<PAGE>
NUVEEN
MUNICIPAL
BOND FUNDS
September 30, 1998
- -------------------------------
Prospectus
- -------------------------------
Dependable, tax-free income
to help you keep more of
what you earn.
KANSAS
KENTUCKY
MICHIGAN
MISSOURI [PHOTO APPEARS HERE]
OHIO
WISCONSIN
- -------------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- -------------------------------
Like all mutual fund shares 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 The Funds
This section provides you with an overview of the
funds including investment objectives, portfolio
holdings and historical performance information.
Introduction................................................................. 1
Nuveen Flagship Kansas Municipal Bond Fund................................... 2
Nuveen Flagship Kentucky Municipal Bond Fund................................. 4
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund.................... 6
Nuveen Flagship Michigan Municipal Bond Fund................................. 8
Nuveen Flagship Missouri Municipal Bond Fund................................. 10
Nuveen Flagship Ohio Municipal Bond Fund..................................... 12
We have used the icons Nuveen Flagship Wisconsin Municipal Bond Fund................................ 14
below throughout this
prospectus to make it SECTION 2 How We Manage Your Money
easy for youto find the This section gives you a detailed discussion of our investment and risk
type of information management strategies.
you need.
Who Manages the Funds........................................................ 16
Management Fees.............................................................. 17
What Securities We Invest In................................................. 17
How We Select Investments.................................................... 18
What the Risks Are........................................................... 19
How We Manage Risk........................................................... 20
SECTION 3 How You Can Buy and Sell Shares
Investment Strategy This section provides the information you need to move money into or out
of your account.
How to Choose a Share Class.................................................. 21
Risks How to Reduce Your Sales Charge.............................................. 23
How to Buy Shares............................................................ 23
Systematic Investing......................................................... 24
Fees, Charges Systematic Withdrawal........................................................ 25
and Expenses Special Services............................................................. 25
How to Sell Shares........................................................... 26
Shareholder SECTION 4 General Information
Instructions
This section summarizes the funds' distribution policies and other general
fund information.
Performance and Distributions and Taxes...................................................... 28
Current Portfolio Distribution and Service Plans............................................... 29
Information Net Asset Value.............................................................. 30
Fund Service Providers....................................................... 30
SECTION 5 Financial Highlights
This section provides the funds' financial performance
for the past 5 years......................................................... 31
APPENDIX Additional State Information.................................. 38
</TABLE>
<PAGE>
September 30,1998
Section 1 The Funds
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
Prospectus
This prospectus is intended to provide important information to
help you evaluate whether one of the Nuveen Mutual Funds listed
above may be right for you. Please read it carefully before
investing and keep it for future reference.
To learn more about how Nuveen Mutual Funds can help you achieve
your financial goals, talk with your financial adviser. Or call
us at (800) 257-8787 for more information
A Century of Investment Experience
Since our founding in 1898, John Nuveen & Co. Incorporated has
been synonymous with investments that withstand the test of time.
Today we offer a broad range of quality investments designed for
individuals seeking to build and maintain wealth.
Section 1 The Funds 1
<PAGE>
NUVEEN FLAGSHIP KANSAS MUNICIPAL BOND FUND
FUND OVERVIEW
INVESTMENT OBJECTIVE
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital.
HOW THE FUND PURSUES ITS OBJECTIVE
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's
investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential
for above-average total return.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bonds carry greater credit risk. The fund may bear additional
risk because it invests primarily in Kansas bonds. The fund is
non-diversified, and may invest more of its assets in a single issuer than
a diversified fund. Greater concentration may increase risk. As with any
mutual fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
IS THIS FUND RIGHT FOR YOU?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
HOW THE FUND HAS PERFORMED
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past five years as well as
annualized fund, peer group and market benchmark returns for the one-,
five-year and inception periods ending December 31, 1997. This information
is intended to help you assess the variability of fund returns over the
past five years (and consequently, the potential rewards and risks of a
fund investment).
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1993 14.1%
1994 -8.3%
1995 17.7%
1996 3.4%
1997 9.7%
From inception in January 1992 to December 31, 1997, the highest and lowest
quarterly returns were 6.96% and -7.73%, respectively for the quarters
ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly
returns do not reflect sales charges, which would reduce returns, while the
average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
------------------------------------
Class 1 Year 5 Year Inception
- ------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 5.11% 5.98% 6.82%
Class A (NAV) 9.67% 6.90% 7.60%
Class B 4.30% 6.00% 6.76%
Class C 9.31% 6.54% 7.23%
Class R 10.47% 7.06% 7.73%
- ------------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 7.67%
Lipper
Peer Group/3/ 7.84% 6.33% 6.85%
</TABLE>
2 Section 1 The Funds
<PAGE>
WHAT ARE THE COSTS OF INVESTING?
SHAREHOLDER TRANSACTION EXPENSES/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
ANNUAL FUND OPERATING EXPENSES/11/
Paid From Fund Assets
Share Class A B C R
Management Fees .55% .55% .55% .55%
12b-1 Distribution and Service Fees .20% .95% .75% --%
Other Expenses .15% .15% .14% .15%
Total Annual Fund Operating
Expenses-Gross+ .90% 1.65% 1.44% .70%
+ After Expense Reimbursements
Reimbursements (.19%) (.20%) (.20%) (.19%)
Total Annual Fund Operating Expenses-Net .71% 1.45% 1.24% .51%
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 508 $ 563 $ 147 $ 72 $ 508 $ 168 $ 147 $ 72
3 Years $ 695 $ 839 $ 456 $ 224 $ 695 $ 520 $ 456 $ 224
5 Years $ 898 $1,011 $ 787 $ 390 $ 898 $ 897 $ 787 $ 390
10 Years $1,481 $1,754 $1,724 $ 871 $1,481 $1,754 $1,724 $ 871
</TABLE>
HOW THE FUND IS INVESTED (AS OF 5/31/98)
PORTFOLIO STATISTICS
Weighted Average Maturity 20.6 years
Weighted Average Duration 7.6 years
Weighted Average Credit Quality AA
Number of Issues 60
CREDIT QUALITY
AAA 49%
AA 24%
A 17%
BBB/NR 10%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Utilities (8%)
Other (27%)
Tax Obligation-Limited (20%)
Health Care (20%)
U.S. Guaranteed (13%)
Housing-Multifamily (12%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in fees between the classes (see "What are the
Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.69%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Kansas Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares.
6. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
NUVEEN FLAGSHIP KENTUCKY MUNICIPAL BOND FUND
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's
investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential
for above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bonds carry greater credit risk. The fund may bear additional
risk because it invests primarily in Kentucky bonds. As with any mutual
fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How The Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past ten years as well as
annualized fund, peer group and market benchmark returns for the one-,
five- and ten-year periods ending December 31, 1997. This information is
intended to help you assess the variability of fund returns over the past
ten years (and consequently, the potential rewards and risks of a fund
investment).
TOTAL RETURNS/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1988 13.5%
1989 10.8%
1990 6.5%
1991 12.4%
1992 9.3%
1993 12.3%
1994 -5.4%
1995 17.3%
1996 3.9%
1997 9.1%
During the ten years ending December 31, 1997, the highest and lowest
quarterly returns were 7.13% and -5.54%, respectively for the quarters
ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly
returns do not reflect sales charges, which would reduce returns, while the
1-, 5- and 10-year average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
Class 1 Year 5 Year 10 Year
------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 4.46% 6.21% 8.32%
Class A (NAV) 9.08% 7.12% 8.79%
Class B 4.29% 6.34% 8.31%
Class C 8.41% 6.52% 8.19%
Class R 9.11% 7.13% 8.79%
------------------------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 8.43% 6.80% 8.42%
</TABLE>
4 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- -----------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- ----------------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
12b-1 Distribution and Service Fees .20% .95% .75% --%
Other Expenses .10% .10% .10% .10%
Total Annual Fund Operating
Expenses-Gross .84% 1.59% 1.39% .64%
After Expense Reimbursements
Reimbursements (.07%) (.05%) (.06%) (.06%)
Total Annual Fund Operating Expenses-Net .77% 1.54% 1.33% .58%
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 502 $ 557 $ 142 $ 65 $ 502 $ 162 $ 142 $ 65
3 Years $ 677 $ 821 $ 440 $205 $ 677 $ 502 $ 440 $205
5 Years $ 866 $ 980 $ 761 $357 $ 866 $ 866 $ 761 $357
10 Years $1,414 $1,688 $1,669 $798 $1,414 $1,688 $1,669 $798
</TABLE>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
Weighted Average Maturity 20.3 years
Weighted Average Duration 6.4 years
Weighted Average Credit Quality AA
Number of Issues 177
Credit Quality
AAA 52%
AA 6%
A 24%
BBB/NR 18%
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Water/Sewer (6%)
Other (29%)
Tax Obligation-Limited (23%)
Health Care (23%)
Utilities (10%)
U.S.Guaranteed (9%)
1. Class A total returns reflect actual performance for all periods; Class
B, C and R total returns reflect actual performance for periods since
class inception, and Class A performance for periods prior to class
inception, adjusted for the differences in fees between the classes (see
"What are the Costs of Investing?"). The year-to-date return as of
6/30/98 was 2.44%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the
funds in the Lipper Kentucky Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales
charges.
4. As a percent of offering price unless otherwise noted. Authorized
Dealers and other firms may charge additional fees for shareholder
transactions or for advisory services. Please see their materials for
details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced sales charges apply to purchases of $50,000 or more. See "How
You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may
be subject to a contingent deferred sales charge (CDSC) if redeemed
within 18 months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a
CDSC of 5% during the first year, 4% during the second and third years,
3% during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule
12b-1 fees and CDSCs than the economic equivalent of the maximum front-
end sales charge permitted under the National Association of Securities
Dealers Conduct Rules.
Section 1 The Funds 5
<PAGE>
NUVEEN FLAGSHIP KENTUCKY LIMITED TERM MUNICIPAL BOND FUND
Fund Overview
INVESTMENT OBJECTIVE
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital.
HOW THE FUND PURSUES ITS OBJECTIVE
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's
investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential
for above-average total return.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bonds carry greater credit risk. The fund may bear additional
risk because it invests primarily in Kentucky bonds. The fund is
non-diversified, and may invest more of its assets in a single issuer than
a diversified fund. Greater concentration may increase risk. As with any
mutual fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
IS THIS FUND RIGHT FOR YOU?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
HOW THE FUND HAS PERFORMED
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past two years as well as
annualized fund, peer group and market benchmark returns for the one-year
and inception periods ending December 31, 1997. This information is
intended to help you assess the variability of fund returns over the past
two years (and consequently, the potential rewards and risks of a fund
investment).
TOTAL RETURNS/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1996 4.4%
1997 6.9%
From inception in September 1995 to December 31, 1997, the highest and
lowest quarterly returns were 2.70% and .21%, respectively for the quarters
ending 12/31/95 and 3/31/96. The bar chart and highest/lowest quarterly
returns do not reflect sales charges, which would reduce returns, while the
average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
------------------------------------
Class 1 Year Inception
--------------------------------------------------------------------------
<S> <C> <C>
Class A (Offer) 4.28% 5.06%
Class A (NAV) 6.91% 6.24%
Class C 6.57% 5.87%
Class R 7.01% 6.29%
--------------------------------------------------------------------------
LB Market
Benchmark/2/ 6.38% 5.65%
Lipper
Peer Group/3/ 5.61% 4.96%
</TABLE>
6 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
SHAREHOLDER TRANSACTION EXPENSES/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A C R/5/
- ------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases 2.50%/6/ None None
- ------------------------------------------------------------------
Maximum Sales Charge Imposed on
Reinvested Dividends None None None
- ------------------------------------------------------------------
Exchange Fees None None None
- ------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 1%/9/ None
- ------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES/10/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A C R
- -------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees .45% .45% .45%
- -------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .55% N%
- -------------------------------------------------------------------
OTHER EXPENSES .69% .69% .68%
- -------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross 1.34% 1.69% 1.13%
After Expense Reimbursements
- -------------------------------------------------------------------
Reimbursements (.68%) (.68%) (.67%)
- -------------------------------------------------------------------
Total Annual Fund Operating Expenses-Net .66% 1.01% .46%
- -------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A C R A C R
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 383 $ 172 $ 115 $ 383 $ 172 $ 115
- -----------------------------------------------------------------------
3 Years $ 664 $ 533 $ 359 $ 664 $ 533 $ 359
- -----------------------------------------------------------------------
5 Years $ 966 $ 918 $ 622 $ 966 $ 918 $ 622
- -----------------------------------------------------------------------
10 Years $1,822 $1,998 $1,375 $1,822 $1,998 $1,375
- -----------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/98)
PORTFOLIO STATISTICS
Weighted Average Maturity 6.1 years
- ------------------------------------------------
Weighted Average Duration 5.0 years
- ------------------------------------------------
Weighted Average Credit Quality AA
- ------------------------------------------------
Number of Issues 33
- ------------------------------------------------
CREDIT QUALITY
AAA 45%
- ------------------------------------------------
AA 19%
- ------------------------------------------------
A 25%
- ------------------------------------------------
BBB/NR 11%
- ------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Transportation 9%
Health Care 23%
Tax Obligation-Limited (22%)
Other (22%)
Education and Civic
Organizations (14%)
Housing-Multifamily (10%)
1. Class A total returns reflect actual performance for all periods; Class C
and R total returns reflect actual performance for periods since class
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in fees between the classes (see "What are the
Costs of Investing?"). The year-to-date return as of 6/30/98 was
1.78%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers 5
Year Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Other States Short-Intermediate Municipal Debt Category. Returns
assume reinvestment of dividends and do not reflect any applicable sales
charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
10. Long-term holders of Class C shares may pay more in Rule 12b-1 fees and
CDSCs than the economic equivalent of the maximum front-end sales charge
permitted under the National Association of Securities Dealers Conduct
Rules.
Section 1 The Funds 7
<PAGE>
NUVEEN FLAGSHIP MICHIGAN MUNICIPAL BOND FUND
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's
investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential
for above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bonds carry greater credit risk. The fund may bear additional
risk because it invests primarily in Michigan bonds. As with any mutual
fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past ten years as well as
annualized fund, peer group and market benchmark returns for the one-,
five- and ten-year periods ending December 31, 1997. This information is
intended to help you assess the variability of fund returns over the past
ten years (and consequently, the potential rewards and risks of a fund
investment).
Total Returns(1)
[BAR CHART APPEARS HERE]
Class A Annual Returns
1988 12.5%
1989 10.2%
1990 5.3%
1991 11.6%
1992 9.6%
1993 12.0%
1994 -5.0%
1995 15.3%
1996 3.8%
1997 8.9%
During the ten years ending December 31, 1997, the highest and lowest
quarterly returns were 6.10% and -5.31%, respectively for the quarters
ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly
returns do not reflect sales charges, which would reduce returns, while the
1-, 5- and 10-year average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
Class 1 Year 5 Year 10 Year
-------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 4.38% 6.02% 7.89%
Class A (NAV) 8.93% 6.93% 8.36%
Class B 4.22% 6.17% 7.89%
Class C 8.34% 6.26% 7.72%
Class R 9.13% 6.97% 8.38%
-------------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 8.50% 6.66% 8.24%
</TABLE>
8 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- --------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/1/ None
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- -------------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
12b-1 Distribution and Service Fees .20% .95% .75% --%
Other Expenses .10% .10% .10% .10%
Total Operating Expenses .84% 1.59% 1.39% .64%
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 502 $ 557 $ 142 $ 65 $ 502 $ 162 $ 142 $ 65
3 Years $ 677 $ 821 $ 440 $205 $ 677 $ 502 $ 440 $205
5 Years $ 866 $ 980 $ 761 $357 $ 866 $ 866 $ 761 $357
10 Years $1,414 $1,688 $1,669 $798 $1,414 $1,688 $1,669 $798
</TABLE>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
Weighted Average Maturity 18.1 years
Weighted Average Duration 6.5 years
Weighted Average Credit Quality AA
Number of Issues 56
Credit Quality
AAA 54%
AA 19%
A 14%
BBB/NR 13%
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation-Limited (16%)
Other (21%)
Tax Obligation-General (16%)
Health Care (24%)
U.S, Guaranteed (17%)
Water/Sewer (6%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in fees between the classes (see _"What are
the Costs of Investing?"_). The year-to-date return as of 6/30/98 was
2.43%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Michigan Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 9
<PAGE>
NUVEEN FLAGSHIP MISSOURI MUNICIPAL BOND FUND
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's
investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential
for above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bonds carry greater credit risk. The fund may bear additional
risk because it invests primarily in Missouri bonds. The fund is
non-diversified, and may invest more of its assets in a single issuer than
a diversified fund. Greater concentration may increase risk. As with any
mutual fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past ten years as well as
annualized fund, peer group and market benchmark returns for the one-,
five- and ten-year periods ending December 31, 1997. This information is
intended to help you assess the variability of fund returns over the past
ten years (and consequently, the potential rewards and risks of a fund
investment).
Total Returns/1/
[Bar Chart Appears Here]
Class A Annual Returns
1988 10.5%
1989 10.2%
1990 6.4%
1991 12.0%
1992 9.0%
1993 13.5%
1994 -6.1%
1995 16.3%
1996 3.9%
1997 9.4%
During the ten years ending December 31, 1997, the highest and lowest
quarterly returns were 6.61% and -5.65%, respectively for the quarters
ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly
returns do not reflect sales charges, which would reduce returns, while the
1-, 5- and 10-year average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
------------------------------------
Class 1 Year 5 Year 10 Year
---------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 4.79% 6.17% 7.87%
Class A (NAV) 9.35% 7.09% 8.34%
Class B 4.47% 6.29% 7.86%
Class C 8.76% 6.48% 7.74%
Class R 9.45% 7.10% 8.35%
---------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 8.69% 6.75% 8.29%
</TABLE>
10 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- --------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- ---------------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
12b-1 Distribution and Service Fees .20% .95% .75% --%
Other Expenses .13% .13% .13% .13%
Total Operating Expenses .87% 1.62% 1.42% .67%
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 505 $ 560 $ 145 $ 68 $ 505 $ 165 $ 145 $ 68
3 Years $ 686 $ 830 $ 449 $214 $ 686 $ 511 $ 449 $214
5 Years $ 882 $ 996 $ 776 $373 $ 882 $ 881 $ 776 $373
10 Years $1,448 $1,721 $1,702 $835 $1,448 $1,721 $1,702 $835
</TABLE>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
Weighted Average Maturity 19.5 years
Weighted Average Duration 7.2 years
Weighted Average Credit Quality AA-
Number of Issues 143
Credit Quality
AAA 61%
AA 10%
A 12%
BBB/NR 17%
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation-Limited (17%)
Other (34%)
Housing-Single-Family (8%)
Health Care (17%)
U.S. Guaranteed (13%)
Housing-Multifamily (11%)
1. Class A total returns reflect actual performance for all periods; Class B,
C and R total returns reflect actual performance for periods since class
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in fees between the classes (see "What are the
Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.50%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Missouri Category. Returns assume reinvestment of dividends and
do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 11
<PAGE>
NUVEEN FLAGSHIP OHIO MUNICIPAL BOND FUND
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's
investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential
for above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bond carry greater credit risk. The fund may bear additional
risk because it invests primarily in Ohio bonds. As with any mutual fund
investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past ten years as well as
annualized fund, peer group and market benchmark returns for the one-,
five- and ten-year periods ending December 31, 1997. This information is
intended to help you assess the variability of fund returns over the past
ten years (and consequently, the potential rewards and risks of a fund
investment).
Total Returns(1)
[BAR CHART APPEARS HERE]
Class A Annual Returns
1988 13.1%
1989 9.7%
1990 6.2%
1991 11.8%
1992 8.5%
1993 11.6%
1994 -4.6%
1995 15.5%
1996 3.3%
1997 8.3%
During the ten years ending December 31, 1997, the highest and lowest
quarterly returns were 6.05% and -4.69%, respectively for the quarters
ending 3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly
returns do not reflect sales charges, which would reduce returns, while the
1-, 5- and 10-year average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
Class 1 Year 5 Year 10 Year
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 3.74% 5.67% 7.72%
Class A (NAV) 8.26% 6.57% 8.18%
Class B 3.48% 5.80% 7.71%
Class C 7.69% 6.00% 7.59%
Class R 8.46% 6.61% 8.20%
-----------------------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 8.44% 6.85% 8.24%
</TABLE>
12 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- -------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- --------------------------------------------------------------------
Management Fees .53% .53% .53% .53%
12b-1 Distribution and Service Fees .20% .95% .75% --%
Other Expenses .12% .13% .12% .12%
Total Operating Expenses .85% 1.61% 1.40% .65%
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you invest
$10,000 in the fund for the time period indicated and then either redeem or do
not redeem your shares at the end of a period. The example assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 503 $ 559 $ 143 $ 66 $ 503 $ 164 $ 143 $ 66
3 Years $ 680 $ 827 $ 443 $208 $ 680 $ 508 $ 443 $208
5 Years $ 872 $ 991 $ 766 $362 $ 872 $ 876 $ 766 $362
10 Years $1,425 $1,708 $1,680 $810 $1,425 $1,708 $1,680 $810
</TABLE>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
Weighted Average Maturity 18.9 years
Weighted Average Duration 6.4 years
Weighted Average Credit Quality AA
Number of Issues 273
Credit Quality
AAA 68%
AA 7%
A 12%
BBB/NR 13%
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Water/Sewer (7%)
Other (29%)
U.S. Guaranteed (20%)
Tax Obligation-General (18%)
Health Care (15%)
Utilities (11%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in fees between the classes (see "What are the
Costs of Investing?"). The year-to-date return as of 6/30/98 was 2.53%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper Ohio Municipal Debt
Index, a managed index that represents the average annualized returns of the
30 largest funds in the Lipper Ohio Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales
charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 13
<PAGE>
NUVEEN FLAGSHIP WISCONSIN MUNICIPAL BOND FUND
Fund Overview
INVESTMENT OBJECTIVE
The investment objective of the fund is to provide you with as high a level
of current interest income exempt from regular federal income taxes as is
consistent with preservation of capital.
HOW THE FUND PURSUES ITS OBJECTIVE
The fund purchases only quality municipal bonds that are rated investment
grade (AAA/Aaa to BBB/Baa) at the time of purchase by independent ratings
agencies. The fund may buy non-rated municipal bonds if the fund's investment
adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The principal risks of investing in the fund are interest rate and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal
bond will be unable to make interest and principal payments. In general,
lower rated bonds carry greater credit risk. The fund may bear additional
risk because it invests primarily in Wisconsin bonds. The fund is
non-diversified, and may invest more of its assets in a single issuer than a
diversified fund. Greater concentration may increase risk. As with any mutual
fund investment, loss of money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
IS THIS FUND RIGHT FOR YOU?
The fund may be a suitable investment for you if you seek 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.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How The Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp, Nuveen's Premier
Adviser(SM) for municipal bond investing. The chart and table below
illustrate annual fund returns for each of the past three years as well as
annualized fund, peer group and market benchmark returns for the one-year,
and inception periods ending December 31, 1997. This information is intended
to help you assess the variability of fund returns over the past three years
(and consequently, the potential rewards and risks of a fund investment).
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1995 17.2%
1996 2.5%
1997 9.4%
From inception in June 1994 to December 31, 1997, the highest and lowest
quarterly returns were 6.57% and -2.64%, respectively for the quarters ending
3/31/95 and 3/31/96. The bar chart and highest/lowest quarterly returns do
not reflect sales charges, which would reduce returns, while the average
annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
Class 1 Year Inception
-----------------------------------------------------
<S> <C> <C>
Class A (Offer) 4.81% 6.01%
Class A (NAV) 9.40% 7.32%
Class B 4.94% 6.04%
Class C 9.05% 6.95%
Class R 9.87% 7.45%
-----------------------------------------------------
LB Market
Benchmark/2/ 9.19% 8.47%
Lipper
Peer Group/3/ 8.45% 7.44%
</TABLE>
14 Section 1 The Funds
<PAGE>
WHAT ARE THE COSTS OF INVESTING?
SHAREHOLDER TRANSACTION EXPENSES/4/
PAID DIRECTLY FROM YOUR INVESTMENT
Share Class A B C R/5/
- -------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
ANNUAL FUND OPERATING EXPENSES/11/
PAID FROM FUND ASSETS
<TABLE>
<CAPTION>
Share Class A B C R
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
12b-1 Distribution and Service Fees .20% .95% .75% --%
Other Expenses .61% .58% .59% .57%
Total Annual Fund Operating
Expenses-Gross+ 1.36% 2.08% 1894% 1.12%
+After Expense Reimbursements
Reimbursements (.81%) (.78%) (.78%) (.80%)
Total Annual Fund Operating Expenses-Net .55% 1325% 1.11% .32%
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 553 $ 605 $ 192 $ 114 $ 553 $ 211 $ 192 $ 114
3 Years $ 833 $ 966 $ 594 $ 356 $ 833 $ 652 $ 594 $ 356
5 Years $1,133 $1,231 $1,021 $ 617 $1,133 $1,119 $1,021 $ 617
10 Years $1,986 $2,226 $2,212 $1,363 $1,986 $2,226 $2,212 $1,363
</TABLE>
HOW THE FUND IS INVESTED (AS OF 5/31/98)
PORTFOLIO STATISTICS
Weighted Average Maturity 22.2 years
Weighted Average Duration 8.6 years
Weighted Average Credit Quality A+
Number of Issues 60
CREDIT QUALITY
AAA 49%
AA 24%
A 17%
BBB/NR 10%
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Health Care (6%)
Tax Obligation-Limited (46%)
Other (19%)
Long-Term Care (10%)
Housing-Multifamily (10%)
Utilities (9%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in fees between the classes (see "What are the
Costs of Investing?"). The year-to-date return as of 6/30/98 was 3.03%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Other States Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales
charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced sales charges apply to purchases of $50,000 or more. See "How You
Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 15
<PAGE>
Section 2 How We Manage Your Money
To help you understand the funds better, this section includes a
detailed discussion of our investment and risk management
strategies. For a more complete discussion of these matters,
please consult the Statement of Additional Information .
Who Manages the Funds
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, IL 60606,
("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, managing the funds' business affairs and
providing certain clerical, bookkeeping and other administrative
services. Nuveen Advisory serves as investment adviser to
investment portfolios with more than $35 billion in municipal
assets under management.
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 portfolio managers of Nuveen
Advisory and meets regularly to review economic conditions, the
outlook for the financial markets in general and the status of
the municipal markets in particular. Day-to-day operation of each
fund and the execution of its specific investment strategies is
the responsibility of the designated portfolio manager described
below.
Michael S. Davern has been the portfolio manager for the Kansas
and 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 adviser
in 1991, and subsequently became a Vice President of Nuveen
Advisory upon th e acquisition of Flagship Resources Inc. by The
John Nuveen Company in January 1997. Mr. Davern currently manages
investments for seventeen Nuveen-sponsored investment companies,
including the Arizona, Colorado, and Louisiana Funds. Thomas J.
O'Shaughnessy has been the portfolio manager for the Kentucky
Funds since July 1998, and has been a portfolio manager for
Nuveen Advisory since 1983. Mr. O'Shaughnessy currently manages
investments for fourteen Nuveen-sponsored investment companies,
including the Georgia, Florida, North Carolina, Pennsylvania, and
Tennessee Funds. J. Thomas Futrell has been the portfolio manager
for the Ohio Fund since July 1998. Mr. Futrell is a Chartered
Financial Analyst and has been a Vice President of Nuveen
Advisory since 1991. He currently manages investments for ten
Nuveen-sponsored investment companies, including the
Massachusetts, Massachusetts Insured, and New Jersey Funds.
16 Section 2 How We Manage Your Money
<PAGE>
Management Fees
For providing these services, Nuveen Advisory is paid an annual
management fee. The following schedule applies to each fund
described in this prospectus except the Kentucky Limited Term
Fund:
---------------------------------------------------------------
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
---------------------------------------------------------------
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
The following schedule applies to the Kentucky Limited Term
Fund:
---------------------------------------------------------------
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
---------------------------------------------------------------
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%
For the most recent fiscal year, the funds paid after expense
reimbursements the following management fees to Nuveen Advisory,
as a percentage of average net assets:
Nuveen Flagship Kansas Municipal Bond Fund .36%
Nuveen Flagship Kentucky Municipal Bond Fund .47%
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund .00%
Nuveen Flagship Michigan Municipal Bond Fund .54%
Nuveen Flagship Missouri Municipal Bond Fund .54%
Nuveen Flagship Ohio Municipal Bond Fund .53%
Nuveen Flagship Wisconsin Municipal Bond Fund .00%
What Securities We Invest In
Each fund's investment objective may not be changed without
shareholder approval. The following investment policies may be
changed by the Board of Trustees without shareholder approval
unless otherwise noted in this prospectus or the Statement of
Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest
that is exempt from regular federal, state and, in some cases,
local income tax. Income from these bonds may be subject to the
federal alternative minimum tax.
Section 2 How We Manage Your Money 17
<PAGE>
States, local governments and municipalities issue municipal
bonds to raise money for various public purposes such as building
public facilities, refinancing outstanding obligations and
financing general operating expenses.
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 these bonds where the issuer has a strong
incentive to continue making appropriations until maturity.
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either
rated investment grade (AAA/Aaa to BBB/Baa) by independent rating
agencies at the time of purchase or are non-rated but judged to
be investment grade by the funds' investment adviser. Each fund
will invest at least 80% of its net assets in investment-grade
quality municipal bonds. 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.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in
pursuit of its investment objective, but maintains under normal
market conditions an investment portfolio with an overall
weighted average maturity within a defined range. The 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.
Short-term Investments
Under normal market conditions, each fund may invest up to 20% of
net assets in short-term, high quality municipal bonds. See "How
We Manage Risk -- Hedging and Other Defensive Investment
Strategies." The funds may invest in short-term, high quality
taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. For more information
on eligible short-term investments, see the Statement of
Additional Information.
Delayed Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-
delivery basis, paying for or taking delivery of the securities
at a later date, normally within 15 to 45 days of the trade. Such
transactions involve an element of risk because the value of the
security to be purchased may decline before the settlement date.
How We Select Investments
Nuveen Advisory selects municipal obligations for the funds based
upon its assessment of a bond's relative value in terms of
current yield, price, credit quality and future prospects. Nuveen
Advisory is supported by
18 Section 2 How We Manage Your Money
<PAGE>
Nuveen's award-winning team of specialized research analysts who
review municipal securities available for purchase, monitor the
continued creditworthiness of each fund's municipal investments,
and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to identify
municipal obligations with favorable characteristics we believe
are not yet recognized by the market. We then select those
higher-yielding and undervalued municipal obligations that we
believe represent the most attractive values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course
of its investment 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 or reduce market risk.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund --
even the most conservative -- involves risk, including the risk
that you may receive little or no return on your investment or
even that you may lose part or all of your investment. Therefore,
before investing you should consider carefully the following
risks that you assume when you invest in these funds. Because of
these and other risks, you should consider an investment in any
of these funds to be a long-term investment.
Interest rate risk: the risk that the value of the fund's
portfolio will decline because of rising market interest rates
(bond prices move in the opposite direction of interest rates).
The longer the average maturity (duration) of a fund's portfolio,
the greater its interest rate risk. See "What Securities We
Invest In--Portfolio Maturity."
Income risk: the risk that the income from the fund's portfolio
will decline because of falling market interest rates. This can
result when the fund invests the proceeds from new share sales,
or from matured or called bonds, at market interest rates that
are below the portfolio's current earnings rate.
Credit risk: the risk that an issuer of a bond is unable to meet
its obligation to make interest and principal payments due to
changing market conditions. Generally, lower rated bonds provide
higher current income but are considered to carry greater credit
risk than higher rated bonds. Year 2000 issues may affect the
ability of municipal issuers to meet their payment obligations to
their bond holders, and may adversely affect their credit
ratings.
State Concentration risk: because the funds primarily purchase
municipal bonds from a specific state, each fund also bears
investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in
that state and therefore the value of the funds' investment
portfolio. See "Appendix--Additional State Information." These
risks may be greater for the Kansas, Kentucky Limited, Missouri
and
Section 2 How We Manage Your Money 19
<PAGE>
Wisconsin Funds, which as "non-diversified" funds may concentrate
their investment in municipal bonds of certain issuers to a
greater extent than the Kentucky, Michigan and Ohio Funds
described in this prospectus, which are diversified funds.
Inflation risk: the risk that the value of assets or income from
investments will be less in the future as inflation decreases the
value of money. As inflation increases, the value of the funds'
assets can decline as can the value of the funds' distributions.
How We Manage Risk
In pursuit of its investment objective, each fund assumes
investment risk, chiefly in the form of interest rate and credit
risk. The funds limit this investment risk generally by
restricting the type and maturities of municipal bonds they
purchase, and by diversifying their investment portfolios
geographically as well as across different industry sectors.
Investment Limitations
The funds have adopted certain investment limitations (based on
total assets) that cannot be changed without shareholder approval
and are designed to limit your investment risk and maintain
portfolio diversification. Each fund may not have more than:
. 25% in any one industry 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 may
not have more than:
. 5% in securities in any one issuer (except for U.S.
Government securities or for 25% of the fund's total
assets).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-
term investments as a temporary defensive measure in response to
adverse market conditions, or to keep cash on hand fully
invested. During these periods, the weighted average maturity of
a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
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.
20 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
You can choose from four classes of fund shares, each with a
different combination of sales charges, fees, eligibility
requirements and other features. Your financial adviser can help
you determine which class is best for you. We offer a number of
features for your convenience. Please see the Statement of
Additional Information for further details.
How to Choose a Share Class
In deciding whether to purchase Class A, Class B, Class C or
Class R shares, you should consider:
. the amount of your purchase;
. any current holdings of fund shares;
. how long you expect to hold the shares;
. the amount of any up-front sales charge;
. whether a contingent deferred sales charge (CDSC) would
apply upon redemption;
. the amount of any distribution or service fees that you may
incur while you own the shares;
. whether you will be reinvesting income or capital gain
distributions in additional shares;
. whether you qualify for a sales charge waiver or reduction.
For a summary of the charges and expenses for each class, please
see "What are the Costs of Investing?"
Class A Shares
You can buy Class A shares at the offering price, which is the
net asset value per share plus an up-front sales charge. You may
qualify for a reduced sales charge, or the sales charge may be
waived, as described in "How to Reduce Your Sales Charge." Class
A shares are also subject to an annual service fee of .20% which
compensates your financial adviser for providing ongoing service
to you. The up-front Class A sales charge for all funds described
in the prospectus except the Kentucky Limited Term Fund is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
$50,000 but less than $100,000 4.00% 4.18% 3.50%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
$1,000,000 and over --(1) -- 1.00%(1)
</TABLE>
Section 3 How You Can Buy and Sell Shares 21
<PAGE>
The following Class A sales charges and commissions apply to the
Kentucky Limited Term Fund:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 2.50% 2.56% 2.00%
$50,000 but less than $100,000 2.00% 2.04% 1.60%
$100,000 but less than $250,000 1.50% 1.52% 1.20%
$250,000 but less than $500,000 1.25% 1.27% 1.00%
$500,000 but less than $1,000,000 0.75% 0.76% 0.60%
$1,000,000 and over --(1) -- 0.50%(1)
</TABLE>
(1) You can buy $1 million or more of Class A shares at net asset
value without an up-front sales charge. Nuveen pays authorized
dealers of record on these share purchases a sales commission of
1.00% (0.50% for the Kentucky Limited Term fund) of the first
$2.5 million, plus .50% of the next $2.5 million, plus .25% of
the amount over $5.0 million. If you redeem your shares within 18
months of purchase, you may have to pay a CDSC of 1% (0.50% for
the Kentucky Limited Term fund) of either your purchase price or
your redemption proceeds, whichever is lower. You do not have to
pay this CDSC if your financial adviser has made arrangements
with Nuveen and agrees to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the
net asset value per share without any up-front sales charge so
that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of
.95% of average daily assets. The annual .20% service fee
compensates your financial adviser for providing ongoing service
to you. The annual .75% distribution fee compensates Nuveen for
paying your financial adviser a 4% up-front sales commission,
which includes an advance of the first year's service fee. If you
sell your shares within six years of purchase, you will have to
pay a CDSC based on either your purchase price or what you sell
your shares for, whichever amount is lower, according to the
following schedule. You do not pay a CDSC on any Class B shares
you purchase by reinvesting dividends. The Kentucky Limited Term
Fund does not currently offer B shares.
Class B shares automatically convert to Class A shares eight
years after you buy them so that the distribution fees you pay
over the life of your investment are limited. You will continue
to pay an annual service fee on any converted Class B shares.
-----------------------------------------------------------------
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
-----------------------------------------------------------------
CDSC 5% 4% 4% 3% 2% 1%
Class C Shares
You can buy Class C shares at the offering price, which is the
net asset value per share without any up-front sales charge so
that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of 1%.
The annual .20% service fee compensates your financial adviser
for providing ongoing service to you. The annual .55% (0.35% for
the Kentucky Limited Term Fund) distribution fee reimburses
Nuveen for paying your financial adviser an ongoing sales
commission. Nuveen advances the first year's service and
distribution fees. If you sell your shares within 12 months of
purchase, you may have to
22 Section 3 How You Can Buy and Sell Shares
<PAGE>
pay a 1% CDSC based on either your purchase price or what you
sell your shares for, whichever amount is lower.
Class R Shares
Under limited circumstances, you may purchase Class R Shares at
the offering price, which is the net asset value on the day of
purchase. In order to qualify, you must be eligible under one of
the programs described in "How to Reduce Your Sales Charge"
(below) or meet certain other purchase size criteria. Class R
Shares are not subject to sales charges or ongoing service or
distribution fees. Class R shares have lower ongoing expenses
than the other classes.
How to Reduce Your Sales Charge
We offer a number of ways to reduce or eliminate the up-front
sales charge on Class A shares or to qualify to purchase Class R
shares.
<TABLE>
<CAPTION>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
<S> <C> <C>
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and directors of
. Letter of intent reinvestment Nuveen or employees of authorized dealers
. Group purchase . Purchases using redemptions . Bank trust departments
from unrelated funds
. Retirement plans
. Certain employees and directors
of Nuveen or employees of
authorized dealers
. Bank trust departments
</TABLE>
In addition, Class A shares at net asset value and Class R shares
may be purchased through registered investment advisers,
certified financial planners and registered broker-dealers who
charge asset-based or comprehensive "wrap" fees for their
services. Please refer to the Statement of Additional Information
for detailed program descriptions and eligibility requirements.
Additional information is available from your financial adviser
or by calling (800) 257-8787. Your financial adviser can also
help you prepare any necessary application forms. You or your
financial adviser must notify Nuveen at the time of each purchase
if you are eligible for any of these programs. The funds may
modify or discontinue these programs at any time.
How to Buy Shares
You may open an account with $3,000 per fund share class and make
additional investments at any time with as little as $50. There
is no minimum if you are reinvesting Nuveen Defined Portfolio
distributions. The share price you pay will depend on when Nuveen
receives your order. Orders received before the close of trading
on a business day will receive that day's closing share price,
otherwise you will receive the next business day's price. A
business day is any day the New York Stock Exchange is open for
business and usually ends at 4 p.m. New York time when the
Exchange closes.
Section 3 How You Can Buy and Sell Shares 23
<PAGE>
Through a Financial Adviser
You may buy shares through your financial adviser, who can handle
all the details for you, including opening a new account.
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 help assure your
investments continue to meet your needs as circumstances change.
Financial advisers are paid either from fund sales charges and
fees or by charging you a separate fee in lieu of a sales charge
for ongoing investment advice and services. If you do not have a
financial adviser, call (800) 257-8787 and Nuveen can refer you
to one in your area.
By Mail
You may open an account and buy shares by mail by completing the
enclosed application and mailing it along with your check to:
Nuveen Investor Services, P.O. Box 5186, Bowling Green Station,
New York, NY 10274-5186.
Systematic Investing
Once you have established a fund account, systematic investing
allows you to make regular investments through automatic
deductions from your bank account (simply complete the
appropriate section of the account application form) or directly
from your paycheck. To invest directly from your paycheck,
contact your financial adviser or call Nuveen at (800) 257-8787.
Systematic investing may also make you eligible for reduced sales
charges.
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.
[GRAPH APPEARS HERE]
24 Section 3 How You Can Buy and Sell Shares
<PAGE>
One of the benefits of systematic investing is dollar cost
averaging. Because you regularly invest a fixed amount of money
over a period of years regardless of the share price, you buy
more shares when the price is low and fewer shares when the price
is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same
period. To be effective, dollar cost averaging requires that you
invest over a long period of time, and does not assure that you
will profit.
Systematic Investment Plan
You can make regular investments of $50 or more per month by
authorizing us to draw preauthorized checks on your bank account.
You can stop the withdrawals at any time. There is no charge for
this plan.
Payroll Direct Deposit Plan
You can, with your employer's consent, make regular investments
of $25 or more per pay period (meeting the monthly minimum of
$50) by authorizing your employer to deduct this amount
automatically from your paycheck. You can stop the deductions at
any time. There is no charge for this plan.
Systematic Withdrawal
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,
semi-annually or 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 or Account Update Form to participate in
the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to
make concurrent purchases of Class A, B or C shares because you
may unnecessarily pay a sales charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer
you the following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered
account at any time for the same class of another Nuveen mutual
fund available in your state. Your exchange must meet the minimum
purchase requirements of the fund into which you are exchanging.
Because an exchange is treated for tax purposes as a concurrent
sale and purchase, and any gain may be subject to tax, you should
consult your tax adviser about the tax consequences of any
contemplated exchange.
The exchange privilege is not intended to allow you to use a fund
for short-term trading. Because excessive exchanges may interfere
with portfolio management, raise fund operating expenses or
otherwise have
Section 3 How You Can Buy and Sell Shares 25
<PAGE>
an adverse effect on other shareholders, each fund reserves the
right to revise or suspend the exchange privilege, limit the
amount or number of exchanges, or reject any exchange.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your
redemption proceeds up to one year later without incurring any
additional charges. You may only reinvest into the same share
class you redeemed. If you paid a CDSC, we will refund your CDSC
and reinstate your holding period. You may use this reinstatement
privilege only once for any redemption.
Fund Direct
You may link your fund account to your bank account and transfer
money electronically between these accounts and perform a variety
of account transactions, including buying shares by telephone and
systematic investment. You may also have dividends,
distributions, redemption payments or Systematic Withdrawals sent
directly to your bank account.
Your financial adviser can help you complete the forms for these
services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
How to Sell Shares
You may use one of the following ways to sell (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 properly completed redemption request. Your redemption
request must be received before the close of trading for you to
receive that day's price. While the funds do not charge a
redemption fee, you may be assessed a CDSC, if applicable. 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 appreciation, 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.
Through Your Financial Adviser
You may sell your shares through your financial adviser who can
prepare the necessary documentation. Your financial adviser may
charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can
redeem your shares by telephone up to $50,000. You may not redeem
by telephone shares held in certificate form. Checks will be
issued only to the shareholder of record and mailed to the
address of record. If you have established electronic funds
transfer privileges, you may have redemption proceeds transferred
electronically to your bank account. We will normally mail your
check the next business day. Nuveen and Chase Global Funds
Services will be liable for losses resulting from unauthorized
telephone redemptions only if they do not follow reasonable
procedures designed to
26 Section 3 How You Can Buy and Sell Shares
<PAGE>
verify the identity of the caller. You should immediately verify
your trade confirmations when you receive them.
By Mail
You can sell your shares at any time by sending a written request
to the appropriate fund, Nuveen Investor Services, P.O. Box 5186,
Bowling Green Station, New York, NY 10274-5186. 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 to whom you want your redemption
proceeds paid (if other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if
other than the address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
We will normally mail your check the next business day, but in no
event more than seven days after we receive your request. If you
purchased your shares by check, your redemption proceeds will not
be mailed until your check has cleared. Guaranteed signatures are
required if you are redeeming more than $50,000, you want the
check payable to someone other than the shareholder of record or
you want the check sent to another address (or the address of
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 a fund. A
notary public cannot provide a signature guarantee.
AN IMPORTANT NOTE ABOUT INVOLUNTARY REDEMPTION.
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
NUVEEN DEFINED PORTFOLIO REINVESTMENT ACCOUNT. YOU WILL NOT BE ASSESSED A CDSC
ON AN INVOLUNTARY REDEMPTION.
Section 3 How You Can Buy and Sell Shares 27
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds,
this section includes important details about how the funds make
distributions to shareholders. We discuss some other fund policies, as
well.
Distributions and Taxes
The funds pay tax-free dividends monthly and any taxable capital gains
or other taxable distributions once a year in December. The funds
declare dividends monthly to shareholders of record as of the ninth of
each month, payable the first business day of the following
month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund
shares unless you request otherwise. You may request to have your
dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your
address of record or reinvested in shares of another Nuveen mutual
fund. For further information, contact your financial adviser or call
Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest in municipal bonds, the regular monthly
dividends you receive will be exempt from regular federal income tax.
All or a portion of these dividends, however, may be subject to state
and local taxes or 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.
Early in each year, you will receive a statement detailing the amount
and nature of all dividends and capital gains, including any
percentage of your fund dividends attributable to municipal
obligations, that you were paid during the prior year. 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. If you receive social security
benefits, you should be aware that any tax-free income is taken into
account in calculating the amount of these benefits that may be
subject to federal income tax.
28 Section 4 General Information
<PAGE>
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be
affected by current tax law.
Please note that if you do not furnish us with your correct Social
Security number or employer identification number, federal law
requires us to withhold federal income tax from your distributions and
redemption proceeds at a rate of 31%.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
Buying fund shares shortly before the record date for a taxable
dividend is commonly known as "buying the dividend." The entire
dividend may be taxable to you even though a portion of the dividend
effectively represents a return of your purchase price. Similarly, if
you sell or exchange fund shares shortly before the record date for a
tax-exempt dividend, a portion of the price you receive may be treated
as a taxable capital gain even though it reflects tax-free income
earned but not yet distributed by the fund.
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
TAX-FREE YIELD
Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00%
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%
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.
Distribution and Service Plans
John Nuveen & 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 under the Investment Company Act of 1940. (See
"How to Choose a Share Class" for a description of the distribution
and service fees paid under this plan.)
Nuveen receives the distribution fee for Class B and Class C shares
primarily for providing compensation to authorized dealers, including
Nuveen, in connection with the distribution of shares. Nuveen uses the
service fee for Class A, Class B, and Class C shares to compensate
authorized dealers, including Nuveen, for providing account services
to
Section 4 General Information 29
<PAGE>
shareholders. These services may include establishing and maintaining
shareholder accounts, answering shareholder inquiries, and providing
other personal services to shareholders. These fees also compensate
Nuveen for other expenses, including printing and distributing
prospectuses to persons other than shareholders, and preparing,
printing, and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of shares.
Because these fees are paid out of the funds' assets on an on-going
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Net Asset Value
The price you pay for your shares is based on the fund's net asset
value per share which is determined as of the close of trading
(normally 4:00 p.m. eastern time) on each day the New York Stock
Exchange is open for business. Net asset value is calculated for each
class by taking the fair value of the class' total assets, including
interest or dividends accrued but not yet collected, less all
liabilities, and dividing by the total number of shares outstanding.
The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of
Trustees or its delegate.
In determining net asset value, expenses are accrued and applied daily
and securities and other assets for which market quotations are
available are valued at market value. The prices of municipal bonds
are provided by a pricing service and based on the mean between the
bid and asked price. When price quotes are not readily available
(which is usually the case for municipal securities), the pricing
service establishes fair market value based on prices of comparable
municipal bonds.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank,
4 New York Plaza, New York, NY 10004-2413. Chase also provides certain
accounting services to the funds. The funds' transfer, shareholder
services and dividend paying agent, Chase Global Funds Services
Company, P.O. Box 5186, New York, NY 10274-5186, performs bookkeeping,
data processing and administrative services for the maintenance of
shareholder accounts.
Nuveen Advisory and Chase Global Funds Services each rely on computer
systems to manage the funds' investments, process shareholder
transactions and provide shareholder account maintenance. Because of
the way computers historically have stored dates, some of these
systems currently may not be able to correctly process activity
occurring in the year 2000. Nuveen Advisory is working with the funds'
service providers to adapt their systems to address this "Year 2000"
issue. Nuveen advisory and the funds expect, but there can be no
absolute assurance, that the necessary work will be completed on a
timely basis.
30 Section 4 General Information
<PAGE>
Section 5 Financial Highlights
The following tables are intended to help you better
understand each fund's recent past performance. The
tables are excerpted from each fund's latest financial
statements audited by Arthur Andersen LLP. You may
obtain the complete statements along with the auditor's
report by requesting from Nuveen a free copy of the
fund's latest annual shareholder report.
Kansas Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
-------------------------------------- ------------------------------
Class
(Inception
Date)
Net
Realized
and Ending Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (1/92)
1998 $10.19 $.52 $ .41 $.93 $(.52) $ -- $(.52) $10.60 9.32% $102,217
1997 9.83 .53 .36 .89 (.53) -- (.53) 10.19 9.21 95,891
1996 10.01 .54 (.18) .36 (.54) -- (.54) 9.83 3.63 96,694
1995 9.83 .55 .18 .73 (.55) -- (.55) 10.01 7.80 83,683
1994 10.38 .56 (.46) .10 (.58) (.07)+ (.65) 9.83 .62 80,060
Class B (2/97)
1998 10.13 .44 .41 .85 (.44) -- (.44) 10.54 8.57 3,238
1997(c) 10.23 .13 (.12) .01 (.11) -- (.11) 10.13 .13 605
Class C (2/97)
1998 10.21 .47 .42 .89 (.47) -- (.47) 10.63 8.85 1,716
1997(c) 10.18 .15 .04 .19 (.16) -- (.16) 10.21 1.85 91
Class R (2/97)
1998 10.22 .56 .43 .99 (.55) -- (.55) 10.66 9.84 12
1997(c) 10.20 .18 (.02) .16 (.14) -- (.14) 10.22 1.55 --
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Expenses Income
Year to Average to Average Portfolio
Ending Net Net Turnover
May 31, Assets(a) Assets(a) Rate
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Class A (1/92)
1998 .71% 4.98% 13%
1997 .68 5.24 40
1996 .57 5.31 55
1995 .54 5.67 72
1994 .26 5.37 93
Class B (2/97)
1998 1.45 4.22 13
1997(c) 1.27* 4.62* 40
Class C (2/97)
1998 1.24 4.41 13
1997(c) 1.09* 4.85* 40
Class R (2/97)
1998 .51 5.16 13
1997(c) -- 6.61* 40
- ----------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Kansas.
+ The amounts shown reflect distributions in excess of capital gains of $.05
per share.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total Returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 31
<PAGE>
Kentucky Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
-------------------------------------- -----------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (5/87)
1998 $11.05 $.59 $ .38 $ .97 $(.58) $(.05) $(.63) $11.39 9.00% $451,338
1997 10.82 .60 .24 .84 (.60) (.01) (.61) 11.05 7.87 430,803
1996 10.99 .61 (.17) .44 (.61) -- (.61) 10.82 4.04 410,808
1995 10.65 .61 .35 .96 (.62) -- (.62) 10.99 9.42 394,457
1994 11.06 .62 (.40) .22 (.63) -- (.63) 10.65 1.90 369,495
Class B (2/97)
1998 11.06 .50 .38 .88 (.50) (.05) (.55) 11.39 8.10 4,273
1997(c) 11.07 .17 (.01) .16 (.17) -- (.17) 11.06 1.47 544
Class C (10/93)
1998 11.04 .52 .39 .91 (.52) (.05) (.57) 11.38 8.43 28,630
1997 10.81 .54 .24 .78 (.54) (.01) (.55) 11.04 7.29 24,468
1996 10.99 .54 (.17) .37 (.55) -- (.55) 10.81 3.38 20,647
1995 10.65 .55 .35 .90 (.56) -- (.56) 10.99 8.82 15,831
1994(c) 11.46 .36 (.81) (.45) (.36) -- (.36) 10.65 (5.88)* 11,172
Class R (2/97)
1998 11.03 .61 .39 1.00 (.61) (.05) (.66) 11.37 9.25 675
1997(c) 11.08 .20 (.04) .16 (.21) -- (.21) 11.03 1.42 455
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
--------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Expenses Income
Year to Average to Average Portfolio
Ending Net Net Turnover
May 31, Assets(a) Assets(a) Rate
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Class A (5/87)
1998 .77% 5.19% 12%
1997 .75 5.44 13
1996 .71 5.50 17
1995 .68 5.85 28
1994 .58 5.60 12
Class B (2/97)
1998 1.54 4.38 12
1997(c) 1.39* 4.76* 13
Class C (10/93)
1998 1.33 4.63 12
1997 1.29 4.89 13
1996 1.27 4.93 17
1995 1.23 5.27 28
1994(c) 1.08* 4.96* 12
Class R (2/97)
1998 .58 5.37 12
1997(c) .49* 5.77* 13
- ----------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997
reflects the financial highlights of Flagship Kentucky.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
32 Section 5 Financial Highlights
<PAGE>
Kentucky Limited Term Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
-------------------------------------- ---------------------------------
Class
(Inception
Date)
Net
Realized
and Ending Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/95)
1998 9.92 $.44 $ .20 $.64 $(.44) $-- $(.44) $10.12 6.53% 8,989
1997 9.79 .45 .12 .57 (.44) -- (.44) 9.92 5.96 8,870
1996(c) 9.75 .31 .04 .35 (.31) -- (.31) 9.79 5.45* 8,389
Class C (9/95)
1998 9.92 .40 .20 .60 (.40) -- (.40) 10.12 6.17 2,416
1997 9.79 .41 .13 .54 (.41) -- (.41) 9.92 5.64 2,144
1997(c) 9.75 .29 .04 .33 (.29) -- (.29) 9.79 5.12* 1,767
Class R (2/97)
1998 9.92 .46 .18 .64 (.46) -- (.46) 10.10 6.58 16
1997(c) 9.98 .15 (.10) .05 (.11) -- (.11) 9.92 .56 --
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
---------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Expenses Income
Year to Average to Average Portfolio
Ending Net Net Turnover
May 31, Assets(a) Assets(a) Rate
- ------------------------------------------------------------
<S> <C> <C> <C>
Class A (9/95)
1998 .66% 4.35% 36%
1997 .53 4.52 56
1996(c) .37* 4.37* 48
Class C (9/95)
1998 1.01 4.00 36
1997 .84 4.19 56
1997(c) .64* 4.12* 48
Class R (2/97)
1998 .46 4.54 36
1997(c) -- 5.73* 56
- ------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997 reflects
the financial highlights of Flagship Kentucky Limited Term.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 33
<PAGE>
Michigan Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------ ------------------------------------
Class
(Inception
Date)
Net
Realized
and Ending Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (6/85)
1998 $11.68 $.61 $ .42 $1.03 $(.61) $(.03) $(.64) $12.07 8.95% $263,632
1997 11.37 .62 .31 .93 (.61) (.01) (.62) 11.68 8.42 59,055
1996 11.59 .63 (.22) .41 (.63) -- (.63) 11.37 3.61 248,422
1995 11.31 .65 .28 .93 (.65) -- (.65) 11.59 8.57 250,380
1994 11.77 .66 (.43) .23 (.66) (.03) (.69) 11.31 1.87 242,993
Class B (2/97)
1998 11.70 .52 .42 .94 (.52) (.03) (.55) 12.09 8.12 3,839
1997(c) 11.66 .17 .04 .21 (.17) -- (.17) 11.70 1.86 380
Class C (6/93)
1998 11.66 .54 .43 .97 (.54) (.03) (.57) 12.06 8.45 45,690
1997 11.35 .55 .32 .87 (.55) (.01) (.56) 11.66 7.84 41,649
1996 11.58 .56 (.22) .34 (.57) -- (.57) 11.35 2.96 41,365
1995 11.30 .58 .28 .86 (.58) -- (.58) 11.58 7.98 37,122
1994(c) 11.86 .54 (.52) .02 (.55) (.03) (.58) 11.30 .19* 30,042
Class R (2/97)
1998 11.68 .63 .42 1.05 (.63) (.03) (.66) 12.07 9.16 26,904
1997(c) 11.66 .21 .02 .23 (.21) -- (.21) 11.68 2.01 26,211
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Expenses Income
Year to Average to Average Portfolio
Ending Net Net Turnover
May 31, Assets(a) Assets(a) Rate
- -------------------------------------------------------------
<S> <C> <C> <C>
Class A (6/85)
1998 .84% 5.11% 13%
1997 .85 5.33 34
1996 .82 5.42 54
1995 .80 5.82 37
1994 .75 5.56 28
Class B (2/97)
1998 1.59 4.32 13
1997(c) 1.59* 4.52* 34
Class C (6/93)
1998 1.39 4.56 13
1997 1.40 4.77 34
1996 1.37 4.86 54
1995 1.35 5.25 37
1994(c) 1.25* 4.89* 28
Class R (2/97)
1998 .64 5.31 13
1997(c) .65* 5.57* 34
- -------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Michigan.
+ The amount shown includes a distribution in excess of capital gains of $.02
per share.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
34 Section 5 Financial Highlights
<PAGE>
Missouri Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------ ----------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (8/87)
1998 $10.80 $.56 $ .43 $ .99 $(.56) $ -- $(.56) $11.23
1997 10.51 .56 .29 .85 (.56) -- (.56) 10.80
1996 10.72 .58 (.21) .37 (.58) -- (.58) 10.51
1995 10.50 .60 .22 .82 (.60) -- (.60) 10.72
1994 10.87 .61 (.34) .27 (.61) (.03)+ (.64) 10.50
Class B (2/97)
1998 10.80 .47 .44 .91 (.48) -- (.48) 11.23
1997(c) 10.81 .16 (.01) .15 (.16) -- (.16) 10.80
Class C (2/94)
1998 10.80 .50 .43 .93 (.50) -- (.50) 11.23
1997 10.50 .51 .29 .80 (.50) -- (.50) 10.80
1996 10.72 .51 (.21) .30 (.52) -- (.52) 10.50
1995 10.50 .53 .23 .76 (.54) -- (.54) 10.72
1994(c) 11.33 .02 (.83) (.81) (.02) -- (.02) 10.50
Class R (2/97)
1998 10.80 .58 .43 1.01 (.58) -- (.58) 11.23
1997(c) 10.90 .17 (.12) .05 (.15) -- (.15) 10.80
<CAPTION>
Ratios/Supplemental Data
--------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Total Assets Net Net Turnover
May 31, Return(b) (000) Assets(a) Assets(a) Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (8/87)
1998 9.32% $233,456 .87% 5.02% 19%
1997 8.29 218,924 .86 5.27 41
1996 3.51 212,717 .80 5.37 38
1995 8.19 205,089 .67 5.78 40
1994 2.42 187,347 .62 5.52 34
Class B (2/97)
1998 8.53 1,677 1.62 4.25 19
1997(c) 1.40 454 1.45* 4.59* 41
Class C (2/94)
1998 8.74 11,253 1.42 4.47 19
1997 7.80 7,968 1.40 4.72 41
1996 2.84 6,220 1.35 4.79 38
1995 7.60 3,989 1.20 5.19 40
1994(c) (17.62)* 1,877 1.15* 4.44* 34
Class R (2/97)
1998 9.56 41 .67 5.22 19
1997(c) .43 34 .55* 5.65* 41
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Missouri.
+ The amounts shown reflect distributions in excess of capital gains of $.01
per share for Missouri.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total Returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 35
<PAGE>
<TABLE>
<CAPTION>
Ohio Municipal Bond Fund**
Investment Operations Less Distributions
------------------------------ ----------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (6/85)
1998 $11.41 $.60 $ .38 $ .98 $(.60) $(.05) $(.65) $11.74
1997 11.21 .61 .20 .81 (.61) -- (.61) 11.41
1996 11.43 .62 (.21) .41 (.63) -- (.63) 11.21
1995 11.21 .64 .22 .86 (.64) -- (.64) 11.43
1994 11.59 .64 (.38) .26 (.64) -- (.64) 11.21
Class B (2/97)
1998 11.41 .51 .38 .89 (.52) (.05) (.57) 11.73
1997(c) 11.42 .17 (.01) .16 (.17) -- (.17) 11.41
Class C (8/93)
1998 11.41 .54 .37 .91 (.54) (.05) (.59) 11.73
1997 11.21 .55 .20 .75 (.55) -- (.55) 11.41
1996 11.43 .55 (.21) .34 (.56) -- (.56) 11.21
1995 11.20 .57 .23 .80 (.57) -- (.57) 11.43
1994(c) 11.69 .46 (.49) (.03) (.46) -- (.46) 11.20
Class R (2/97)
1998 11.41 .62 .37 .99 (.62) (.05) (.67) 11.73
1997(c) 11.42 .21 (.01) .20 (.21) -- (.21) 11.41
<CAPTION>
Ratios/Supplemental Data
--------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Total Assets Net Net Turnover
May 31, Return(b) (000) Assets(a) Assets(a) Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (6/85)
1998 8.76% $472,821 .85% 5.15% 15%
1997 7.38 463,253 .89 5.39 17
1996 3.59 443,077 .92 5.41 31
1995 7.99 445,566 .95 5.78 31
1994 2.24 445,272 .93 5.48 9
Class B (2/97)
1998 7.89 7,422 1.61 4.39 15
1997(c) 1.45 1,649 1.60* 4.63* 17
Class C (8/93)
1998 8.12 47,036 1.40 4.60 15
1997 6.80 40,713 1.44 4.84 17
1996 3.03 34,939 1.47 4.84 31
1995 7.50 28,461 1.50 5.21 31
1994(c) (.17)* 25,674 1.46* 4.79* 9
Class R (2/97)
1998 8.89 162,220 .65 5.35 15
1997(c) 1.77 160,312 .65* 5.65* 17
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Ohio.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total Returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
36 Section 5 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
Wisconsin Municipal Bond Fund**
Investment Operations Less Distributions
------------------------------------- -----------------------------
Class
(Inception
Date)
Net
Realized
and Ending Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (6/94)
1998 $9.80 $.49 $ .49 $ .98 $(.50) $ -- $(.50) $10.28 10.19% $24,313
1997 9.61 .51 .19 .70 (.51) -- (.51) 9.80 7.40 14,004
1996 9.79 .50 (.18) .32 (.50) -- (.50) 9.61 3.35 12,370
1995(c) 9.58 .49 .21 .70 (.49) -- (.49) 9.79 7.36* 8,278
Class B (2/97)
1998 9.82 .42 .49 .91 (.42) -- (.42) 10.31 9.46 1,877
1997(c) 9.87 .12 (.06) .06 (.11) -- (.11) 9.82 .60 20
Class C (2/97)
1998 9.82 .44 .49 .93 (.45) -- (.45) 10.30 9.59 1,366
1997(c) 9.87 .13 (.07) .06 (.11) -- (.11) 9.82 .65 76
Class R (2/97)
1998 9.82 .53 .48 1.01 (.52) -- (.52) 10.31 10.47 45
1997(c) 9.87 .15 (.07) .08 (.13) -- (.13) 9.82 .84 40
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Expenses Income
Year to Average to Average Portfolio
Ending Net Net Turnover
May 31, Assets(a) Assets(a) Rate
- --------------------------------------------------------------------
<S> <C> <C> <C>
Class A (6/94)
1998 .55% 4.87% 10%
1997 .51 5.20 42
1996 .64 5.02 47
1995(c) .39* 5.25* 52
Class B (2/97)
1998 1.32 4.04 10
1997(c) .94* 4.81* 42
Class C (2/97)
1998 1.11 4.25 10
1997(c) .69* 4.91* 42
Class R (2/97)
1998 .32 5.08 10
1997(c) -- 5.67* 42
- ---------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Wisconsin.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total Returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 37
<PAGE>
Appendix Additional State Information
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 discussion of special state considerations
was obtained from official offering statements of these issuers and
has not been independently verified by the funds. The discussion
includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should
consult your tax adviser about the state tax consequences of a
specific fund investment. See the Statement of Additional Information
for further information.
KANSAS
Growth in the State's trade, services and manufacturing sectors has
decreased the historical dominance of agriculture in the State
economy. Economic performance has been improving, due largely to gains
in aircraft manufacturing and recovery in agriculture. Personal income
grew at 5.4% in 1997 to $24,379, about 95% of the national median.
The State's unemployment rate dropped to 3.5% in June 1998 from its
peak of 5.5% in 1993.
The Kansas State Treasury does not issue general obligation debt. The
State instead relies on revenue and lease financing through the
Department of Transportation (KDOT) and the Development Finance
Authority (KDFA). KDFA provides financing for various public purpose
projects including prison construction, state offices, energy
conservation and university facilities. The KDOT bonds are rated
Aa2/AA+/AA by Moody's, Standard & Poor's, and Fitch respectively. KDFA
ratings vary and when not insured are generally rated A or better by
the major rating agencies.
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. 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.
38 Appendix
<PAGE>
KENTUCKY
Growth in Kentucky's economy surpassed national growth rates in many
areas during the 1990's in part due to its lower cost of living and
aggressive business recruitment. The Commonwealth'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.
Kentucky's average unemployment rate in June 1998 was 4.4%, compared
to the national average of 4.5% in June 1998 and the Commonwealth's
5.5% average in June 1997. Per capita income in 1997 was $20,657,
approximately 81% of national average.
In the past, the Commonwealth has experienced difficulty balancing its
budget, but recent economic growth and moderate debt levels improve
the Commonwealth's financial outlook. Although Kentucky has not issued
general obligation debt since 1965, the Commonwealth actively issues
appropriation-secured debt from several agencies, including the
Kentucky Turnpike Authority, the Kentucky Infrastructure Authority,
and the Kentucky Schools Facilities Construction Commission. Bonds
secured by Commonwealth appropriations generally receive ratings of
"A" or higher from the major rating services. All of Kentucky's
general obligation debt matured in 1995. Like the Commonwealth,
Kentucky Municipalities have not issued general obligation debt,
relying instead on appropriation-secured bonds.
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' shares and realize a capital gain on the transaction. You will
not be subject to the Kentucky intangible property tax on the portion
of your Kentucky Funds' shares that is attributable to Kentucky
municipal bonds or U.S. government securities.
If you are employed in Louisville or Jefferson County, you will not be
subject to local occupational license fees on income earned from the
Kentucky Funds. If you are employed elsewhere in Kentucky, you
generally will not be subject to local occupational license fees. The
treatment of corporate shareholders is similar to that described
above, except that they may be subject to local occupational license
fees.
MICHIGAN
Michigan's economy has improved significantly since the 1980's. The
State's unemployment rate was 3.6% in June 1998, compared to national
average of 4.5%. Per capita income has increased each year over the
past decade, and was $25,560 in 1997. Population has remained stable
in the State, increasing by a negligible amount annually. The
manufacturing industry and the presence of the "Big 3" automobile
manufacturers are the primary influence in the economy. Despite recent
strikes and lower automobile sales and profits, the positive economic
impact of the manufacturing industry has contributed to the tax base
and job growth.
Appendix 39
<PAGE>
Michigan's economic and financial improvements are reflected in the
state's rating of Aa1/AA+/AA+ by Moody's, Standard & Poor's and Fitch,
respectively. All three rating agencies upgraded the State's credit
rating in 1998.
TAX TREATMENT
The Michigan Fund's regular monthly dividends will not be subject to
the Michigan 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. If you reside in a Michigan city that imposes local
income taxes, you will not be subject to these taxes on the Michigan
Fund's distributions of income attributable to interest earned on U.S.
government securities or municipal bonds, or to gains on the sale of
U.S. government securities.
The treatment of corporate shareholders of the Michigan Fund differs
from that described above. Corporate shareholders should refer to the
Statement of Additional Information for more detailed
information.
MISSOURI
Missouri maintains a diversified economy, mirroring that of the
nation. Although recent industry growth has shifted to services and
tourism, defense and manufacturing are important elements of the State
economy. Population in Missouri has increased approximately 5.6% from
1990. The State's unemployment rate has steadily declined from the
high of 6.7% in 1991 and was 4.2% in June 1998, compared to the
national average of 4.5%. Per capita income increased 4.4% during 1997
to $24,001, about 94% of the national average.
Missouri retains substantial governmental balances through strategic
budget management. The State's unreserved fund balance in 1997 was
$1.2 billion, or 12.4% of General Fund revenues. Missouri's overall
creditworthiness is reflected in its longstanding Aaa/AAA/AAA rating
by Moody's Standard & Poors, and Fitch, respectively.
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 transaction.
The treatment of corporate shareholders of the Missouri Fund is
similar to that described above.
40 Appendix
<PAGE>
OHIO
The Ohio economy has historically relied on durable goods
manufacturing, but recent growth has brought healthy diversification.
Employment growth in recent years has been concentrated among non-
manufacturing industries, with manufacturing employment tapering off
since its 1969 peak. Still, manufacturing remains an important
component of the State's economy, providing approximately 21% of total
employment in Ohio compared with 15% of national employment. General
economic activity in Ohio tends to be more cyclical than in non-
industrialized states, but during the current national expansion it
has had positive implications in Ohio.
From 1990-1998, the State's unemployment rate ranked at or below the
national average. Ohio's unemployment rate registered 4.5% in June
1998, comparable to the national average of 4.5% in June 1998, and
slightly higher than the State's 4.4% rate in June 1997. Per capita
income in 1997 was $24,661, approximately 96% of the national average.
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. The State is
currently working on revamping its school funding formula, which was
deemed unconstitutional in March 1997 by the Ohio Supreme Court.
Changes to the formula likely will require the State to increase its
aid to local public schools, which could affect the State's financial
position. Moody's gives Ohio general obligation bonds an Aa1 rating,
while Standard & Poor's and Fitch each rate the State AA+.
TAX TREATMENT
The Ohio Fund's regular monthly dividends will not be subject to Ohio
personal income tax, Ohio school district income taxes and Ohio
municipal income taxes to the extent they are derived from interest on
Ohio municipal bonds or U.S. government securities or attributable to
gain made on the sale, exchange or other disposition by the Fund of
Ohio municipal bonds. You will, however, be subject to Ohio personal
income taxes, Ohio school district income taxes and Ohio municipal
income taxes 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 net 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 Additional 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 State continues its efforts to attract new businesses
with grants and loans for major development projects, labor training
and technology development. Manufacturing remains a dominant sector at
24% and is currently a source of strength.
Appendix 41
<PAGE>
The State's unemployment rate was 3.0% in June 1998. Per capita
income was $24,475 in 1997, about 96% of the national average.
The State's general obligations receive Aa2/AA ratings from Moody's
and Standard and Poor's, respectively.
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 on U.S.
government securities. You will be subject to Wisconsin personal
income tax, 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 capital gains on the transaction. A certain
portion of such capital gains, however, will be exempt from Wisconsin
personal income tax.
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.
Appendix
<PAGE>
NUVEEN MUTUAL FUNDS
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
GROWTH
Nuveen Rittenhouse Growth Fund
GROWTH AND INCOME
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
TAX-FREE INCOME
NATIONAL MUNICIPAL BOND FUNDS
Long-term
Insured Long-term
Intermediate-term
Limited-term
STATE MUNICIPAL BOND FUNDS
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky/2/ New York/1/
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Shareholder
reports contain management's discussion of market conditions, investment
strategies and performance results as of the fund's latest semi-annual or annual
fiscal year end. Call Nuveen at (800) 257-8787 to request a free copy of any of
these materials or other fund information.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549. The funds'
Investment Company file number is 811-07751.
1. Long-term and insured long-term portfolios.
2. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
SEPTEMBER 30, 1998
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
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 Prospectuses
of the Nuveen Flagship Multistate Trust IV dated September 30, 1998. The
Prospectuses 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) 257-8787.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-13
Investment Adviser and Investment Management Agreement..................... S-24
Portfolio Transactions..................................................... S-25
Net Asset Value............................................................ S-26
Tax Matters................................................................ S-27
Performance Information.................................................... S-35
Additional Information on the Purchase and Redemption of Fund Shares....... S-43
Distribution and Service Plan.............................................. S-50
Independent Public Accountants and Custodian............................... S-52
Financial Statements....................................................... S-52
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. The 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 short-term
securities, as described in the Prospectus. Municipal Obligations are
municipal bonds that pay interest that is exempt from regular federal,
state and, in some cases, local income taxes.
(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.
S-2
<PAGE>
(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 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
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
S-3
<PAGE>
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
Flagship 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 Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local 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, 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.
S-4
<PAGE>
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
nonappropriation leases where Nuveen Advisory has determined that the issuer
has a strong incentive to continue making appropriations and timely payment
until the security's maturity. Some lease obligations may be illiquid under
certain circumstances. Lease obligations normally provide a premium interest
rate which along with regular amortization of the principal may make them
attractive for a portion of the assets of the Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
YEAR 2000 ISSUES
The "Year 2000" problem refers to the fact that many computer programs use
only the last two digits of a year, and do not recognize a year that begins
with "20" instead of "19." If this problem is not corrected, computers could
function improperly or not at all, which could affect the global economy. The
SEC has urged securities issuers to disclose the steps they are taking to
correct any Year 2000 problems.
The Funds invest primarily in municipal securities. If municipal issuers do
not correct any Year 2000 problems in a timely manner, they could experience
problems in conducting their operations or in making payments on their
securities, which could cause the value of these securities to decline.
Municipal issuers could experience three types of Year 2000 problems. First, if
an issuer's internal computer systems experience Year 2000 problems, this could
disrupt an issuer's operations (such as its ability to collect local taxes or
fees). Second, an issuer may rely on other parties for the payments that
support its debt service, such as servicers that collect mortgage or student
loan payments, and those third parties may have Year 2000 problems that
interfere with their ability to forward payments to the issuer. Third, an
issuer may have mechanical problems in sending payments to its securities
holders.
Nuveen Advisory is obtaining information about the Year 2000 readiness of the
issuers of its portfolio securities as part of its ongoing surveillance of the
creditworthiness of those issuers.
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 their 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
S-5
<PAGE>
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 1997 and 1998 fiscal years for the Funds
were:
<TABLE>
<CAPTION>
FISCAL YEAR
1997 1998
----- -----
<S> <C> <C>
Nuveen Flagship Kansas Municipal Bond Fund................... 40% 13%
Nuveen Flagship Kentucky Municipal Bond Fund................. 13% 12%
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund.... 56% 36%
Nuveen Flagship Michigan Municipal Bond Fund................. 34% 13%
Nuveen Flagship Missouri Municipal Bond Fund................. 41% 19%
Nuveen Flagship Ohio Municipal Bond Fund..................... 17% 15%
Nuveen Flagship Wisconsin Municipal Bond Fund................ 42% 10%
</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 Funds reserve 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 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 substantially all of its assets (at
least 80%) in municipal bonds that are exempt from federal and state tax in
that state ("Municipal Obligations"), generally Municipal Obligations issued in
its respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is
S-6
<PAGE>
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
Growth in the State's trade, services and manufacturing sectors has decreased
the historical dominance of agriculture in the State economy. Economic
performance has been improving due largely to gains in aircraft manufacturing
and recovery in agriculture. Personal income grew at 5.4% in 1997 to $24,379,
after posting a 5.7% gain in 1996. Per capita income stands at about 95% of the
national median.
The State's unemployment rate dropped to 3.5% in June 1998 from its peak of
5.5% in 1993.
The Kansas State Treasury does not issue general obligation debt. The state
instead relies on revenue and lease financing through the Department of
Transportation (KDOT) and the Development Finance Authority (KDFA). KDFA is the
conduit for most state debt and provides financing for various public purpose
projects including prison construction, state offices, energy conservation and
university facilities. The KDOT bonds are rated Aa2/AA+/AA from Moody's,
Standard & Poor's, and Fitch, respectively. KDFA ratings vary according to the
underlying purpose and when not insured are generally rated A or better by the
major rating agencies.
FACTORS PERTAINING TO KENTUCKY
Growth in Kentucky's economy surpassed national growth rates in many areas
during the 1990's in part due to its lower cost of living and aggressive
business recruitment. The Kentucky economy has continued to prosper under the
same favorable circumstances that have propelled the national economy. 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. The strong
growth in Kentucky's economy is expected to continue, although at a slightly
more moderate rate.
Kentucky's average unemployment rate in June 1998 was 4.4%, compared to the
national average of 4.5% in June 1998 and the State's 5.5% average in June
1997. Per capita income in 1997 was $20,657, approximately 81% of the national
average.
In the past, the State has experienced difficulty balancing its budget, but
recent economic growth and moderate debt levels improve the Commonwealth's
financial outlook. General Fund revenues that exceeded projections and
expenditures that remained within the budget enabled the State to maintain its
Reserve Trust Fund balance of $200 million in fiscal 1997. Although Kentucky
has not issued general obligation debt since 1965, the State actively issues
appropriation-secured debt from several agencies, including the Kentucky
Turnpike Authority, the Kentucky Infrastructure Authority, and the Kentucky
Schools Facilities Construction Commission. Bonds secured by Commonwealth
appropriations generally receive ratings of "A" or higher from the major rating
services. All of Kentucky's general obligation debt matured in 1995. Like the
State, Kentucky municipalities have not issued general obligation debt, relying
instead on appropriation-secured bonds.
FACTORS PERTAINING TO MICHIGAN
Michigan's economy has improved significantly since the 1980's. The State's
unemployment rate was 3.6% in June 1998, compared to the national average of
4.5%. Michigan's per capita income has increased each year over the past
decade, surpassing that of the nation's in 1994 after years of lagging the
national average. 1997 per
S-7
<PAGE>
capita income was $25,560. Population has remained stable in the State,
increasing by a negligible amount annually.
The manufacturing industry and the presence of the "Big 3" automobile
manufacturers are the primary influence in the economy. Despite recent strikes
and lower automobile sales and profits, the positive economic impact of the
manufacturing industry has contributed to the tax base and job growth.
Education in Michigan is a top priority. One of the state's most significant
achievements was the enactment of Proposal A in 1994. To promote equality among
school districts of varying wealth levels, funding for Michigan school
districts shifted from local property taxes to state sales taxes. According to
the fiscal year 1999 budget, no district will enjoy per pupil spending below
$5,170, compared to an average spending of $5,090 per pupil prior to reform.
Michigan's economic and financial improvements are reflected in the state's
rating of Aa1/AA+/AA+ by Moody's, Standard & Poor's and Fitch, respectively.
All three rating agencies upgraded the State's credit rating in 1998.
FACTORS PERTAINING TO MISSOURI
Missouri maintains a diversified economy, mirroring that of the nation.
Although recent industry growth has shifted to services and tourism, defense
and manufacturing are important elements of the state economy. McDonnell
Douglas Corporation, one of the largest private employers in the state, employs
approximately 25,000 people, with Chrysler and Ford each employing
approximately 10,000 people.
Population in Missouri has increased approximately 5.6% from 1990. The
State's unemployment rate has steadily declined since the high of 6.7% in 1991
and was 4.2% in June 1998, compared to the national average of 4.5%. Per capita
income increased 4.4% during 1997 to $24,001, which is about 94% of the
national average.
Missouri retains substantial governmental balances through strategic budget
management. The State's unreserved fund balance in 1997 was $1.2 billion, or
12.4% of General Fund revenues. Missouri's overall creditworthiness is
reflected in its long-standing Aaa/AAA/AAA rating by Moody's, S&P, and Fitch,
respectively.
FACTORS PERTAINING TO OHIO
The Ohio economy has historically relied on durable goods manufacturing, but
recent growth has brought healthy diversification. Employment growth in recent
years has been concentrated among non-manufacturing industries, with
manufacturing employment tapering off since its 1969 peak. Still manufacturing
remains an important component of the State's economy, providing approximately
21% of total employment in Ohio compared with 15% of national employment.
General economic activity in Ohio tends to be more cyclical than in non-
industrialized states, but during the current national expansion it has had
positive implications in Ohio.
From 1990 to 1998, the State's unemployment rate ranked at or below the
national average. Ohio's unemployment rate registered 4.5% in June 1998,
comparable to the national average of 4.5% in June 1998 and slightly higher
than the State's 4.4% rate in June 1997. Per capita income in 1997 was $24,661,
approximately 96% of the national average.
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. Recently, as a result of the State's
strong economic performance and its financial management practices, the State
has been able to accumulate sizable financial reserves that should help it
address potential cyclical fluctuations. The State is
S-8
<PAGE>
currently working on revamping its school funding formula, which was deemed
unconstitutional in March 1997
by the Ohio Supreme Court. Changes to the formula will likely require the State
to increase its aid to local public schools, which could affect the State's
financial position. Moody's gives Ohio general obligation bonds an Aa1 rating,
while Standard & Poor's and Fitch each rate the State 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 State
continues its efforts to attract new businesses with grants and loans for major
development projects, labor training and technology development. Manufacturing
remains a dominant sector at 24% and is currently a source of strength.
The State's unemployment rate was 3.0% in June 1998. Per capita income was
$24,475 in 1997, which is about 96% of the national average.
The State's general obligations receive Aa2/AA ratings from Moody's and
Standard and Poors, respectively.
HEDGING AND OTHER DEFENSIVE ACTIONS
Each Fund may periodically engage in hedging transactions. Hedging is a term
used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to hedging transactions will reduce yield. Net gains, if
any, from hedging and other portfolio transactions will be distributed as
taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or
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<PAGE>
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-10
<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 Funds may invest in such other types of notes to the
extent permitted under their 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 Funds 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
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<PAGE>
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-12
<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* 49 Chairman and Chairman since July 1, 1996 of The John
333 West Wacker Drive Trustee Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.; prior
thereto Executive Vice President and
Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Institutional Advisory
Corp.; Chairman and Director (since January
1997) of Nuveen Asset Management, Inc.;
Director (since 1996) of Institutional
Capital Corporation.
Anthony T. Dean* 53 President and President since July 1, 1996 of The John
333 West Wacker Drive Trustee Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.; prior
thereto, Executive Vice President and
Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Institutional Advisory
Corp.; President and Director (since January
1997) of Nuveen Asset Management, Inc.;
Chairman and Director (since 1997) of
Rittenhouse Financial Services, Inc.
Robert P. Bremner 58 Trustee Private Investor and Management Consultant.
3725 Huntington Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 64 Trustee Retired (August 1989) as Senior Vice
201 Michigan Avenue President of The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri 65 Trustee Executive Director of Manitoga (Center for
5 Peter Cooper Rd. Russel Wright's Design with Nature);
New York, NY 10010 formerly President and Chief Executive
Officer of Blanton-Peale Institute.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Peter R. 65 Trustee Adjunct Professor of Business and Economics,
Sawers University of Dubuque, Iowa; Adjunct
22 The Professor, Lake Forest Graduate School of
Landmark Management, Lake Forest, Illinois; Chartered
Northfield, Financial Analyst; Certified Management
IL 60093 Consultant.
William J. 54 Trustee Senior Partner, Miller-Valentine Partners,
Schneider Vice President, Miller-Valentine Group.
4000
Miller-
Valentine
Ct.
P.O. Box
744
Dayton, OH
45401
Judith M. 50 Trustee Executive Director, Gaylord and Dorothy
Stockdale Donnelley Foundation (since 1994); prior
35 East thereto, Executive Director, Great Lakes
Wacker Dr. Protection Fund (from 1990 to 1994).
Suite 2600
Chicago,
IL 60601
Alan G. 37 Vice President and Vice President and General Counsel (since
Berkshire Assistant Secretary September 1997) and Secretary (since May
333 West 1998) of The John Nuveen Company, John
Wacker Nuveen & Co. Incorporated, Nuveen Advisory
Drive Corp. and Nuveen Institutional Advisory
Chicago, Corp., prior thereto, Partner in the law
IL 60606 firm of Kirkland & Ellis.
Michael S. 41 Vice President Vice President of Nuveen Advisory Corp.
Davern (since January 1997); prior thereto, Vice
333 W. President and Portfolio Manager of Flagship
Wacker Financial.
Drive
Chicago,
IL 60606
Lorna C. 53 Vice President Vice President of John Nuveen & Co.
Ferguson Incorporated; Vice President (since January
333 West 1998); of Nuveen Advisory Corp. and Nuveen
Wacker Institutional Advisory Corp.
Drive
Chicago,
IL 60606
William M. 34 Vice President Vice President of Nuveen Advisory Corp.
Fitzgerald (since December 1995); Assistant Vice
333 West President of Nuveen Advisory Corp. (from
Wacker September 1992 to December 1995), prior
Drive thereto, Assistant Portfolio Manager of
Chicago, Nuveen Advisory Corp.
IL 60606
Stephen D. 44 Vice President and Vice President of John Nuveen & Co.
Foy Controller Incorporated.
333 West
Wacker
Drive
Chicago,
IL 60606
J. Thomas 43 Vice President Vice President of Nuveen Advisory Corp.
Futrell
333 West
Wacker
Drive
Chicago,
IL 60606
Richard A. 35 Vice President Vice President of Nuveen Advisory Corp.
Huber (since January 1997); prior thereto Vice
333 West President and Portfolio Manager of Flagship
Wacker Financial.
Drive
Chicago,
IL 60606
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Steven J. 41 Vice President Vice President of Nuveen Advisory Corp.
Krupa
333 West
Wacker Drive
Chicago, IL
60606
Larry W. 47 Vice President Vice President, Assistant Secretary and
Martin Assistant General Counsel of John Nuveen &
333 West Co. Incorporated; Vice President and
Wacker Drive Assistant Secretary of Nuveen Advisory
Chicago, IL Corp.; Vice President and Assistant
60606 Secretary of Nuveen Institutional Advisory
Corp.; Assistant Secretary of The John
Nuveen Company.
Edward F. 33 Vice President Vice President (since September 1996),
Neild, IV previously Assistant Vice President (since
333 West December 1993) of Nuveen Advisory Corp.,
Wacker Drive portfolio manager prior thereto; Vice
Chicago, IL President (since September 1996), previously
60606 Assistant Vice President (since May 1995) of
Nuveen Institutional Advisory Corp.,
portfolio manager prior thereto.
Stephen S. 40 Vice President Vice President (since September 1997),
Peterson previously Assistant Vice President (since
333 West September 1996) of Nuveen Advisory Corp.,
Wacker Drive Portfolio Manager prior thereto.
Chicago, IL
60606
Stuart W. 42 Vice President Vice President of John Nuveen & Co.
Rogers Incorporated
333 West
Wacker Drive
Chicago, IL
60606
Thomas C. 47 Vice President Vice President of Nuveen Advisory Corp. and
Spalding, Jr. Nuveen Institutional Advisory Corp.;
333 West Chartered Financial Analyst.
Wacker Drive
Chicago, IL
60606
H. William 64 Vice President Vice President and Treasurer of The John
Stabenow Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL
60606
William S. 33 Vice President Vice President of John Nuveen & Co.
Swanson Incorporated (since October 1997), prior
333 West thereto, Assistant Vice President (since
Wacker Drive September 1996); formerly, Associate of John
Chicago, IL Nuveen & Co. Incorporated.
60606
Gifford R. 42 Vice President Vice President, Secretary and Associate
Zimmerman and Secretary General Counsel of John Nuveen & Co.
333 West Incorporated; Vice President and Assistant
Wacker Drive Secretary of Nuveen Advisory Corp.; Vice
Chicago, IL President and Assistant Secretary of Nuveen
60606 Institutional Advisory Corp; Assistant
Secretary of The John Nuveen Company (since
May 1994).
</TABLE>
S-15
<PAGE>
Anthony Dean, Peter Sawers 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 directors or trustees, as the case may be, of
37 Nuveen open-end funds and 52 Nuveen closed-end funds advised by Nuveen
Advisory Corp.
The following table sets forth compensation paid by the Trust to each of the
trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended May 31, 1998. The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust. Trustees Brown, Impellizzeri, Rosenheim and Sawers
became trustees of this Trust on February 1, 1997.
<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........................ $6,010 $66,446
Lawrence H. Brown........................ $6,484 $79,000
Anne E. Impellizzeri..................... $6,010 $73,000
Margaret K. Rosenheim*................... $2,277(1) $29,506(2)
Peter R. Sawers.......................... $6,010 $73,000
William J. Schneider..................... $6,010 $66,446
Judith M. Stockdale**.................... $4,223 $49,000
</TABLE>
- --------
*Former trustee; retired July 1997.
**Elected to the Board in July 1997.
(1) Includes $52 in interest accrued on deferred compensation from prior years.
(2) Includes $1,256 in interest accrued on deferred compensation from prior
years.
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 September 1, 1998, 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 Merrill Lynch, Pierce, Fenner & Smith 14.68%
Class A Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
PaineWebber for the benefit of 6.46
Sonya Ropfogel and Leonard
Ropfogel Ttees Leonard
Dated 8/20/81
155 N. Market, Suite 1000
Wichita KS 67202-1824
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Kansas
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 24.69%
Class B Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Prudential Securities Inc. FBO 7.02
Frank F. Castellano
Patricia J. Castellano JT TEN
14032 Hayes St.
Overland Park KS 66221-2013
Prudential Securities Inc. FBO 5.15
Anna Smisor Smith TTEE Anna Smisor
Smith Living Trust UA DTD 05-18-87
PO Box 125
Sterling KS 67579-0125
Nuveen Flagship Kansas
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 35.33
Class C Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
PaineWebber for the Benefit of 11.95
William C. Loewen
Joyce A. Loewen JT WROS
312 Wind Rows Lake Dr
Goddard KS 67052-9410
Mike Carter 6.60
Jennifer Carter JT TEN
Special Funds Account
11300 Valley HI
Wichita KS 67209-1041
Nuveen Flagship Kansas
Municipal Bond Fund Donaldson Lufkin & Jenrette 75.11
Class R Shares............ Secs Corp
PO Box 2052
Jersey City NJ 07303-2052
Alan K. Saunders 22.97
6616 W. 132nd St.
Overland Park KS 66209-3929
</TABLE>
S-17
<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 Merrill Lynch, Pierce, Fenner & Smith 10.31%
Class A Shares......... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Kentucky
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 16.16
Class B Shares......... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Prudential Securities Inc. FBO 8.85
Mayne Bush Jett
13 Deepwood Dr.
Lexington KY 40505-2105
NFSC FEBO A74-023639 5.64
Elizabeth S. Cuckler, Richard T. Cuckler
2813 Deerfield Dr.
Covington KY 41017-4471
Nuveen Flagship Kentucky
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 33.77
Class C Shares......... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Kentucky
Municipal Bond Fund Ronald G. Barlow 69.86
Class R Shares......... Nancy Barlow JT TEN
10136 Scale Rd.
Bentok KY 42025-6748
Edward D. Jones & Co. FAO 7.80
Joseph E. Knight
EDJ 421-04756-1-4
PO Box 2500
Maryland Heights MO 63043-8500
Hugh M. Cohen 7.71
3005 Aubert Ave.
Louisville KY 40206-2601
Shelley Cohen 7.71
3005 Aubert Ave.
Louisville KY 40206-2601
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Kentucky
Limited Term Municipal Bond
Fund Merrill Lynch, Pierce, Fenner & Smith 36.47%
Class A Shares............. for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
PaineWebber 6.08
for the benefit of
Ted M. Fiorita
6410 St. Andrews Drive
Paducah KY 42001-8751
Nuveen Flagship Kentucky
Limited Term Municipal Bond
Fund Merrill Lynch, Pierce, Fenner & Smith 40.67
Class C Shares............. for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Niti Vermani 6.54
236 Bellefonte Cir.
Ashland KY 41101-2176
Nuveen Flagship Kentucky
Limited Term Municipal Bond
Fund James O. Carroll 100.00
Class R Shares............. Lucille Carroll JTWROS
6621 Astral Dr.
Louisville, KY 40258-3315
Nuveen Flagship Michigan
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 55.44
Class A Shares............. for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Michigan
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 48.30
Class B Shares............. for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Smith Barney Inc 5.91
00159755510
388 Greenwich Street
New York NY 10013-2339
</TABLE>
S-19
<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 Merrill Lynch, Pierce, Fenner & Smith 64.44%
Class C Shares................... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Missouri Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.67
Class A Shares................... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Missouri Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.02
Class B Shares................... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Smith Barney Inc 12.85
00159609738
388 Greenwich Street
New York, NY 10013-2339
Smith Barney Inc 11.04
00159614216
388 Greenwich Street
New York, NY 10013-2339
Marvin Labarge 6.91
and Rita Labarge
JT WROS
3939 Towers Rd
Saint Charles, MO 63304-7457
Carmella A Leonard 5.71
Carmella A Leonard Trust
U/A 12/28/94
P.O. Box 286
Saint Albans, MO 63073-0286
Prudential Securities Inc. FBO 5.47
Mr. Keith McClanahan TTEE UW RELLA
Maxine McClanahan FBO RELLA MAXINE
401 SE Oldham Pkwy
Lees Summit, MO 64081-2930
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Missouri
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 52.81%
Class C Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6848
Nuveen Flagship Missouri
Municipal Bond Fund Raymond R Powell 65.48
Class R Shares............ Rosa May Powell TRS
Raymond R Powell Trust
UA DTD 12/15/93
2500 Bluff Blvd.
Columbia MO 65201-6108
Mary Jo Mustello 25.40
8320 NW Forest Dr
Weatherby Lake MO 64152-1655
Pearl R Pavlo 9.08
Pearl Rose Pavlo Rev Liv Trust
U/A 03/30/95
13915 NW 74th St.
Parkville MO 64152-5111
Nuveen Flagship Ohio
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 37.29
Class A Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Nuveen Flagship Ohio
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 32.60
Class B Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Dean Witter FBO 7.89
Raymond H Penick
1504 Blue Jay Rd.
Church St. Station PO Box 250
New York NY 10013-0250
Nuveen Flagship Ohio
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 56.27
Class C Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Wisconsin
Municipal Bond Fund Smith Barney Inc. 12.98%
Class A Shares............ 00127113901
388 Greenwich Street
NY NY 10013
PaineWebber 6.68
for the benefit of
Richard A Uihlein
PO Box 23434
Milwaukee WI 53223-0434
Nuveen Flagship Wisconsin
Municipal Bond Fund MLPF&S 8.16
Class B Shares............ for the Sole Benefit of its Customers
Attn Fund Admin Sec 97ND1
4800 Deer Lake Dr. E FL 3
Jacksonville FL 32246-6484
PaineWebber 8.10
for the Benefit of
Mr. William J Hurkman and
Mrs. Marian T Hurkman JT TEN
2304 South Arch Street
Janesville WI 53546-6126
PaineWebber 7.73
for the Benefit of
Karl G Gierhahn
3279 S Illinois Avenue
Milwaukee WI 53207-3032
Jeffrey Blakemore 7.39
7000 W Good Hope Rd
Milwaukee WI 53223-4609
Donaldson Lufkin Jenrette 5.69
Securities Corporation Inc
PO Box 2052
Jersey City NJ 07303-2052
Dean Witter FBO 5.63
Lorraine Suminski
1121 North Waverly Pl
Church St Station PO Box 250
New York NY 10013-0250
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Wisconsin Municipal
Bond Fund Everen Clearing Corp 13.03%
Class C Shares.................... Acct 3973-8110
Alan R Hyman & Harriet S Hyman
111 East Kilbourn Avenue
Milwaukee WI 53202-6611
Gordon M Derzon 7.61
3440 Topping
Madison WI 53705-1439
Affiliated Leasing Inc 7.04
PO Box 44509
Madison WI 53744-4509
Everen Clearing Corp 6.95
Acct 1810-7992
R Creighton Buck Family Trust
111 East Kilbourn Avenue
Milwaukee WI 53202-6611
Everen Clearing Corp 5.22
Acct 6044-1401
Lyle Pagel TR
111 East Kilbourn Avenue
Milwaukee WI 53202-6611
Everen Clearing Corp 5.04
Acct 7804-2234
Norris L. Tibbets
111 East Kilbourn Avenue
Milwaukee WI 53202-6611
Nuveen Flagship Wisconsin Municipal
Bond Fund Elizabeth H Sohn TR 99.47
Class R Shares.................... Elizabeth H Sohn Trust
U/A Dtd 3/7/96
N14651 Wintergreen Lake Rd
Park Falls WI 54552-7069
</TABLE>
S-23
<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 except the Kentucky Limited Term Fund 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>
The Kentucky Limited Term Fund has agreed to pay an annual management fee at
the rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- ----------------------------- --------------
<S> <C>
For the first $125 million....................................... .4500 of 1%
For the next $125 million........................................ .4375 of 1%
For the next $250 million........................................ .4250 of 1%
For the next $500 million........................................ .4125 of 1%
For the next $1 billion.......................................... .4000 of 1%
For assets over $2 billion....................................... .3750 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 all of the Funds, Nuveen Advisory has committed through at least 1998 to
continue Flagship's general dividend-setting practices.
S-24
<PAGE>
For the last three fiscal years, the Funds paid net management fees to
Flagship Financial, predecessor to Nuveen Advisory, and beginning on February
1, 1997, to Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF FEE WAIVERS AND EXPENSE
EXPENSE REIMBURSEMENT PAID REIMBURSEMENTS
FOR THE YEAR ENDED FOR THE YEAR ENDED
----------------------------- -------------------------
5/31/96 5/31/97 5/31/98 5/31/96 5/31/97 5/31/98
--------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kansas Municipal Bond
Fund................... 38,552 159,550 360,823 496,188 339,334 191,060
Kentucky Municipal Bond
Fund................... 799,646 1,300,570 2,227,288 1,328,971 989,872 310,289
Kentucky Limited Term
Municipal Bond Fund.... 2,496 -- -- 50,402 108,413 79,972
Michigan Municipal Bond
Fund................... 873,242 1,194,710 1,804,027 586,307 378,083 --
Missouri Municipal Bond
Fund................... 494,006 823,757 1,308,176 598,909 326,922 --
Ohio Municipal Bond
Fund................... 1,899,111 2,430,648 3,609,901 522,006 355,267 --
Wisconsin Municipal Bond
Fund................... -- -- -- 102,593 146,340 156,639
</TABLE>
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. Nuveen is the
sponsor of the Nuveen Defined Portfolios, and is the principal underwriter for
the Nuveen Mutual Funds, and has served as co-managing underwriter for the
shares of the Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have
invested to date in Nuveen's funds and Defined Portfolios. Founded in 1898,
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.
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.
S-25
<PAGE>
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, the Funds' custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. Securities for which quotations are not readily available
(which constitute a majority of the securities held by the Funds) are valued at
fair value as determined by the pricing service using methods which include
consideration of the following: yields or prices of municipal
S-26
<PAGE>
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 Morgan, Lewis & Bockius LLP, 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,
for taxable years beginning on or before August 5, 1997, 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"). The short-short test will not be a requirement for qualification
as a regulated investment company for taxable years beginning after August 5,
1997. 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.
S-27
<PAGE>
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 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
S-28
<PAGE>
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. Present law taxes both long- and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, however, (i) gain on the sale of shares
held for more than 18 months will generally be taxed at a maximum marginal rate
of 20%, (ii) gain on the sale of shares held for more than one year but not
more than 18 months will generally be taxed at a maximum marginal rate of 28%,
and (iii) gain on the sale of shares held for not more than one year and other
ordinary income will generally 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 on net income 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 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.
S-29
<PAGE>
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.
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.
S-30
<PAGE>
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 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 of 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
S-31
<PAGE>
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 Kentucky Funds transactions.
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 Kentucky Fund shares that
are 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 employed in Louisville or Jefferson County will not be subject
to local occupational license fees on income earned from the Kentucky Funds.
Shareholders employed elsewhere in Kentucky generally will not be subject to
local occupational license fees.
Shareholders that are either corporations or sole proprietors, and that do
business in Louisville or Jefferson County, will not be subject to the local
occupational license fee. Shareholders that are either corporations or sole
proprietors, and that do business elsewhere in Kentucky may, however, be
subject to local occupational license fees.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Kentucky and local tax matters.
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.
S-32
<PAGE>
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. 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. All other distributions, including distributions attributable to
capital gains (other than capital gains realized from the sale of Federal
Obligations), will be subject to the Michigan income tax.
All other distributions, including distributions attributable to capital
gains (other than capital gains realized from the sale of Federal Obligations),
will be subject to the Michigan income tax.
Residents of Michigan cities imposing local income taxes will not be subject
to such taxes on the Michigan Fund's distributions of income attributable
either (1) to interest earned on Federal Obligations or of state or local
governments or (2) to gains on the sale of Federal Obligations.
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 inheritance and
estate taxes if owned by a Michigan decedent at the time of death.
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.
S-33
<PAGE>
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.
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, Ohio school district income taxes, and Ohio municipal
income taxes. 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, Ohio school district income taxes, and Ohio
municipal income taxes.
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, Ohio school district income
taxes, Ohio municipal income taxes and 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.
S-34
<PAGE>
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 ("Wisconsin
Obligations") or to interest or dividends earned 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 Wisconsin personal income tax. All other distributions, including
distributions attributable to capital gains, will be subject to the Wisconsin
personal income tax. A certain portion of such capital gains distributions,
however, will be exempt from Wisconsin personal income tax.
All Wisconsin Fund distributions to corporate shareholders, regardless of
source, will be subject to the Wisconsin 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. In the case of individuals, however, a certain portion of such gain will
be exempt from Wisconsin personal income tax.
Shares of the Wisconsin Fund may be subject to the Wisconsin estate tax if
owned by a Wisconsin decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for detailed
information concerning Wisconsin state and local 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
S-35
<PAGE>
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.
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.
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Kansas Municipal Bond Fund
Class A Shares.............. 4.32% 44.30% 7.76%
Class B Shares.............. 3.76% 44.30% 6.75%
Class C Shares.............. 3.96% 44.30% 7.11%
Class R Shares.............. 4.71% 44.30% 8.46%
Kentucky Municipal Bond Fund
Class A Shares.............. 4.06% 43.20% 7.15%
Class B Shares.............. 3.49% 43.20% 6.14%
Class C Shares.............. 3.69% 43.20% 6.50%
Class R Shares.............. 4.43% 43.20% 7.80%
Kentucky Limited Term
Municipal Bond Fund
Class A Shares.............. 3.71% 43.20% 6.53%
Class C Shares.............. 3.45% 43.20% 6.07%
Class R Shares.............. 4.01% 43.20% 7.06%
Michigan Municipal Bond Fund
Class A Shares.............. 4.04% 42.30% 7.00%
Class B Shares.............. 3.47% 42.30% 6.01%
Class C Shares.............. 3.67% 42.30% 6.36%
Class R Shares.............. 4.42% 42.30% 7.66%
Missouri Municipal Bond Fund
Class A Shares.............. 4.17% 43.20% 7.34%
Class B Shares.............. 3.60% 43.20% 6.34%
Class C Shares.............. 3.80% 43.20% 6.69%
Class R Shares.............. 4.55% 43.20% 8.01%
Ohio Municipal Bond Fund
Class A Shares.............. 3.72% 44.10% 6.65%
Class B Shares.............. 3.14% 44.10% 5.62%
Class C Shares.............. 3.34% 44.10% 5.97%
Class R Shares.............. 4.09% 44.10% 7.32%
Wisconsin Municipal Bond Fund
Class A Shares.............. 4.42% 43.70% 7.85%
Class B Shares.............. 3.87% 43.70% 6.87%
Class C Shares.............. 4.06% 43.70% 7.21%
Class R Shares.............. 4.78% 43.70% 8.49%
</TABLE>
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<PAGE>
- --------
* 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 table 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 Defined Portfolios, or the
maximum public offering price). The distribution rate differs from yield and
total return and therefore is not intended to be a complete measure of
performance. Distribution rate may sometimes differ from yield because a Fund
may be paying out more than it is earning and because it may not include the
effect of amortization of bond premiums to the extent such premiums arise after
the bonds were purchased.
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20% (2.5% for the Kentucky Limited
Term Municipal Bond Fund), were as follows:
<TABLE>
<CAPTION>
MAY 31, 1998
-------------------------------
DISTRIBUTION RATES
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Kansas Municipal Bond Fund............... 4.72% 4.21% 4.40% 5.12%
Kentucky Municipal Bond Fund............. 4.79% 4.27% 4.48% 5.22%
Kentucky Limited Term Municipal Bond
Fund.................................... 4.22% N/A 3.97% 4.57%
Michigan Municipal Bond Fund ............ 4.76% 4.22% 4.43% 5.17%
Missouri Municipal Bond Fund............. 4.71% 4.17% 4.38% 5.13%
Ohio Municipal Bond Fund................. 4.80% 4.30% 4.50% 5.22%
Wisconsin Municipal Bond Fund............ 4.59% 4.02% 4.25% 4.95%
</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 Class A Shares of each fund reflect actual performance for
all periods. For the Kansas, Kentucky, Michigan, Missouri, Ohio and Wisconsin
Funds, Classes B, C and R, total returns reflect actual performance for periods
since class inception, and Class A performance for periods prior to inception,
adjusted for the differences in sales charges (and for Classes B and C, fees)
between the classes. For the Kentucky Limited Term, Class A total returns
reflect actual performance for all periods and Class C and R total returns
reflect actual performance for periods since class inception, and Class A
performance for all periods prior to class inception, adjusted for the
differences in sales charges between the classes.
S-37
<PAGE>
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-38
<PAGE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A Shares, and applicable CDSC for Class B
Shares, for the one-year, five-year, and ten-year periods (as applicable) ended
May 31, 1998 and for the period from inception through May 31, 1998,
respectively, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
-----------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Kansas Municipal Bond
Fund
Class A Shares........ 4.70% 5.14% N/A 6.57%
Class B Shares........ 4.57% 5.15% N/A 6.57%
Class C Shares........ 8.85% 5.70% N/A 6.92%
Class R Shares........ 9.84% 6.23% N/A 7.42%
Kentucky Municipal Bond
Fund
Class A Shares........ 4.46% 5.50% 7.98% 7.75%
Class B Shares........ 4.10% 5.61% 7.97% 7.74%
Class C Shares........ 8.43% 5.81% 7.85% 7.57%
Class R Shares........ 9.25% 6.43% 8.46% 8.18%
Kentucky Limited Term
Municipal Bond Fund
Class A Shares........ 3.92% N/A N/A 5.07%
Class C Shares........ 6.17% N/A N/A 5.71%
Class R Shares........ 6.58% N/A N/A 6.09%
Michigan Municipal Bond
Fund
Class A Shares........ 4.39% 5.33% 7.64% 8.08%
Class B Shares........ 4.12% 5.48% 7.63% 8.08%
Class C Shares........ 8.45% 5.59% 7.47% 7.82%
Class R Shares........ 9.16% 6.30% 8.13% 8.46%
Missouri Municipal Bond
Fund
Class A Shares........ 4.76% 5.39% 7.82% 7.45%
Class B Shares........ 4.53% 5.52% 7.82% 7.44%
Class C Shares........ 8.74% 5.73% 7.70% 7.29%
Class R Shares........ 9.56% 6.36% 8.32% 7.90%
Ohio Municipal Bond Fund
Class A Shares........ 4.19% 5.05% 7.36% 7.85%
Class B Shares........ 3.89% 5.15% 7.35% 7.84%
Class C Shares........ 8.12% 5.37% 7.23% 7.61%
Class R Shares........ 8.89% 5.99% 7.84% 8.22%
Wisconsin Municipal Bond
Fund
Class A Shares........ 5.56% N/A N/A 5.90%
Class B Shares........ 5.46% N/A N/A 5.84%
Class C Shares........ 9.59% N/A N/A 6.66%
Class R Shares........ 10.47% N/A N/A 7.18%
</TABLE>
S-39
<PAGE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, and applicable CDSC for Class
B Shares, for the one-year, five-year, and ten-year periods (as applicable)
ended May 31, 1998, and for the period since inception through May 31, 1998,
respectively, 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 RETURNS
--------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM
ENDED ENDED ENDED INCEPTION THROUGH
MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Kansas Municipal Bond
Fund
Class A Shares........ 4.70% 28.50% N/A 50.21%
Class B Shares........ 4.57% 28.54% N/A 50.13%
Class C Shares........ 8.85% 31.96% N/A 53.38%
Class R Shares........ 9.84% 35.29% N/A 58.02%
Kentucky Municipal Bond
Fund
Class A Shares........ 4.46% 30.72% 115.55% 127.18%
Class B Shares........ 4.10% 31.36% 115.35% 127.03%
Class C Shares........ 8.43% 32.63% 112.87% 123.10%
Class R Shares........ 9.25% 36.55% 125.23% 137.46%
Kentucky Limited Term
Municipal Bond Fund
Class A Shares........ 3.92% N/A N/A 14.36%
Class C Shares........ 6.17% N/A N/A 16.26%
Class R Shares........ 6.58% N/A N/A 17.38%
Michigan Municipal Bond
Fund
Class A Shares........ 4.39% 29.63% 108.74% 173.13%
Class B Shares........ 4.12% 30.55% 108.54% 172.86%
Class C Shares........ 8.45% 31.25% 105.59% 164.59%
Class R Shares........ 9.16% 35.71% 118.41% 185.73%
Missouri Municipal Bond
Fund
Class A Shares ....... 4.76% 30.04% 112.38% 117.58%
Class B Shares........ 4.53% 30.79% 112.27% 117.48%
Class C Shares........ 8.74% 32.12% 109.96% 114.14%
Class R Shares........ 9.56% 36.14% 122.34% 127.80%
</TABLE>
S-40
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
--------------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM
ENDED ENDED ENDED INCEPTION THROUGH
MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Ohio Municipal Bond Fund
Class A Shares ....... 4.19% 27.90% 103.38% 165.62%
Class B Shares........ 3.89% 28.53% 103.21% 165.36%
Class C Shares........ 8.12% 29.89% 100.92% 158.11%
Class R Shares........ 8.89% 33.78% 112.69% 177.74%
Wisconsin Municipal Bond
Fund
Class A Shares ....... 5.56% N/A N/A 25.82%
Class B Shares........ 5.46% N/A N/A 25.49%
Class C Shares........ 9.59% N/A N/A 29.38%
Class R Shares........ 10.47% N/A N/A 31.94%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 44.3% maximum marginal federal tax rate for 1998, the annual
taxable equivalent total return for the Kansas Municipal Bond Fund, Class A
Shares, for the one-year period ended May 31, 1998 was 13.49%.
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.
S-41
<PAGE>
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Funds primarily invest 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.
S-42
<PAGE>
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will share 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.
The minimum initial investment is $3,000 per fund share class, and may be
lower for accounts opened through fee-based programs for which the program
sponsor has established a single master account with the fund's transfer agent
and performs all sub-accounting services related to that account.
Class A Shares may be purchased at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. Shareholders may qualify
for a reduced sales charge, or the sales charge may be waived in its entirety,
as described below. Class A Shares are also subject to an annual service fee of
.20%. See "Distribution and Service Plans." Set forth below is an example of
the method of computing the offering price of the Class A shares of a Fund. The
example assumes a purchase on May 31, 1998 of Class A shares from the Nuveen
Flagship Kansas Municipal Bond Fund aggregating less than $50,000 subject to
the schedule of sales charges set forth in the Prospectus at a price based upon
the net asset value of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per share......................................... $10.60
Per Share Sales Charge--4.20% of public offering price (4.34% of
net asset value per share)....................................... .46
------
Per Share Offering Price to the Public............................ $11.06
</TABLE>
The Funds receive the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
The following Class A sales charges and commissions apply to all Funds except
Kentucky Limited Term:
<TABLE>
<CAPTION>
AUTHORIZED DEALER
SALES CHARGE AS % OF SALES CHARGE AS % OF COMMISSION AS % OF
AMOUNT OF PURCHASE PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE
--------------------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
$50,000 but less than $100,000 4.00% 4.18% 3.50%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
$1,000,000 and over --(1) -- 1.00%(1)
</TABLE>
S-43
<PAGE>
The following Class A sales charge and commissions apply to the Kentucky
Limited Term Fund:
<TABLE>
<CAPTION>
AUTHORIZED DEALER
AMOUNT OF SALES CHARGE AS % OF SALES CHARGE AS % OF COMMISSION AS % OF
PURCHASE PUBLIC OFFERING PRICE NET AMOUNT INVESTED PUBLIC OFFERING PRICE
- --------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
Less than
$50,000 2.50% 2.56% 2.00%
$50,000 but
less than
$100,000 2.00% 2.04% 1.60%
$100,000 but
less than
$250,000 1.50% 1.52% 1.20%
$250,000 but
less than
$500,000 1.25% 1.27% 1.00%
$500,000 but
less than
$1,000,000 0.75% 0.76% 0.60%
$1,000,000
and over --(1) -- 0.50%(1)
</TABLE>
- --------
(1) You can buy $1 million or more of Class A shares at net asset value
without an up-front sales charge. Nuveen pays authorized dealers of record
on these share purchases a sales commission of 1.00% (0.50% for the
Kentucky Limited Term fund) of the first $2.5 million, plus .50% of the
next $2.5 million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have to pay a
CDSC of 1% (0.50% for the Kentucky Limited Term fund) of either your
purchase price or your redemption proceeds, whichever is lower. You do not
have to pay this CDSC if your financial adviser has made arrangements with
Nuveen and agrees to waive the commission.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS
R SHARE PURCHASE AVAILABILITY
Rights of Accumulation. 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 Mutual Fund, or Nuveen exchange-traded fund, or
units of a Nuveen Defined Portfolio, on which an up-front sales charge or
ongoing distribution fee is imposed or is normally imposed, falls within the
amounts stated in the Class A Sales Charges and Commissions table in "How You
Can Buy and Sell Shares" 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 You
Can Buy and Sell Shares" 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
Mutual Fund that you already own on which you paid an up-front sales charge or
an ongoing distribution fee and any Class B or 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 Mutual Fund or a Nuveen Defined Portfolio, or otherwise.
S-44
<PAGE>
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 Defined Portfolio Distributions. You may purchase
Class A Shares without an up-front sales charge by reinvestment of
distributions from any of the various Defined Portfolios 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 Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten 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 initial investment in Class A
shares of any particular Fund or portfolio for each participant in the program
is $3,000 and the minimum monthly investment in Class A shares of any
particular Fund or portfolio by each participant is $50. No certificates will
be issued for any participant's account. All dividends and other distributions
by a Fund will be reinvested in additional Class A Shares of the same Fund. No
participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by calling Nuveen
toll-free (800) 257-8787.
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 one year 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.
S-45
<PAGE>
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and may be purchased by the following
categories of investors:
. investors purchasing $1,000,000 or more;
. 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, or their
immediate family members;
. 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.
. any eligible employer-sponsored qualified defined contribution retirement
plan. Eligible plans are those with at least 25 employees and which
either (a) make an initial purchase of one or more Nuveen Mutual Funds
aggregating $500,000 or more or (b) execute a Letter of Intent to
purchase in the aggregate $500,000 or more of fund shares. Nuveen will
pay Authorized Dealers a sales commission on such purchases equal to 1%
of the first $2.5 million, plus 2.5% of any amount purchased over $5.0
million. For this category of investors a contingent deferred sales
charge of 1% will be assessed on redemptions within 18 months of
purchase, unless waived. Municipal bond funds are not a suitable
investment for individuals investing in retirement plans.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. Holders of Class C Shares purchased after that date will not have
the option to convert those shares to Class A Shares.
Class B Shares will automatically convert to Class A Shares eight years after
purchase. The purpose of the conversion is to limit the distribution fees you
pay over the life of your investment. All conversions will be done at net asset
value without the imposition of any sales load, fee, or other charge, so that
the value of each shareholder's account immediately before conversion will be
the same as the value of the account immediately after conversion. Class B
Shares acquired through reinvestment of distributions will convert into Class A
Shares based on the date of the initial purchase to which such shares relate.
For this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. Class
B Shares that are converted to Class A Shares will remain subject to an annual
service fee that is identical in amount for both Class B Shares and Class A
Shares. Since net asset value per share of the Class B Shares and the Class A
Shares may differ at the time of conversion, a shareholder may receive more or
fewer Class A Shares than the number of Class B Shares converted. Any
conversion of Class B Shares into Class A Shares will be subject to the
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<PAGE>
continuing availability of an opinion of counsel or a private letter ruling
from the Internal Revenue Service to the effect that the conversion of shares
would not constitute a taxable event under federal income tax law. Conversion
of Class B Shares into Class A Shares might be suspended if such an opinion or
ruling were no longer available.
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, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $2.5 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds
and their immediate family members or trustees/directors of any fund,
sponsored by Nuveen, any parent company of Nuveen and subsidiaries
thereof and their immediate family members;
. 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, or their
immediate family members;
. 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.
. Any shares purchased by investors falling within any of the first four
categories listed above must be acquired for investment purposes and on
the condition that they will not be transferred or resold except through
redemption by the fund.
In addition, purchasers of Nuveen Defined Portfolios may reinvest their
distributions from such Defined Portfolios in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions
S-47
<PAGE>
in Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund
shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into
Class R Shares of any other Nuveen Fund.
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) 257-8787.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18
months of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, 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 Nuveen 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 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 systematic
withdrawal plan, up to 12% of the current market value. If a Fund waives or
reduces the CDSC,
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<PAGE>
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.
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen mutual funds
during specified time periods.
To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software, electronic information sites, or additional sales literature to
promote the advantages of using the Funds to meet these and other specific
investor needs.
Exchanges of shares of a Fund for shares of a Nuveen Money Market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
The Funds have reserved the right to redeem in kind (that is, to pay
redemption requests in cash and portfolio securities, or wholly in portfolio
securities), although the Funds have no present intention to redeem in kind.
The Funds voluntarily have committed to pay in cash all requests for redemption
by any shareholder, limited as to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value of a Fund at the
beginning of the ninety-day period.
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Shares" in
the Prospectus.
S-49
<PAGE>
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
and last renewed on July 31, 1998 ("Distribution Agreement"). Pursuant to the
Distribution Agreement, the Trust appointed Nuveen to be its agent for the
distribution of the Funds' shares on a continuous offering basis. Nuveen sells
shares to or through brokers, dealers, banks or other qualified financial
intermediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of the Trust.
Pursuant to the Distribution Agreement, Nuveen, at its own expense, finances
certain activities incident to the sale and distribution of the Funds' shares,
including printing and distributing of prospectuses and statements of
additional information to other than existing shareholders, the printing and
distributing of sales literature, advertising and payment of compensation and
giving of concessions to Dealers. Nuveen receives for its services the excess,
if any, of the sales price of the Funds' shares less the net asset value of
those shares, and reallows a majority or all of such amounts to the Dealers who
sold the shares; Nuveen may act as such a Dealer. Nuveen also receives
compensation pursuant to a distribution plan adopted by the Trust pursuant to
Rule 12b-1 and described herein under "Distribution and Service Plan." Nuveen
receives any CDSCs imposed on redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Financial Inc., which Nuveen acquired on
January 1, 1997) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Kansas Fund............. 255 35 251 35 384 51
Kentucky Fund........... 1,076 141 1,057 145 1,304 174
Kentucky Limited Fund... 25 5 23 4 -- --
Michigan Fund........... 397 55 553 76 594 81
Missouri Fund........... 490 36 632 87 892 120
Ohio Fund............... 891 113 931 124 1,066 141
Wisconsin Fund.......... 143 19 170 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.
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<PAGE>
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended May 31, 1998, 100% of service fees and distribution
fees were paid out as compensation to Authorized Dealers. The service fee for
Class A and Class C Shares was .20% and the distribution fee for Class B Shares
was .75% and for Class C Shares was .55% (.35% for the Kentucky Limited Term
Fund Class C Shares).
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1997
----------------------
<S> <C>
Kansas Municipal Bond Fund
Class A................................................ $195,749
Class B................................................ $ 16,985
Class C................................................ $ 5,028
Kentucky Municipal Bond Fund
Class A................................................ $888,602
Class B................................................ $ 22,890
Class C................................................ $203,304
Kentucky Limited Municipal Bond Fund
Class A................................................ $ 18,810
Class C................................................ $ 12,956
Michigan Bond Fund
Class A................................................ $525,468
Class B................................................ $ 14,397
Class C................................................ $328,163
Missouri Municipal Bond Fund
Class A................................................ $458,460
Class B................................................ $ 10,095
Class C................................................ $ 76,058
Ohio Municipal Bond Fund
Class A................................................ $946,661
Class B................................................ $ 40,065
Class C................................................ $324,807
Wisconsin Municipal Bond Fund
Class A................................................ $ 36,486
Class B................................................ $ 7,440
Class C................................................ $ 3,884
</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
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<PAGE>
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
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 has been selected as auditors for the Trust. 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 auditors as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of those auditors in giving their reports.
The custodian of the Funds' assets is The Chase Manhattan Bank, 4 New York
Plaza, New York, New York 10004. The custodian performs custodial, fund
accounting, and portfolio accounting services.
The Fund's transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports and are incorporated herein by reference.
The Annual Reports accompany this Statement of Additional Information.
S-52
<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.
A-1
<PAGE>
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-2
<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.
B-1
<PAGE>
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 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
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VAI-MS4-9.98
