a = n/a
.430 .430
3
<PAGE>
Kentucky Intermediate 4.23% 4.04% n/a
Municipal Bond Fund: ------- = 7.42% ------- = 7.09% ------- = n/a
1 - 1 - n/a
.430 .430
Michigan Municipal 4.42% 4.26% n/a
------- ------- -------
Bond Fund: = n/a
= 7.75% = 7.47%
1 - n/a
.430 1 -
.430
Missouri Municipal 4.56% 4.22% n/a
Bond Fund: ------- = 8.00% ------- = 7.40% ------- = n/a
1 - 1 - n/a
.430 .430
Ohio Municipal 4.13% 3.77% n/a
Bond Fund: ------- = 7.38% ------- = 6.73% ------- = n/a
1 - 1 - n/a
.440 .440
Wisconsin Municipal 4.60% n/a n/a
Bond Fund: ------- = 8.21% ------- = n/a ------- = n/a
1 - n/a n/a
.440
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
B. Distribution Rate Calculations
1. Kansas Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Kansas Municipal Bond Fund.
Class A Distribution Rate = 12 X $.04286
$10.67
= 4.82%
2. Kentucky Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Kentucky Municipal Bond Fund.
Class A Distribution Rate = 12 X $.04868
$11.66
= 5.01%
Class C Distribution Rate = 12 X $.04377
$11.16
= 4.71%
4
<PAGE>
3. Kentucky Intermediate Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on max-
imum public offering price for the Kentucky Intermediate Municipal Bond Fund.
Class A Distribution Rate = 12 X $.03598
$10.23
= 4.22%
Class C Distribution Rate = 12 X $.03352
$9.97
= 4.03%
4. Michigan Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on max-
imum public offering price for the Michigan Municipal Bond Fund.
Class A Distribution Rate = 12 X $.05008
$12.23
= 4.91%
Class C Distribution Rate = 12 X $.04483
$11.79
= 4.56%
5. Missouri Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Missouri Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04590
$11.38
= 4.84%
Class C Distribution Rate = 12 X $.04106
$10.89
= 4.52%
6. Ohio Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Ohio Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04991
$12.07
= 4.96%
Class C Distribution Rate = 12 X $.04483
$11.56
= 4.65%
5
<PAGE>
7. Wisconsin Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Wisconsin Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04139
$10.33
= 4.81%
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) peri-
ods 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. Kansas Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,006
-1 = 0.59%
( ------- ) ----
$1,000 ----
/1///4/./8//9//2//5/
B. Inception through November 30, 1996$1,342
=
-1 = 6.20%
( ------- ) ----
$1,000 ----
2. Kentucky Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996=
$1,010 -1 = 0.95%
( ) ----
------- ----
$1,000
B. 5 years ended November 30, 1996 /1///5/
= $1,388
-1 = 6.78%
( ------- ) ----
$1,000 ----
/1///9/./5//7//7/
C. Inception through November 30, 1996$2,050
=
-1 = 7.78%
( ------- ) -----
$1,000 -----
3. Kentucky Limited Term Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,028 -1 = 2.75%
( ------- ) ----
$1,000 ----
B. Inception through November 30, 1996 /1///1/./2//1//2//9/
=
$1,056 -1 = 4.62%
------- ----
( $1,000 ) ----
6
<PAGE>
4. Michigan Municipal Bond Fund:
$1,010 /1///1/
A. 1 year ended November 30, 1996= -------
-1 = 1.03%
( $1,000 ) ----
----
/1///5/
B. 5 years ended November 30, 1996 $1,381
=
-1 = 6.67%
( ------- ) ----
----
$1,000
/1///1//0/
C. 10 years ended November 30, 1996
= $1,955 -1 = 6.93%
( ) ----
------- ----
$1,000
D. Inception through November 30, 1996 /1///1//1/./4//2//8/
= $2,465
-1 = 8.21%
( ------- ) ----
$1,000 ----
5. Missouri Municipal Bond Fund:
$1,010 /1///1/
A. 1 year ended November 30, 1996= -------
-1 = 0.99%
( $1,000 ) ----
----
/1///5/
B. 5 years ended November 30, 1996
= $1,383
-1 = 6.70%
( ) ----
------- ----
$1,000
C. Inception through November 30, 1996$1,957 /1///9/./3//2//7//9/
=
-------
-1 = 7.47%
( $1,000 ) ----
----
6. Ohio Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,004
-1 = 0.38%
( ------- ) ----
----
$1,000
/1///5/
B. 5 years ended November 30, 1996 $1,353
=
-1 = 6.23%
( ------- ) ----
----
$1,000
C. 10 years ended November 30, 1996 /1///1//0/
= $1,938
( )
-1 = 6.84%
------- ----
$1,000 ----
/1///1//1/./4//2//8/
D. Inception through November 30, 1996$2,408
=
-1 = 8.00%
( ------- ) -----
-----
$1,000
7. Wisconsin Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,000
-1 = (0.04%)
( ------- ) -----
-----
$1,000
/1///2/./4//9//9//7/
B. Inception through November 30, 1996$1,124
= -1 = 4.77%
( ------- ) ----
$1,000 ----
7
<PAGE>
1. Kansas Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,044
-1 = 4.43%
( ------- ) ----
----
$1,000
/1///4/./8//9//2//5/
B. Inception through November 30, 1996
= $1,364
( ) -1 = 6.55%
----
------- ----
$1,000
2. Kentucky Municipal Bond Fund:
A. 1 year ended November 30, 1996= /1///1/
$1,048
-1 = 4.81%
( ------- ) ----
----
$1,000
/1///5/
B. 5 years ended November 30, 1996 $1,410
=
-1 = 7.11%
( ------- ) ----
----
$1,000
/1///9/./5//7//7/
C. Inception through November 30, 1996$2,048
= -1 = 7.77%
( ------- ) ----
$1,000 ----
3. Michigan Municipal Bond Fund:
A. 1 year ended November 30, 1996= /1///1/
( $1,049 )
-1 = 4.88%
------- ----
$1,000 ----
/1///5/
B. 5 years ended November 30, 1996 $1,403
=
-1 = 7.00%
( ------- ) ----
----
$1,000
/1///1//0/
C. 10 years ended November 30, 1996 $1,953
=
-1 = 6.92%
( ------- ) ----
----
$1,000
/1///1//1/./4//2//8/
D. Inception through November 30, 1996
= $2,463
( ) -1 = 8.21%
----
------- ----
$1,000
4. Missouri Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,049 /1///1/
-------
( ) -1 = 4.85%
$1,000 ----
----
/1///5/
B. 5 years ended November 30, 1996 $1,404
=
-1 = 7.03%
( ------- ) ----
----
$1,000
/1///9/./3//2//7//9/
C. Inception through November 30, 1996
= $1,956
( ) -1 = 7.46%
----
------- ----
$1,000
5. Ohio Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,042 /1///1/
-------
( ) -1 = 4.21%
$1,000 ----
----
$1,374 /1///5/
B. 5 years ended November 30, 1996 -------
=
( ) -1 = 6.56%
$1,000 ----
----
/1///1//0/
C. 10 years ended November 30, 1996 $1,936
=
-1 = 6.83%
( ------- ) ----
----
$1,000
D. Inception through November 30, 1996 /1///1//1/./4//2//8/
= $2,407
( )
-1 = 7.99%
------- ----
$1,000 ----
8
<PAGE>
6. Wisconsin Municipal Bond Fund:
$1,038 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 3.77%
( $1,000 ) ----
----
$1,157 /1///2/./4//9//9//7/
B. Inception through November 30, 1996-------
= -1 = 6.00%
( $1,000 ) ----
----
ANNUAL CLASS C TOTAL RETURNS:
1. Kansas Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996=
$1,046 -1 = 4.64%
( ) ----
------- ----
$1,000
B. Inception through November 30, 1996 /1///4/./8//9//2//5/
= $1,377
-1 = 6.76%
( ------- ) ----
$1,000 ----
2. Kentucky Municipal Bond Fund:
$1,048 /1///1/
A. 1 year ended November 30, 1996
=
------- -1 = 4.81%
----
( ) ----
$1,000
/1///5/
$1,406
B. 5 years ended November 30, 1996
=
-1 = 7.05%
----
( )
------- ----
$1,000
$2,025 /1///9/./5//7//7/
C. Inception through November 30, 1996
=
------- -1 = 7.65%
----
( ) ----
$1,000
3. Kentucky Limited Term Municipal Bond Fund:
$1,050 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 5.04%
( $1,000 ) ----
----
B. Inception through November 30, 1996$1,079 /1///1/./2//1//2//9/
=
( ------- ) -1 = 6.47%
$1,000 ----
----
4. Michigan Intermediate Municipal Bond Fund:
$1,048 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 4.80%
( $1,000 ) ----
----
B. 5 years ended November 30, 1996 $1,386 /1///5/
=
( ------- ) -1 = 6.75%
$1,000 ----
----
$1,909 /1///1//0/
C. 10 years ended November 30, 1996 -------
= -1 = 6.68%
( $1,000 ) ----
----
$2,388 /1///1//1/./4//2//8/
D. Inception through November 30, 1996-------
= -1 = 7.91%
( $1,000 ) ----
----
5. Missouri Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,049 /1///1/
( ------- )
-1 = 4.85%
$1,000 ----
----
/1///5/
B. 5 years ended November 30, 1996 $1,406
=
-1 = 7.05%
( ------- ) ----
----
$1,000
/1///9/./3//2//7//9/
C. Inception through November 30, 1996
= $1,943
-1 = 7.38%
( ) ----
------- ----
$1,000
9
<PAGE>
6. Ohio Municipal Bond Fund:
$1,042 /1///1/
A. 1 year ended November 30, 1996= -------
-1 = 4.21%
( $1,000 ) ----
----
$1,374 /1///5/
B. 5 years ended November 30, 1996 -------
=
-1 = 6.56%
( $1,000 ) ----
----
/1///1//0/
C. 10 years ended November 30, 1996
= $1,915
-1 = 6.71%
( ) ----
------- ----
$1,000
D. Inception through November 30, 1996 /1///1//1/./4//2//8/
= $2,361
-1 = 7.81%
( ------- ) ----
$1,000 ----
7. Wisconsin Municipal Bond Fund:
$1,040 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 3.97%
( $1,000 ) ----
----
B. Inception through November 30, 1996$1,163 /1///2/./4//9//9//7/
=
------- -1 = 6.21%
( $1,000 ) ----
----
ANNUAL CLASS R TOTAL RETURNS:
1. Kansas Municipal Fund Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,050
-1 = 5.01%
( ------- ) ----
----
$1,000
/1///4/./8//9//2//5/
B. Inception through November 30, 1996$1,401
=
-1 = 7.14%
( ------- ) ----
----
$1,000
2. Kentucky Municipal Bond Fund:
A. 1 year ended November 30, 1996= /1///1/
( $1,054 )
-1 = 5.38%
------- ----
----
$1,000
/1///5/
B. 5 years ended November 30, 1996 $1,449
=
-1 = 7.70%
( ------- ) ----
----
$1,000
/1///9/./5//7//7/
C. Inception through November 30, 1996$2,140
=
-1 = 8.27%
( ------- ) ----
$1,000 ----
3. Kentucky Limited Term Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,054 -1 = 5.38%
( ------- ) ----
----
$1,000
B. Inception through November 30, 1996$1,083 /1///1/./2//1//2//9/
=
------- -1 = 6.82%
( $1,000 ) ----
----
4. Michigan Intermediate Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,055
-1 = 5.46%
( ------- ) ----
----
$1,000
/1///5/
B. 5 years ended November 30, 1996
= $1,442
-1 = 7.59%
( ) ----
------- ----
$1,000
C. 10 years ended November 30, 1996 /1///1//0/
= $2,041
-1 = 7.39%
( ------- ) ----
----
$1,000
10
<PAGE>
D. Inception through November 30, 1996 /1///1//1/./4//2//8/
= $2,573
( )
-1 = 8.62%
------- ----
----
$1,000
5. Missouri Municipal Bond Fund:
$1,054 /1///1/
-------
A. 1 year ended November 30, 1996
=
-1 = 5.42%
( $1,000 ) ----
----
$1,443 /1///5/
B. 5 years ended November 30, 1996 -------
=
-1 = 7.62%
( $1,000 ) ----
----
/1///9/./3//2//7//9/
C. Inception through November 30, 1996
= $2,043 -1 = 7.96%
( ) ----
------- ----
$1,000
6. Ohio Municipal Bond Fund:
A. 1 year ended November 30, 1996= /1///1/
$1,048
-1 = 4.78%
( ------- ) ----
----
$1,000
/1///5/
B. 5 years ended November 30, 1996 $1,412
=
-1 = 7.14%
( ------- ) ----
----
$1,000
/1///1//0/
C. 10 years ended November 30, 1996
= $2,023
-1 = 7.30%
( ) ----
------- ----
$1,000
D. Inception through November 30, 1996 /1///1//1/./4//2//8/
= $2,514
-1 = 8.40%
( ------- ) ----
----
$1,000
7. Wisconsin Municipal Bond Fund:
$1,043 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 4.34%
( $1,000 ) ----
----
$1,173 /1///2/./4//9//9//7/
B. Inception through November 30, 1996-------
= -1 = 6.58%
( $1,000 ) ----
----
V. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
T ERV - P
= -------
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.
11
<PAGE>
B. Cumulative Total Return Calculation
The following are the cumulative total returns for 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.
CUMULATIVE CLASS A TOTAL RETURNS including current maximum sales charge of
4.20%:
1. Kansas Municipal Bond Fund:
$1,006 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 0.59%
$1,000 ----
( ) ----
B. Inception through November 30, 1996
= $1,342 - $1,000
= 34.22%
---------------- ------
( $1,000 ) ------
2. Kentucky Municipal Bond Fund:
$1,010 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 0.95%
$1,000 ----
( ) ----
$1,388 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 38.79%
$1,000 -----
( ) -----
C. Inception through November 30, 1996
= $2,050 - $1,000
= 104.99%
---------------- ------
( $1,000 ) ------
3. Kentucky Limited Term Municipal Bond Fund:
$1,028 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 2.75%
$1,000 ----
( ) ----
B. Inception through November 30, 1996$1,056 - $1,000
= = 5.62%
---------------- ----
( $1,000 ) ----
4. Michigan Municipal Bond Fund:
$1,010 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 1.03%
$1,000 ----
( ) ----
B. 5 years ended November 30, 1996
= $1,381 - $1,000
= 38.12%
---------------- ------
( $1,000 ) ------
$1,955 - $1,000
C. 10 years ended November 30, 1996 ----------------
=
= 95.50%
$1,000 ------
( ) ------
$2,465 - $1,000
----------------
D. Inception through November 30, 1996
=
= 146.50%
$1,000 -------
( ) -------
5. Missouri Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,010 - $1,000
---------------- = 0.99%
----
( $1,000 ) ----
$1,383 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 38.27%
$1,000 -----
( ) -----
C. Inception through November 30, 1996$1,957 - $1,000
=
---------------- = 95.74%
-----
$1,000 -----
( )
12
<PAGE>
6. Ohio Municipal Bond Fund:
$1,004 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 0.38%
$1,000 ----
( ) ----
$1,353 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 35.26%
$1,000 -----
( ) -----
C. 10 years ended November 30, 1996
= $1,938 - $1,000
= 93.75%
---------------- -----
( $1,000 ) -----
$2,408 - $1,000
----------------
D. Inception through November 30, 1996
=
= 140.85%
$1,000 ------
( ) ------
7. Wisconsin Municipal Bond Fund:
A. 1 year ended November 30, 1996=
$1,000 - $1,000
= (0.04%)
---------------- -----
( $1,000 ) -----
$1,124 - $1,000
----------------
B. Inception through November 30, 1996
= = 12.35%
$1,000 ------
( ) ------
CUMULATIVE CLASS B TOTAL RETURNS:
1. Kansas Municipal Bond Fund:
$1,044 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 4.43%
$1,000 ----
( ) ----
B. Inception through November 30, 1996
= $1,364 - $1,000
= 36.39%
---------------- ------
( $1,000 ) ------
2. Kentucky Municipal Bond Fund:
$1,048 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 4.81%
$1,000 ----
( ) ----
B. 5 years ended November 30, 1996
= $1,410 - $1,000
= 40.97%
---------------- ------
( $1,000 ) ------
$2,048 - $1,000
----------------
C. Inception through November 30, 1996
=
= 104.82%
$1,000 -------
( ) -------
3. Michigan Municipal Bond Fund:
A. 1 year ended November 30, 1996=
$1,049 - $1,000
= 4.88%
---------------- ----
( $1,000 ) ----
$1,403 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 40.28%
$1,000 ------
( ) ------
$1,953 - $1,000
C. 10 years ended November 30, 1996 ----------------
=
= 95.33%
$1,000 ------
( ) ------
D. Inception through November 30, 1996
= $2,463 - $1,000
= 146.32%
---------------- -------
( $1,000 ) -------
4. Missouri Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,049 - $1,000
---------------- = 4.85%
----
( $1,000 ) ----
13
<PAGE>
B. 5 years ended November 30, 1996
= $1,404 - $1,000
= 40.44%
---------------- ------
( $1,000 ) ------
$1,956 - $1,000
----------------
C. Inception through November 30, 1996
=
= 95.58%
$1,000 ------
( ) ------
5. Ohio Municipal Bond Fund:
$1,042 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 4.21%
$1,000 ----
( ) ----
B. 5 years ended November 30, 1996 $1,374 - $1,000
=
---------------- = 37.38%
-----
( $1,000 ) -----
$1,936 - $1,000
C. 10 years ended November 30, 1996 ----------------
=
= 93.58%
$1,000 ------
( ) ------
D. Inception through November 30, 1996
= $2,407 - $1,000
= 140.66%
---------------- -------
( $1,000 ) -------
6. Wisconsin Municipal Bond Fund:
$1,038 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 3.77%
$1,000 ----
( ) ----
$1,157 - $1,000
----------------
B. Inception through November 30, 1996
= = 15.68%
$1,000 ------
CUMULATIVE CLASS C TOTAL RETURNS: ( ) ------
1. Kansas Municipal Bond Fund:
A. 1 year ended November 30, 1996=
$1,046 - $1,000
= 4.64%
---------------- ----
( $1,000 ) ----
$1,377 - $1,000
----------------
B. Inception through November 30, 1996
=
= 37.73%
$1,000 ------
( ) ------
2. Kentucky Municipal Bond Fund:
A. 1 year ended November 30, 1996=
$1,048 - $1,000
= 4.81%
---------------- ----
( $1,000 ) ----
$1,406 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 40.60%
$1,000 ------
( ) ------
C. Inception through November 30, 1996
= $2,025 - $1,000
= 102.52%
---------------- -------
( $1,000 ) -------
3. Kentucky Limited Term Municipal Bond Fund:
$1,050 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 5.04%
$1,000 ----
( ) ----
$1,079 - $1,000
----------------
B. Inception through November 30, 1996
= = 7.90%
$1,000 ----
( ) ----
14
<PAGE>
4. Michigan Intermediate Municipal Bond Fund:
$1,048 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 4.80%
$1,000 ----
( ) ----
$1,386 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 38.61%
$1,000 ------
( ) ------
C. 10 years ended November 30, 1996 $1,909 - $1,000
=
---------------- = 90.92%
------
( $1,000 ) ------
$2,388 - $1,000
----------------
D. Inception through November 30, 1996
=
= 138.77%
$1,000 -------
( ) -------
5. Missouri Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,049 - $1,000
---------------- = 4.85%
----
( $1,000 ) ----
$1,406 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 40.56%
$1,000 ------
( ) ------
$1,943 - $1,000
----------------
C. Inception through November 30, 1996
=
= 94.32%
$1,000 ------
( ) ------
6. Ohio Fund:
A. 1 year ended November 30, 1996= $1,042 - $1,000
---------------- = 4.21%
----
( $1,000 ) ----
B. 5 years ended November 30, 1996 $1,374 - $1,000
=
---------------- = 37.41%
------
( $1,000 ) ------
$1,915 - $1,000
C. 10 years ended November 30, 1996 ----------------
=
= 91.51%
$1,000 ------
( ) ------
$2,361 - $1,000
----------------
D. Inception through November 30, 1996
=
= 136.13%
$1,000 -------
( ) -------
7. Wisconsin Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,040 - $1,000 = 3.97%
---------------- ----
( $1,000 ) ----
$1,163 - $1,000
----------------
B. Inception through November 30, 1996
= = 16.26%
$1,000 ------
CUMULATIVE CLASS R TOTAL RETURNS: ( ) ------
1. Kansas Municipal Bond Fund:
A. 1 year ended November 30, 1996=
$1,050 - $1,000
= 5.01%
---------------- ----
( $1,000 ) ----
$1,401 - $1,000
----------------
B. Inception through November 30, 1996
=
= 40.11%
$1,000 ------
( ) ------
15
<PAGE>
2. Kentucky Municipal Bond Fund:
$1,054 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 5.38%
$1,000 ----
( ) ----
$1,449 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 44.87%
$1,000 ------
( ) ------
C. Inception through November 30, 1996
= $2,140 - $1,000
= 113.98%
---------------- -------
( $1,000 ) -------
3. Kentucky Limited Term Municipal Bond Fund:
$1,054 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 5.38%
$1,000 ----
( ) ----
B. Inception through November 30, 1996$1,083 - $1,000
= = 8.33%
---------------- ----
( $1,000 ) ----
4. Michigan Intermediate Municipal Bond Fund:
$1,055 - $1,000
A. 1 year ended November 30, 1996= ----------------
= 5.46%
$1,000 ----
( ) ----
$1,442 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 44.17%
$1,000 ------
( ) ------
C. 10 years ended November 30, 1996
= $2,041 - $1,000
= 104.08%
---------------- -------
( $1,000 ) -------
$2,573 - $1,000
----------------
D. Inception through November 30, 1996
=
= 157.31%
$1,000 -------
( ) -------
5. Missouri Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,054 - $1,000
---------------- = 5.42%
----
( $1,000 ) ----
$1,443 - $1,000
B. 5 years ended November 30, 1996 ----------------
=
= 44.34%
$1,000 ------
( ) ------
C. Inception through November 30, 1996
= $2,043 - $1,000
= 104.33%
---------------- -------
( $1,000 ) -------
6. Ohio Municipal Bond Fund:
$1,047 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 4.70%
$1,000 ----
( ) ----
$1,411 - $1,000
B. 5 years ended November 30, 1996 ----------------
= = 41.08%
$1,000 ------
( ) ------
C. 10 years ended November 30, 1996 $2,021 - $1,000
= = 102.09%
---------------- -------
( $1,000 ) -------
$2,512 - $1,000
----------------
D. Inception through November 30, 1996
= = 151.21%
$1,000 -------
( ) -------
16
<PAGE>
7. Wisconsin Municipal Bond Fund:
$1,043 - $1,000
A. 1 year ended November 30, 1996= ---------------- = 4.34%
$1,000 ----
( ) ----
$1,173 - $1,000
----------------
B. Inception through November 30, 1996
= = 17.27%
$1,000 ------
( ) ------
VI. TAXABLE EQUIVALENT TOTAL RETURN
A. Taxable Equivalent Total Return Formula
Each Fund's taxable equivalent total return for a specific period is calcu-
lated 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 re-
turn for each such fiscal year by the amount of additional income that a tax-
able 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 pro-
vides a taxable equivalent total return expressed as a percentage.
B. Taxable Equivalent Total Return Calculations
The taxable equivalent total return calculations for the Class A Shares of
the Kansas Municipal Bond Fund for the one-year period ended November 30, 1996
are set forth on the following pages assuming a combined federal and state in-
come tax rate of 44.5% based on 1997 rates.
Fund: Kansas Class A
Since Dec 1, 1995
<TABLE>
<CAPTION>
TOTAL PERIOD DIV. CAP GAIN
NAV INCOME CAP FROM DOLLAR TO DATE TAX ENDING ENDING REINV REINV
PER DAY PER SHARE PER SHARE GAINS FROM INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV NAV
- ------- --------- --------- ----- ----------- ----- ------ -------- ------- ------ ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/95 10.26 974.6589 $10,000.00
12/31/95 10.35 0.046203 $ 45.03 $ -- $45.03 $ 45.03 979.008 $10,132.75 10.35
1/31/96 10.32 0.046077 $ 45.11 $ -- $45.11 $ 90.14 983.3803 $10,148.49 10.32
2/29/96 10.15 0.043104 $ 42.39 $ -- $42.39 $132.53 987.5569 $10,023.70 10.15
3/31/96 9.91 0.044721 $ 44.16 $ -- $44.16 $176.69 992.0135 $ 9,830.85 9.91
4/30/96 9.83 0043279 $ 42.93 $ -- $42.93 $219.63 996.3811 $ 9,794.43 9.83
5/31/96 9.83 0.044721 $ 44.56 $ -- $44.56 $264.19 1000.914 $ 9,838.99 9.83
6/30/96 9.92 0.043279 $ 43.32 $ -- $43.32 $307.50 1005.281 $ 9,972.39 9.92
7/31/96 9.96 0.044721 $ 44.96 $ -- $44.96 $352.46 1009.795 $10,057.55 9.96
8/31/96 9.91 0.044721 $ 45.16 $ -- $45.16 $397.62 1014.352 $10,052.22 9.91
9/30/96 10.04 0.042869 $ 43.48 $ -- $43.48 $441.11 1018.683 $20,227.57 10.04
10/31/96 10.09 0.044298 $ 45.13 $ -- $45.13 $486.23 1023.155 $10,323.63 10.09
11/30/96 10.22 0.042869 $ 43.86 $ -- $43.86 $530.09 $425.03 1069.035 $10,925.53 10.22
Tax Rate: 44.5%
Load: 0.00%
1 Year 9.26%
Annualized: 9.26%
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 042
<NAME> NUVEEN MICHIGAN TAX-FREE CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 31913
<INVESTMENTS-AT-VALUE> 32907
<RECEIVABLES> 675
<ASSETS-OTHER> 247
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33829
<PAYABLE-FOR-SECURITIES> 921
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 155
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31700
<SHARES-COMMON-STOCK> 471
<SHARES-COMMON-PRIOR> 375
<ACCUMULATED-NII-CURRENT> 14
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 994
<NET-ASSETS> 4923
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 978
<OTHER-INCOME> 0
<EXPENSES-NET> 130
<NET-INVESTMENT-INCOME> 848
<REALIZED-GAINS-CURRENT> (132)
<APPREC-INCREASE-CURRENT> (851)
<NET-CHANGE-FROM-OPS> (135)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105
<DISTRIBUTIONS-OF-GAINS> 9
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<NUMBER-OF-SHARES-SOLD> 111
<NUMBER-OF-SHARES-REDEEMED> 20
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> (1632)
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> 177
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160
<AVERAGE-NET-ASSETS> 4340
<PER-SHARE-NAV-BEGIN> 10.74
<PER-SHARE-NII> .262
<PER-SHARE-GAIN-APPREC> (.307)
<PER-SHARE-DIVIDEND> .255
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<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP KENTUCKY TRIPLE TAX EXEMPT FUND
<SERIES>
<NUMBER> 111
<NAME> CLASSA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 422,725,656
<INVESTMENTS-AT-VALUE> 451,977,190
<RECEIVABLES> 7,340,002
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 423,289,195
<SHARES-COMMON-STOCK> 38,362,308
<SHARES-COMMON-PRIOR> 37,970,215
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (40,301)
<ACCUMULATED-NET-GAINS> 84,367
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 452,584,795
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> (1,786,544)
<NET-INVESTMENT-INCOME> 11,942,490
<REALIZED-GAINS-CURRENT> 450,545
<APPREC-INCREASE-CURRENT> 13,729,648
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 1,571,159
<NUMBER-OF-SHARES-REDEEMED> (1,791,706)
<SHARES-REINVESTED> 612,640
<NET-CHANGE-IN-ASSETS> 17,658,665
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,107,348
<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 10.82
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> (0.30)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 041
<NAME> NUVEEN MICHIGAN TAX-FREE CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
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<SHARES-COMMON-PRIOR> 2803
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 994
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 978
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<EXPENSES-NET> 130
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<REALIZED-GAINS-CURRENT> (132)
<APPREC-INCREASE-CURRENT> (851)
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 735
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 80
<NUMBER-OF-SHARES-REDEEMED> 292
<SHARES-REINVESTED> 47
<NET-CHANGE-IN-ASSETS> (1632)
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> 177
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 91
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<GROSS-EXPENSE> 160
<AVERAGE-NET-ASSETS> 28668
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> .267
<PER-SHARE-GAIN-APPREC> (.300)
<PER-SHARE-DIVIDEND> .267
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.45
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER>032
<NAME> NUVEEN OHIO VALUE CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 169211
<INVESTMENTS-AT-VALUE> 177384
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<ASSETS-OTHER> 45
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<TOTAL-ASSETS> 180622
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 733
<TOTAL-LIABILITIES> 733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 171885
<SHARES-COMMON-STOCK> 1611
<SHARES-COMMON-PRIOR> 1218
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8173
<NET-ASSETS> 16654
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5508
<OTHER-INCOME> 0
<EXPENSES-NET> 683
<NET-INVESTMENT-INCOME> 4825
<REALIZED-GAINS-CURRENT> 21
<APPREC-INCREASE-CURRENT> (4467)
<NET-CHANGE-FROM-OPS> 379
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 382
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 462
<NUMBER-OF-SHARES-REDEEMED> 91
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> (2271)
<ACCUMULATED-NII-PRIOR> 69
<ACCUMULATED-GAINS-PRIOR> (237)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 683
<AVERAGE-NET-ASSETS> 14760
<PER-SHARE-NAV-BEGIN> 10.60
<PER-SHARE-NII> .274
<PER-SHARE-GAIN-APPREC> (.264)
<PER-SHARE-DIVIDEND> .270
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER>033
<NAME> NUVEEN OHIO VALUE CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
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<INVESTMENTS-AT-VALUE> 177384
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 205
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8173
<NET-ASSETS> 2448
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<INTEREST-INCOME> 5508
<OTHER-INCOME> 0
<EXPENSES-NET> 683
<NET-INVESTMENT-INCOME> 4825
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<APPREC-INCREASE-CURRENT> (4467)
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58
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<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> (2271)
<ACCUMULATED-NII-PRIOR> 69
<ACCUMULATED-GAINS-PRIOR> (237)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 683
<AVERAGE-NET-ASSETS> 2360
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .231
<PER-SHARE-GAIN-APPREC> (.263)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> NUVEEN OHIO VALUE CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
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<INVESTMENTS-AT-VALUE> 177384
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<ASSETS-OTHER> 45
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<SENIOR-LONG-TERM-DEBT> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 171885
<SHARES-COMMON-STOCK> 15574
<SHARES-COMMON-PRIOR> 15789
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8173
<NET-ASSETS> 160787
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5508
<OTHER-INCOME> 0
<EXPENSES-NET> 683
<NET-INVESTMENT-INCOME> 4825
<REALIZED-GAINS-CURRENT> 21
<APPREC-INCREASE-CURRENT> (4467)
<NET-CHANGE-FROM-OPS> 379
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4413
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 312
<NUMBER-OF-SHARES-REDEEMED> 820
<SHARES-REINVESTED> 293
<NET-CHANGE-IN-ASSETS> (2271)
<ACCUMULATED-NII-PRIOR> 69
<ACCUMULATED-GAINS-PRIOR> (237)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 683
<AVERAGE-NET-ASSETS> 161716
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> .280
<PER-SHARE-GAIN-APPREC> (.258)
<PER-SHARE-DIVIDEND> .282
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP MICHIGAN TRIPLE TAX EXEMPT FUND
<SERIES>
<NUMBER> 023
<NAME> CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 274,241,432
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<TOTAL-LIABILITIES> 2,700,889
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 278,280,305
<SHARES-COMMON-STOCK> 3,650,883
<SHARES-COMMON-PRIOR> 3,644,334
<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,918,210
<NET-ASSETS> 300,238,138
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,173,817
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<EXPENSES-NET> (1,426,097)
<NET-INVESTMENT-INCOME> 7,747,720
<REALIZED-GAINS-CURRENT> 686,968
<APPREC-INCREASE-CURRENT> 10,681,754
<NET-CHANGE-FROM-OPS> 19,116,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,011,555)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 248,088
<NUMBER-OF-SHARES-REDEEMED> (288,416)
<SHARES-REINVESTED> 54,877
<NET-CHANGE-IN-ASSETS> 1,690,813
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (640,948)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 741,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,658,275
<AVERAGE-NET-ASSETS> 295,986,364
<PER-SHARE-NAV-BEGIN> 11.35
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.44
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.79
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 652,600
<AVG-DEBT-PER-SHARE> 0.01
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP MISSOURI DOUBLE TAX EXEMPT FUND
<SERIES>
<NUMBER> 121
<NAME> CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-31-1996
<INVESTMENTS-AT-COST> 208,277,875
<INVESTMENTS-AT-VALUE> 220,602,604
<RECEIVABLES> 5,594,740
<ASSETS-OTHER> 573,557
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<TOTAL-ASSETS> 226,770,901
<PAYABLE-FOR-SECURITIES> 2,475,410
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<OTHER-ITEMS-LIABILITIES> 1,212,007
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<PAID-IN-CAPITAL-COMMON> 213,955,533
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<ACCUM-APPREC-OR-DEPREC> 12,324,729
<NET-ASSETS> 223,083,484
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,770,498
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<EXPENSES-NET> (1,021,750)
<NET-INVESTMENT-INCOME> 5,748,748
<REALIZED-GAINS-CURRENT> 1,429,711
<APPREC-INCREASE-CURRENT> 6,711,956
<NET-CHANGE-FROM-OPS> 13,890,415
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,637,308)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 710,810
<NUMBER-OF-SHARES-REDEEMED> (1,423,117)
<SHARES-REINVESTED> 294,260
<NET-CHANGE-IN-ASSETS> 3,347,404
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,584,327)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 551,105
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,198,444
<AVERAGE-NET-ASSETS> 219,839,555
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.39
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.90
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 100,487
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP MISSOURI DOUBLE TAX EXEMPT FUND
<SERIES>
<NUMBER> 123
<NAME> CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-31-1996
<INVESTMENTS-AT-COST> 208,277,875
<INVESTMENTS-AT-VALUE> 220,602,604
<RECEIVABLES> 5,594,740
<ASSETS-OTHER> 573,557
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 226,770,901
<PAYABLE-FOR-SECURITIES> 2,475,410
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,212,007
<TOTAL-LIABILITIES> 3,687,417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,955,533
<SHARES-COMMON-STOCK> 644,571
<SHARES-COMMON-PRIOR> 592,367
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (42,162)
<ACCUMULATED-NET-GAINS> (3,154,616)
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<ACCUM-APPREC-OR-DEPREC> 12,324,729
<NET-ASSETS> 223,083,484
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,770,498
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<EXPENSES-NET> (1,021,750)
<NET-INVESTMENT-INCOME> 5,748,748
<REALIZED-GAINS-CURRENT> 1,429,711
<APPREC-INCREASE-CURRENT> 6,711,956
<NET-CHANGE-FROM-OPS> 13,890,415
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> FLAGSHIP OHIO DOUBLE TAX EXEMPT FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
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<NAME> FLAGSHIP WISCONSIN DOUBLE TAX EXEMPT FUN
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> FLAGSHIP KANSAS TRIPLE TAX EXMEPT FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP KENTUCKY TRIPLE TAX EXEMPT FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP KENTUCKY TRIPLE TAX EXEMPT FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND
[NUMBER] 551
[NAME] CLASS A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND
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<NET-INVESTMENT-INCOME> 202,231
<REALIZED-GAINS-CURRENT> (64,925)
<APPREC-INCREASE-CURRENT> 233,110
<NET-CHANGE-FROM-OPS> 370,416
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,593)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50,775
<NUMBER-OF-SHARES-REDEEMED> (60,221)
<SHARES-REINVESTED> 2,220
<NET-CHANGE-IN-ASSETS> (39,540)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,077
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87,257
<AVERAGE-NET-ASSETS> 9,359,256
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000764860
<NAME> FLAGSHIP MICHIGAN TRIPLE TAX EXEMPT FUND
<SERIES>
<NUMBER> 021
<NAME> CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 274,241,432
<INVESTMENTS-AT-VALUE> 296,159,642
<RECEIVABLES> 5,673,287
<ASSETS-OTHER> 1,106,098
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 302,939,027
<PAYABLE-FOR-SECURITIES> 722,600
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,978,289
<TOTAL-LIABILITIES> 2,700,889
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 278,280,305
<SHARES-COMMON-STOCK> 21,777,401
<SHARES-COMMON-PRIOR> 21,856,306
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6,397)
<ACCUMULATED-NET-GAINS> 46,020
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,918,210
<NET-ASSETS> 300,238,138
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,173,817
<OTHER-INCOME> 0
<EXPENSES-NET> (1,426,097)
<NET-INVESTMENT-INCOME> 7,747,720
<REALIZED-GAINS-CURRENT> 686,968
<APPREC-INCREASE-CURRENT> 10,681,754
<NET-CHANGE-FROM-OPS> 19,116,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,742,562)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,030,495
<NUMBER-OF-SHARES-REDEEMED> (1,425,010)
<SHARES-REINVESTED> 315,610
<NET-CHANGE-IN-ASSETS> 8,760,090
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (640,948)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 741,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,658,275
<AVERAGE-NET-ASSETS> 295,986,364
<PER-SHARE-NAV-BEGIN> 11.37
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.44
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.81
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 652,600
<AVG-DEBT-PER-SHARE> 0.01
</TABLE>
<PAGE>
EXHIBIT 18
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST I
NUVEEN FLAGSHIP MULTISTATE TRUST II
NUVEEN FLAGSHIP MULTISTATE TRUST III
NUVEEN FLAGSHIP MULTISTATE TRUST IV
MULTIPLE CLASS PLAN
ADOPTED PURSUANT TO RULE 18f-3
WHEREAS, Nuveen Flagship Municipal Trust, Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III and
Nuveen Flagship Multistate Trust IV, each a Massachusetts business trust (each a
"Fund" and collectively, the "Funds"), each engage in business as an open-end
management investment company and are each registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, each Fund is authorized to and may or does issue shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets (each Fund's series together with all other such series subsequently
established by a Fund being referred to herein individually as a "Series" and
collectively as the "Series");
WHEREAS, each Fund is authorized to and has divided the shares of each
Series into four classes, designated as Class A Shares, Class B Shares, Class C
Shares and Class R Shares, and may offer all or less than all of these classes
for public sale at any time; and
WHEREAS, the Board of each Fund as a whole, and the Trustees who are not
interested persons of each such Fund (as defined in the Act) (the "Non-
Interested Members"), after having been furnished and having evaluated
information reasonably necessary to evaluate this Multiple Class Plan (the
"Plan"), have determined in the exercise of their reasonable business judgment
that the Plan is in the best interests of each class of each Series
individually, and each Series and each Fund as a whole.
NOW, THEREFORE, each Fund hereby adopts this Plan, effective the date hereof, in
accordance with Rule 18f-3 under the Act:
<PAGE>
Section 1. Class Differences. Each class of shares of a Series shall
represent interests in the same portfolio of investments of that Series and,
except as otherwise set forth in this Plan, shall differ solely with respect to:
(i)distribution, service and other charges and expenses as provided for in
Sections 2 and 3 of this Plan; (ii)the exclusive right of each class of shares
to vote on matters submitted to shareholders that relate solely to that class or
for which the interests of one class differ from the interests of another class
or classes; (iii)such differences relating to eligible investors as may be set
forth in the prospectus and statement of additional information of each Series,
as the same may be amended or supplemented from time to time (each a
"Prospectus" and "SAI" and collectively, the "Prospectus" and "SAI"); (iv)the
designation of each class of shares; and (v)conversion features.
Section 2. Distribution and Service Arrangements; Conversion
Features. Class A Shares, Class B Shares, Class C Shares and Class R Shares of
each Fund shall differ in the manner in which such shares are distributed and in
the services provided to shareholders of each such class as follows:
(a) Class A Shares:
(i) Class A Shares shall be sold at net asset value
subject to a front-end sales charge set forth in the Prospectus
and SAI;
(ii) Class A Shares shall be subject to an annual service
fee("Service Fee") pursuant to a Plan of Distribution and Service
Pursuant to Rule 12b-1 (the "12b-1 Plan") not to exceed 0.20 of
1% of the average daily net assets of the Series allocable to
Class A Shares, which, as set forth in the Prospectus, SAI and
the 12b-1 Plan, may be used to compensate certain authorized
dealers for providing ongoing account services to shareholders;
and
(iii) Class A Shares shall not be subject to a
Distribution Fee (as hereinafter defined); and
(iv) As described in the Prospectus and SAI, certain Class
A shares purchased at net asset value without imposition of a
front-end sales charge that are redeemed within 18 months of
purchase shall be subject to a contingent deferred sales charge
("CDSC") of 1% of the lower of (a) the net asset value of Class A
Shares at the time of purchase or (b) the net asset value of
Class A Shares at the time of redemption, as set forth in the
Prospectus and SAI.
-2-
<PAGE>
(b) Class B Shares:
(i) Class B Shares shall be sold at net asset value
without a front-end sales charge;
(ii) Class B Shares shall be subject to a Service Fee
pursuant to the 12b-1 Plan not to exceed 0.20 of 1% of average
daily net assets of the Series allocable to Class B Shares,
which, as set forth in the Prospectus, SAI and the 12b-1 Plan,
may be used to compensate certain authorized dealers for
providing ongoing account services to shareholders;
(iii) Class B Shares shall be subject to an annual
distribution fee ("Distribution Fee") pursuant to the 12b-1 Plan
not to exceed 0.75 of 1% of average daily net assets of the
Series allocable to Class B Shares, which, as set forth in the
Prospectus, SAI and the 12b-1 Plan, will be used to reimburse
John Nuveen & Co. Incorporated, the Funds' distributor, for
certain expenses and for providing compensation to certain
authorized dealers;
(iv) Class B Shares redeemed within 6 years of purchase
shall be subject to a CDSC described below of the lower of (a)
the net asset value of Class B Shares at the time of purchase or
(b) the net asset value of Class B Shares at the time of
redemption, as set forth in the Prospectus and SAI; and
Years Since Purchase
of Class B Shares CDSC
0-1 5%
1-2 4%
2-3 4%
3-4 3%
4-5 2%
5-6 1%
(v) Class B Shares will automatically convert to Class A
Shares eight years after purchase, as set forth in the Prospectus
and SAI.
-3-
<PAGE>
(c) Class C Shares/*/:
(i) Class C Shares shall be sold at net asset value
without a front-end sales charge;
(ii) Class C Shares shall be subject to a Service Fee
pursuant to the 12b-1 Plan not to exceed 0.20 of 1% of average
daily net assets of the Series allocable to Class C Shares,
which, as set forth in the Prospectus, SAI and the 12b-1 Plan,
may be used to compensate certain authorized dealers for
providing ongoing account services to shareholders;
(iii) Class C Shares shall be subject to a Distribution
Fee pursuant to the 12b-1 Plan not to exceed 0.55 of 1% of
average daily net assets of the Series allocable to Class C
Shares, except that any Limited-Term or Short-Term Series
(together the "Limited-Term Series") shall be subject to a
Distribution Fee pursuant to the 12b-1 Plan not to exceed 0.35 of
1% of average daily net assets of the Limited-Term Series
allocable to Class C Shares; which, as set forth in the
Prospectus, SAI and the 12b-1 Plan, will be used to reimburse
John Nuveen & Co. Incorporated, the Funds' distributor, for
certain expenses and for providing compensation to certain
authorized dealers; and
(iv) Class C Shares redeemed within 12 months of purchase
shall be subject to a CDSC of 1% of the lower of (a) the net
asset value of Class C Shares at the time of purchase or (b) the
net asset value of Class C Shares at the time of redemption, as
set forth in the Prospectus and SAI.
(d) Class R Shares:
(i) Class R Shares shall be sold at net asset value
without a front-end sales charge to a limited group of investors
as described in the Prospectus and SAI;
(ii) Class R Shares shall not be subject to a Service Fee;
and
(iii) Class R Shares shall not be subject to a
Distribution Fee.
- ------------------------
/*/Class C shareholders who acquired their shares from a Nuveen Fund on or prior
to the reorganization of the Fund (scheduled for January 31, 1997) will retain
the option to convert their shares to Class A shares of the same Fund at the end
of their six-year holding period, as described in the prospectus and SAI for the
Nuveen Fund in effect prior to the date of that reorganization.
-4-
<PAGE>
Section 3. Allocation of Income, Expenses, Gains and Losses.
(a) Investment Income, and Realized and Unrealized Gains and Losses.
The daily investment income, and realized and unrealized gains and losses, of a
Series will be allocated to each class of shares based on each class' relative
percentage of the total value of shares outstanding of the Series at the
beginning of the day, after such net assets are adjusted for the prior day's
capital share transactions.
(b) Series Level Expenses. Expenses that are attributable to a
Series, but not a particular class thereof ("Series level expenses"), will be
allocated to each class of shares based on each class' relative percentage of
the total value of shares outstanding of the Series at the beginning of the day,
after such net assets are adjusted for the prior day's capital share
transactions. Series level expenses include fees for services that are received
equally by the classes under the same fee arrangement. All expenses
attributable to a Series that are not "class level expenses" (as defined below)
shall be Series level expenses, including but not limited to transfer agency
fees and expenses, share registration expenses, and shareholder reporting
expenses.
(c) Class Level Expenses. Expenses that are directly attributable to
a particular class of shares, including the expenses relating to the
distribution of a class' shares, or to services provided to the shareholders of
a class, as set forth in Section 2 of this Plan, will be incurred by that class
of shares. Class level expenses include expenses for services that are unique
to a class of shares in either form or amount. "Class level expenses" shall
include, but not be limited to, 12b-1 Service Fees, 12b-1 Distribution Fees,
expenses associated with the addition of share classes to a Fund (to the extent
that the expenses were not fully accrued prior to the issuance of the new
classes of shares), expenses of administrative personnel and services required
to support the shareholders of a specific class, litigation or other legal
expenses relating to a specific class of shares, directors' fees or expenses
incurred as a result of issues relating to a specific class of shares, and
accounting expenses relating to a specific class of shares.
(d) Fee Waivers and Expense Reimbursements. On a daily basis, if the
Series level expenses and the class level expenses (not including 12b-1 plan
payments) exceed the daily expense cap for the Series, an appropriate
waiver/reimbursement will be made to the Series. The amount of such
reimbursement to each class will be in an amount such that the expenses of the
class with the highest expense ratio (excluding Service Fees and Distribution
Fees) will be equal to the daily expense cap after reimbursement. The expense
reimbursement will be allocated to each class of shares based on each class'
relative percentage of the total value of shares outstanding of the Series at
the beginning of the day, after such net assets are adjusted for the prior day's
capital share transactions.
-5-
<PAGE>
Section 4. Exchange Privilege. Shares of a class of a Series may be
exchanged only for shares of the same class of another Series, except as
otherwise set forth in the Prospectus and SAI.
Section 5. Term and Termination.
(a) The Series. This Plan shall become effective with respect to each
Series on the date hereof, and shall continue in effect with respect to such
Class A, Class B, Class C and Class R Shares of each such Series until
terminated in accordance with the provisions of Section 5(c) hereof.
(b) Additional Series or Classes. This Plan shall become effective
with respect to any class of shares of a Series other than Class A, Class B,
Class C or Class R and with respect to each additional Series or class thereof
established by a Fund after the date hereof and made subject to this Plan upon
commencement of the initial public offering thereof (provided that the Plan has
previously been approved with respect to such additional Series or class by
votes of a majority of both (i) the members of the Board of a Fund, as a whole,
and (ii) the Non-Interested Members, cast at a meeting held before the initial
public offering of such additional Series or classes thereof), and shall
continue in effect with respect to each such additional Series or class until
terminated in accordance with provisions of Section 5(c) hereof. An addendum
setting forth such specific and different terms of such additional series or
classes shall be attached to or made part of this Plan.
(c) Termination. This Plan may be terminated at any time with respect
to any Fund or any Series or class thereof, as the case may be, by vote of a
majority of both the members of the Board of a Fund, as a whole, and the Non-
Interested Members. The Plan may remain in effect with respect to a particular
Fund or any Series or class thereof even if it has been terminated in accordance
with this Section 5(c) with respect to any other Fund or Series or class
thereof.
Section 6. Subsequent Funds. The parties hereto intend that any
open-end investment company established subsequent to the date set forth below
for which Nuveen Institutional Advisory Corp. acts as investment adviser (each a
"Future Fund"), will be covered by the terms and conditions of this Plan,
provided that the Board of such Future Fund as a whole, and the Non-Interested
Members of such Future Fund, after having been furnished and having evaluated
information reasonably necessary to evaluate the Plan, have determined in the
exercise of their reasonable business judgment that the Plan is in the best
interests of each class of each Series of such Future Fund individually, and
each Series of such Future Fund and such Future Fund as a whole.
-6-
<PAGE>
Section 7. Amendments.
(a) General. Except as set forth below, any material amendment to
this Plan affecting a Fund or Series or class thereof shall require the
affirmative vote of a majority of both the members of the Board of that Fund, as
a whole, and the Non-Interested Members that the amendment is in the best
interests of each class of each Series individually and each Series as a whole.
(b) Future Funds. Any amendment to the Plan solely for the purpose of
adding a Future Fund as a party hereto in accordance with Section 6, will not
require any action by the Boards of the Funds.
Dated: July 24, 1996
-7-
