<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1997.
1933 ACT REGISTRATION NO. 333-14725
1940 ACT REGISTRATION NO. 811-07873
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 3 [X]
</TABLE>
(Check appropriate box or boxes)
----------------
NUVEEN FLAGSHIP MUNICIPAL TRUST
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice With a copy to:
President and Assistant Secretary Thomas A. Harman
333 West Wacker Drive Fried, Frank, Harris, Shriver &
Chicago, Illinois 60606 Jacobson
(Name and Address of Agent for Service) 1001 Pennsylvania Ave., NW
Suite 800
Washington, D.C. 20004
APPROXIMATE DATE OF PROPOSED OFFERING: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Reg. (S) 270.24f-2 under the Investment Company Act of 1940,
Registrant hereby declares that an indefinite number or amount of shares are
being registered under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-14725
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-07873
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Cross-Reference Sheet
Part A-The Prospectus
Part B-The Statement of Additional Information
Copy of Annual Reports and Semi-Annual Reports to
Shareholders (the financial statements from which are
incorporated by reference into the Statement of Additional
Information)
Part C-Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
NUVEEN FLAGSHIP MUNICIPAL TRUST
----------------
CROSS REFERENCE SHEET
PART A--PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN PART A
OF FORM N-1A PROSPECTUS LOCATION
-------------- -------------------
<S> <C>
1 Cover Page Cover Page
2 Synopsis Expense Information
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Fund Strategies
5 Management of the Fund General Information
5A Management's Discussion of Fund Incorporated by Reference to Annual and
Performance Semi-Annual Reports to Shareholders; Taxes
and Tax Reporting
6 Capital Stock and Other How to Select a Purchase Option; Taxes and
Securities Tax Reporting
7 Purchase of Securities Being Investing in the Funds
Offered
8 Redemption or Repurchase How to Sell Fund Shares
9 Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM IN PART B LOCATION IN STATEMENT
OF FORM N- 1A OF ADDITIONAL INFORMATION
-------------- -------------------------
<S> <C>
10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History Not Applicable
13 Investment Objectives and Investment Policies and Investment
Policies Portfolio
14 Management of the Fund Management
15 Control Persons and Principal Management
Holders of Securities
16 Investment Advisory and Other Investment Adviser and Investment
Services Management Agreement; Portfolio
Transactions Distribution and Service Plan;
Independent Public Accountants and
Custodian
17 Brokerage Allocation and Other Portfolio Transactions
Practices
18 Capital Stock and Other See "How to Select a Purchase Option" and
Securities "Taxes and Tax Reporting" in the Prospectus
19 Purchase, Redemption and Pricing Additional Information on the Purchase and
of Securities Redemption of Fund Shares; Net Asset Value
20 Tax Status Tax Matters
21 Underwriters Additional Information on the Purchase and
Redemption of Fund Shares; See "Investing
in the Funds" and "Fund Service Providers"
in the Prospectus
22 Calculation of Performance Data Performance Information
23 Financial Statements Incorporated by Reference to Annual and
Semi-Annual Reports to Shareholders
</TABLE>
<PAGE>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MUNICIPAL TRUST
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
[LOGO OF NUVEEN] Prospectus
Municipal
Mutual
Funds
Dependable, tax-free income
to help you keep more
of what you earn.
[PHOTO OF WOMAN APPEARS HERE]
National
February 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
INVESTING IN NUVEEN MUTUAL FUNDS
Since our founding in 1898, John Nuveen & Co. has been synonymous with invest-
ments that withstand the test of time. Today, we offer a range of equity and
fixed-income mutual funds designed to suit the unique circumstances and finan-
cial planning needs of mature investors. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value-investing -- purchasing securities of strong companies and communities
at an attractive price -- is the cornerstone of Nuveen's investment philoso-
phy. A long-term strategy that offers the potential for above average returns
over time with moderated risk, successful value-investing begins with in-depth
research and a discerning eye for value. Our team of investment professionals
is backed by the discipline, resources and expertise of Nuveen's almost a
century of investment experience, including one of the most recognized
research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
- --------------------------------------------------------------------------------
OVERVIEW
The funds listed above are diversified funds and part of the Nuveen Municipal
Trust, an open-end investment company. Each fund seeks to provide high tax-
free income and preservation of capital through investments in diversified
portfolios of quality municipal bonds.
Each fund offers a set of flexible purchase options which permit you to
purchase fund shares in the way that is best suited to your individual circum-
stances and investment needs. For detailed information about these flexible
purchase options, please refer to "How to Select a Purchase Option" later in
this prospectus.
This prospectus contains important information you should know before invest-
ing. Please read it carefully and keep it for future reference. You can find
more detailed information about each fund in the statement of additional
information which is part of this prospectus by reference. For a free copy,
write to Nuveen or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY. SHARES OF THE
FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
OVERVIEW 1
FUND SUMMARIES AND FINANCIAL HIGHLIGHTS 2
FUND STRATEGIES
Investment Objective 12
How the Funds Select Investments 12
Risk Reduction Strategies 13
INVESTING IN THE FUNDS
How to Buy Fund Shares 14
How to Select a Purchase Option 15
How to Sell Fund Shares 16
Exchanging Shares 17
Optional Features and Services 18
DIVIDENDS AND TAXES
How the Funds Pay Dividends 20
Taxes and Tax Reporting 20
Taxable Equivalent Yields 21
GENERAL INFORMATION
How to Contact Nuveen 21
Fund Service Providers 21
How the Funds Report Performance 23
How Fund Shares are Priced 23
Organization 23
</TABLE>
FEBRUARY 1, 1997
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
November 29, 1976
NET ASSETS:
$2.9 billion
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.84% 5.27% 0.43% 4.52% 5.42%
5 YEARS 5.58% 6.53% 5.59% 5.70% 6.76%
10 YEARS 6.69% 7.17% 6.57% 6.38% 7.41%
INCEPTION 6.70% 6.94% 6.64% 6.15% 7.20%
</TABLE>
Class R total returns reflect actual performance for all periods; Class A and C
total returns reflect actual performance for periods since class inception, and
Class R performance for periods prior to class inception (see "Financial High-
lights" for dates), adjusted for the differences in sales charges and fees
between the classes. Class B total returns reflect Class R performance for all
periods, adjusted for the differences in sales charges and fees between the
classes. See Overview of Fund Operating Expenses and Shareholder Transaction
Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 21.3
Average Modified Duration 8.6
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AA (37%)
A (22%)
BBB (5%)
BB (1%)
NR (1%)
AAA (34%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Electric Utilities (21%)
Health Care Facilities (17%)
Housing Facilities (16%)
Escrowed Bonds (10%)
Water/Sewer Facilities (9%)
Other (27%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.45% 0.45% 0.45% 0.45%
12b-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.12% 0.12% 0.12% 0.12%
- -------------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.77% 1.52% 1.32% 0.57%
WAIVERS/
REIMBURSEMENTS -- -- -- --
- -------------------------------------------------------------------------------------------------
TOTAL (NET) 0.77% 1.52% 1.32% 0.57%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 50 $ 55 $ 13 $ 6
3 YEARS $ 66 $ 80 $ 42 $18
5 YEARS $ 83 $ 94 $ 72 $32
10 YEARS $133 $161 $159 $71
</TABLE>
Information as of As of 8/31/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Arthur Andersen LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
- ---------- ------------------------------------- ------------------------------
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
February 28/29, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (6/95)
1997 (g) $9.280 $.241 $(.206) $(.235) $ -- $9.080
- -------------------------------------------------------------------------------------
1996(d) 9.150 .340 .141 (.324) (.027) 9.280
- -------------------------------------------------------------------------------------
CLASS C (6/95)
1997(g) 9.260 .207 (.185) (.202) -- 9.080
- -------------------------------------------------------------------------------------
1996(d) 9.150 .290 .126 (.279) (.027) 9.260
- -------------------------------------------------------------------------------------
CLASS R (11/76)
1997(g) 9.280 .246 (.199) (.247) -- 9.080
- -------------------------------------------------------------------------------------
1996 9.000 .506 .313 (.512) (.027) 9.280
- -------------------------------------------------------------------------------------
1995 9.280 .515 (.209) (.511) (.075) 9.000
- -------------------------------------------------------------------------------------
1994 9.450 .519 (.075) (.516) (.098) 9.280
- -------------------------------------------------------------------------------------
1993 9.080 .555 .414 (.544) (.055) 9.450
- -------------------------------------------------------------------------------------
1992(e) 9.040 .239 .080 (.239) (.040) 9.080
- -------------------------------------------------------------------------------------
1991(f) 8.650 .579 .438 (.589) (.038) 9.040
- -------------------------------------------------------------------------------------
1990(f) 8.730 .596 (.080) (.596) -- 8.650
- -------------------------------------------------------------------------------------
1989(f) 8.520 .597 .239 (.597) (.029) 8.730
- -------------------------------------------------------------------------------------
1988(f) 8.020 .596 .536 (.596) (.036) 8.520
- -------------------------------------------------------------------------------------
1987(f) 8.780 .598 (.614) (.598) (.146) 8.020
- -------------------------------------------------------------------------------------
1986(f) 7.830 .595 1.162 (.595) (.212) 8.780
- -------------------------------------------------------------------------------------
1985(f) 7.180 .586 .650 (.586) -- 7.830
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
February 28/29, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A (6/95)
1997 (g) .40% $54.0 .82%+ 5.12%+ 9%
- -------------------------------------------------------------------------------------
1996(d) 5.33 37.1 .83+ 5.14+ 17
- -------------------------------------------------------------------------------------
CLASS C (6/95)
1997(g) .26 3.4 1.57+ 4.36+ 9
- -------------------------------------------------------------------------------------
1996(d) 4.59 1.9 1.58+ 4.39+ 17
- -------------------------------------------------------------------------------------
CLASS R (11/76)
1997(g) .54 2,807.2 .57+ 5.37+ 9
- -------------------------------------------------------------------------------------
1996 9.31 2,878.6 .59 5.53 17
- -------------------------------------------------------------------------------------
1995 3.60 2,741.2 .59 5.79 17
- -------------------------------------------------------------------------------------
1994 4.79 2,700.0 .62 5.49 15
- -------------------------------------------------------------------------------------
1993 11.04 2,371.7 .61 5.95 14
- -------------------------------------------------------------------------------------
1992(e) 3.56 1,835.7 .62+ 6.24+ 6
- -------------------------------------------------------------------------------------
1991(f) 12.15 1,661.4 .60 6.48 10
- -------------------------------------------------------------------------------------
1990(f) 6.04 1,323.6 .62 6.78 8
- -------------------------------------------------------------------------------------
1989(f) 10.07 1,119.8 .64 6.85 12
- -------------------------------------------------------------------------------------
1988(f) 14.50 945.4 .65 7.11 8
- -------------------------------------------------------------------------------------
1987(f) (.39) 764.1 .68 6.85 16
- -------------------------------------------------------------------------------------
1986(f) 23.02 668.4 .71 6.95 39
- -------------------------------------------------------------------------------------
1985(f) 17.73 459.6 .73 7.68 28
- -------------------------------------------------------------------------------------
</TABLE>
+Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value without any sales charge
and are annualized in the first year after commencement of class opera-
tions.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the five months ending February 29.
(f) For the year ending September 30.
(g) For the six months ending August 31, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective 2/1/97, the fund reduced the service fee on Class A and C shares
from 0.25% to 0.20% and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 0.82% to 0.77%
and on Class C from 1.57% to 1.32%. Long-term holders of Class B and C
shares may pay more in distribution fees and CDSCs than the maximum initial
sales charge permitted under National Association of Securities Dealers
(NASD) Rules of Fair Practice. Nuveen Advisory has agreed to waive some or
all of its fees or reimburse expenses to prevent total operating expenses
(not counting distribution and service fees) from exceeding 0.75% of the
fund's average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares prior to the end of each stated period,
your expenses might be higher. This example does not represent past or
future expenses; actual expenses may be higher or lower.
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Insured Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION:
December 22, 1986
NET ASSETS:
$793.8 million
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 1.05% 5.48% 0.64% 4.72% 5.64%
5 YEARS 6.49% 7.39% 6.43% 6.47% 7.60%
INCEPTION 7.04% 7.50% 6.89% 6.65% 7.74%
</TABLE>
Class R total returns reflect actual performance for all periods; Class A and C
total returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class R performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class B total returns reflect Class R performance for all periods,
adjusted for the differences in sales charges and fees between the classes. See
Overview of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 22.5
Average Modified Duration 8.7
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed (15%)
Insured (85%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Health Care Facilities (19%)
General Obligation Bonds (19%)
Escrowed Bonds (15%)
Lease Rental Facilities (11%)
Water/Sewer Facilities (10%)
Other (26%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS -- (1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.48% 0.48% 0.48% 0.48%
12b-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.16% 0.16% 0.16% 0.16%
- ------------------------------------------------
TOTAL (GROSS) 0.84% 1.59% 1.39% 0.64%
WAIVERS/
REIMBURSEMENTS -- -- -- --
- ------------------------------------------------
TOTAL (NET) 0.84% 1.59% 1.39% 0.64%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING
PERIOD CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 50 $ 56 $ 14 $ 7
3 YEARS $ 68 $ 82 $ 44 $20
5 YEARS $ 87 $ 98 $ 76 $36
10 YEARS $141 $169 $167 $80
</TABLE>
Information as of 8/31/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 4
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Arthur Andersen LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
- ------------------- -----------------------------------------------------------------
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Dividends
Net Realized from Tax- Distribu-
and Unreal- Exempt tions
Beginning Net ized Gain Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
February 28/29, Value Income(c) Investments(a) Income Gains Value
--------------- --------- ---------- -------------- ---------- --------- ---------
CLASS A (9/94)
1997(e) $10.970 $.274 $(.327) $(.267) $ -- $10.650
- -------------------------------------------------------------------------------------
1996 10.400 .542 .568 (.540) -- 10.970
- -------------------------------------------------------------------------------------
1995(d) 10.310 .264 .115 (.273) (.016) 10.400
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997(e) 10.850 .230 (.315) (.225) -- 10.540
- -------------------------------------------------------------------------------------
1996 10.310 .461 .540 (.461) -- 10.850
- -------------------------------------------------------------------------------------
1995(d) 10.290 .227 .075 (.266) (.016) 10.310
- -------------------------------------------------------------------------------------
CLASS R (12/86)
1997(e) 10.920 .282 (.323) (.279) -- 10.600
- -------------------------------------------------------------------------------------
1996 10.380 .570 .540 (.570) -- 10.920
- -------------------------------------------------------------------------------------
1995 10.810 .573 (.407) (.580) (.016) 10.380
- -------------------------------------------------------------------------------------
1994 10.850 .574 .012 (.565) (.061) 10.810
- -------------------------------------------------------------------------------------
1993 10.030 .591 .880 (.589) (.062) 10.850
- -------------------------------------------------------------------------------------
1992 9.690 .612 .425 (.617) (.080) 10.030
- -------------------------------------------------------------------------------------
1991 9.520 .617 .198 (.611) (.034) 9.690
- -------------------------------------------------------------------------------------
1990 9.350 .627 .262 (.630) (.089) 9.520
- -------------------------------------------------------------------------------------
1989 9.300 .629 .050 (.629) -- 9.350
- -------------------------------------------------------------------------------------
1988 9.790 .637 (.490) (.637) -- 9.300
- -------------------------------------------------------------------------------------
1987(d) 9.600 .127 .190 (.127) -- 9.790
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
February 28/29, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
CLASS A (9/94)
1997(e) (.46)% $57.5 .89%+ 5.04%+ 20%
- -------------------------------------------------------------------------------------
1996 10.90 46.9 .91 5.01 27
- -------------------------------------------------------------------------------------
1995(d) 3.84 14.1 1.00+ 5.55+ 25
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997(e) (.76) 5.2 1.64+ 4.29+ 20
- -------------------------------------------------------------------------------------
1996 9.88 5.2 1.63 4.34 27
- -------------------------------------------------------------------------------------
1995(d) 3.09 4.0 1.75+ 4.83+ 25
- -------------------------------------------------------------------------------------
CLASS R (12/86)
1997(e) (.35) 731.1 .64+ 5.29+ 20
- -------------------------------------------------------------------------------------
1996 10.94 762.0 .63 5.33 27
- -------------------------------------------------------------------------------------
1995 1.85 736.7 .64 5.67 25
- -------------------------------------------------------------------------------------
1994 5.47 745.9 .65 5.21 11
- -------------------------------------------------------------------------------------
1993 15.24 567.2 .72 5.68 20
- -------------------------------------------------------------------------------------
1992 11.03 306.9 .73 6.12 45
- -------------------------------------------------------------------------------------
1991 8.94 178.9 .80 6.45 53
- -------------------------------------------------------------------------------------
1990 9.73 111.8 .83 6.49 78
- -------------------------------------------------------------------------------------
1989 7.63 66.0 .87 6.83 106
- -------------------------------------------------------------------------------------
1988 2.00 41.3 .60 6.93 88
- -------------------------------------------------------------------------------------
1987(d) 3.31 13.2 -- 4.00+ --
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value without any sales charge
and are annualized in the first year after commencement of class opera-
tions.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable by Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending August 31, 1996.
- -------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed
on redemptions of certain purchases of $1 million or more within 18 months
of purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective 2/1/97, the fund reduced the service fee on Class A and C shares
from 0.25% to 0.20% and reduced the distribution fee on Class C shares
from 0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A from 0.89% to 0.84%
and on Class C from 1.64% to 1.39%. Long-term holders of Class B and C
shares may pay more in distribution fees and CDSCs than the maximum initial
sales charge permitted under National Association of Securi-ties Dealers
(NASD) Rules of Fair Practice. Nuveen Advisory has agreed to waive some or
all of its fees or reimburse expenses to prevent total operating expenses
(not counting distribution and service fees) from exceeding 0.975% of the
fund's average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares prior to the end of each stated
period, your expenses might be higher. This example does not represent
past or future expenses; actual expenses may be higher or lower.
- ------------------------------------------------------------------------------
PAGE 5
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship All-American Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: October 3, 1988
NET ASSETS: $274.2 million
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 1.88% 6.35% 1.77% 5.77% 6.35%
5 YEARS 7.57% 8.50% 7.76% 7.85% 8.50%
INCEPTION 8.35% 8.93% 8.34% 8.30% 8.93%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class B and Class R total returns reflect Class A performance for
all periods, adjusted for the differences in sales charges (and for Class B,
fees) between the classes. See Overview of Fund Operating Expenses and Share-
holder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 22.7
Average Modified Duration 7.7
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
NR (12%)
AAA (17%)
AA (7%)
A (25%)
BBB (39%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Industrial Development and Pollution Control (22%)
Hospitals (17%)
Municipal Appropriation Obligations (10%)
Education (7%)
Health Care (7%)
Other (37%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.49% 0.49% 0.49% 0.49%
12b-1 FEES 0.20% 0.95% 0.75% --
OTHER 0.10% 0.10% 0.10% 0.10%
- -------------------------------------------------------------------------------------------------
TOTAL (GROSS) 0.79% 1.54% 1.34% 0.59%
WAIVERS/
REIMBURSEMENTS -- -- -- --
- -------------------------------------------------------------------------------------------------
TOTAL (NET) 0.79% 1.54% 1.34% 0.59%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 50 $ 55 $ 14 $ 6
3 YEARS $ 66 $ 81 $ 42 $19
5 YEARS $ 84 $ 95 $ 73 $33
10 YEARS $136 $163 $161 $74
</TABLE>
Information as of 11/30/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP., the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a copy of
the fund's latest annual and semi-annual reports, write to Nuveen or call (800)
621-7227.
<TABLE>
- ------------------- -----------------------------------------------------------------
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
CLASS A (10/88)
1997(e) $10.67 $.30 $ .44 $(.30) $ -- $11.11
- -------------------------------------------------------------------------------------
1996 10.79 .61 (.12) (.61) -- 10.67
- -------------------------------------------------------------------------------------
1995 10.61 .63 .18 (.63) -- 10.79
- -------------------------------------------------------------------------------------
1994 11.07 .65 (.30) (.65) (.16) 10.61
- -------------------------------------------------------------------------------------
1993 10.40 .67 .76 (.67) (.09) 11.07
- -------------------------------------------------------------------------------------
1992 9.95 .69 .45 (.69) -- 10.40
- -------------------------------------------------------------------------------------
1991 9.73 .72 .22 (.72) -- 9.95
- -------------------------------------------------------------------------------------
1990 9.81 .71 (.06) (.72) (.01) 9.73
- -------------------------------------------------------------------------------------
1989(d) 9.58 .46 .23 (.46) -- 9.81
- -------------------------------------------------------------------------------------
CLASS C (6/93)
1997(e) 10.66 .27 .44 (.27) -- 11.10
- -------------------------------------------------------------------------------------
1996 10.78 .55 (.12) (.55) -- 10.66
- -------------------------------------------------------------------------------------
1995 10.60 .57 .18 (.57) -- 10.78
- -------------------------------------------------------------------------------------
1994(d) 11.09 .57 (.32) (.57) (.17) 10.60
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
CLASS A (10/88)
1997(e) 14.05%+ $220.9 .90%+ 5.51%+ 23%
- -------------------------------------------------------------------------------------
1996 4.64 208.0 .83 5.60 79
- -------------------------------------------------------------------------------------
1995 8.01 185.5 .76 6.02 71
- -------------------------------------------------------------------------------------
1994 2.99 159.9 .62 5.77 81
- -------------------------------------------------------------------------------------
1993 14.25 170.8 .65 6.24 72
- -------------------------------------------------------------------------------------
1992 11.94 129.5 .56 6.81 86
- -------------------------------------------------------------------------------------
1991 10.10 79.6 .42 7.33 94
- -------------------------------------------------------------------------------------
1990 6.92 49.0 .42 7.29 132
- -------------------------------------------------------------------------------------
1989(d) 10.66 25.7 -- 7.27+ 57
- -------------------------------------------------------------------------------------
CLASS C (6/93)
1997(e) 13.47+ 53.2 1.45+ 4.95+ 23
- -------------------------------------------------------------------------------------
1996 4.07 47.3 1.37 5.05 79
- -------------------------------------------------------------------------------------
1995 7.42 45.2 1.31 5.47 71
- -------------------------------------------------------------------------------------
1994(d) 2.16 40.0 1.09+ 5.16+ 81
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value without any sales charge and
are annualized in the first year after commencement of class operations.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997 the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A shares from 0.99% to
0.79% and on Class C shares from 1.54% to 1.34%, as reflected in the table.
Long-term holders of Class B and C shares may pay more in distribution fees
and CDSCs than the maximum initial sales charge permitted under National
Association of Securities Dealers (NASD) Rules of Fair Practice. The
waiver/reimbursement levels shown reflect Nuveen's current undertaking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers--Investment Adviser," to continue Flagship's
general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
stated period, your expenses might be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
- -------------------------------------------------------------------------------
PAGE 7
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Intermediate Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: September 15, 1992
NET ASSETS: $49.1 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS C CLASS R
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 2.65% 5.83% 4.93% 5.83%
INCEPTION 6.72% 7.49% 6.82% 7.49%
- --------------------------------------------------------------------------------------------------
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class R total returns reflect Class A performance for all periods,
adjusted for the differences in sales charges between the classes. See Overview
of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 8.9
Average Modified Duration 6.8
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA (43%)
AA (7%)
A (20%)
BBB (20%)
NR (10%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Hospitals (25%)
Municipal Revenue/Transportation (13%)
Municipal Appropiration Obligations (10%)
Non-State General Obligations (10%)
Municipal Revenue/Water & Sewer (8%)
Other (34%)
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES CHARGE ON PURCHASES 3.00%(1) -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- --
CONTINGENT DEFERRED SALES
CHARGE (CDSC) ON REDEMPTIONS -- (1) 1%(2) --
</TABLE>
- --------------------------------------------------------------------------------
OVERVIEW OF FUND OPERATING EXPENSES (3)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANAGEMENT FEES 0.50% 0.50% 0.50%
12b-1 FEES 0.20% 0.75% --
OTHER 0.32% 0.32% 0.32%
- -------------------------------------------------------------------------------------------------
TOTAL (GROSS) 1.02% 1.57% 0.82%
WAIVERS/
REIMBURSEMENTS (0.40%) (0.40%) (0.40%)
- -------------------------------------------------------------------------------------------------
TOTAL (NET) 0.62% 1.17% 0.42%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (4)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR $ 36 $ 12 $ 4
3 YEARS $ 49 $ 37 $13
5 YEARS $ 64 $ 64 $24
10 YEARS $105 $142 $53
</TABLE>
Information as of (11/30/96) See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 8
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
- --------------------------------------------- --------------------------------
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION
DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income(c) Investments(a) Income Gains Value
------------- --------- ---------- -------------- ---------- --------- ---------
<C> <C> <C> <C> <C> <C> <C>
CLASS A
(9/92)
1997(e) $10.27 $.26 $ .38 $(.26) $ -- $10.65
- ---------------------------------------------------------------------------------
1996 10.29 .51 (.02) (.51) -- 10.27
- ---------------------------------------------------------------------------------
1995 10.16 .51 .13 (.51) -- 10.29
- ---------------------------------------------------------------------------------
1994 10.35 .52 (.13) (.52) (.06) 10.16
- ---------------------------------------------------------------------------------
1993(d) 9.70 .36 .64 (.35) -- 10.35
- ---------------------------------------------------------------------------------
CLASS C
(12/95)
1997(e) 10.28 .22 .38 (.23) -- 10.65
- ---------------------------------------------------------------------------------
1996(d) 10.57 .23 (.30) (.22) -- 10.28
- ---------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Total Net Assets Average Net Average Turnover
Return(b) (millions) Assets(c) Net Assets(c) Rate
-------------------- --------------------------- ---------
<C> <C> <C> <S> <C>
12.57%+ $46.8 .71%+ 4.91%+ 10%
- ---------------------------------------------------------------------------------
4.84 46.7 .62 4.86 81
- ---------------------------------------------------------------------------------
6.63 42.1 .54 5.15 102
- ---------------------------------------------------------------------------------
3.72 35.9 .40 4.93 69
- ---------------------------------------------------------------------------------
14.06 19.0 .39+ 4.98+ 102
- ---------------------------------------------------------------------------------
11.77+ 2.3 1.26+ 4.29+ 10
- ---------------------------------------------------------------------------------
(1.78) 1.2 1.13+ 4.28+ 81
- ---------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value without any sales charge
and are annualized in the first year after commencement of class opera-
tions.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) Imposed only on redemptions within 12 months of purchase.
(3) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A shares from 0.82% to
0.62% and on Class C shares from 1.37% to 1.17%, as reflected in the table.
Long-term holders of Class C shares may pay more in distribution fees and
CDSCs than the maximum initial sales charge permitted under National
Association of Securities Dealers (NASD) Rules of Fair Practice. The
waiver/reimbursement levels shown reflect Nuveen's current undertaking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers--Investment Adviser," to continue Flagship's
general dividend-setting practices.
(4) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to
the end of each stated period, your expenses might be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- --------------------------------------------------------------------------------
PAGE 9
<PAGE>
- --------------------------------------------------------------------------------
Nuveen Flagship Limited Term Municipal Bond Fund
PERFORMANCE INFORMATION
INCEPTION: October 19, 1987
NET ASSETS: $487.3 million
- --------------------------------------------------------------------------------
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS C CLASS R
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-YEAR 2.27% 4.89% 4.55% 4.89%
5-YEARS 5.75% 6.28% 5.96% 6.28%
INCEPTION 6.57% 6.87% 6.55% 6.87%
</TABLE>
Class A total returns reflect actual performance for all periods; Class C total
returns reflect actual performance for periods since class inception (see
"Financial Highlights" for dates), and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges and fees between
the classes. Class R total returns reflect Class A performance for all periods,
adjusted for the differences in sales charges between the classes. See Overview
of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits this
risk by purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies in the prospectus for further information.
- --------------------------------------------------------------------------------
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 5.5
Average Modified Duration 4.5
- --------------------------------------------------------------------------------
CREDIT QUALITY
[PIE CHART APPEARS HERE]
BBB (21%)
NR (6%)
AAA (42%)
AA (6%)
A (25%)
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Municipal Appropriation Obligations (19%)
Hospitals (16%)
Non-State General Obligations (8%)
Municipal Revenue/Transportation (7%)
Municipal Revenue/Utility (7%)
Other (43%)
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES CHARGE ON PURCHASES 2.50%(1) -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 1%(2) --
- ----------------------------------------------------------------------------------
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (3)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- ----------------------------------------
<S> <C> <C> <C>
MANAGEMENT FEES 0.43% 0.43% 0.43%
12b-1 FEES 0.20% 0.55% --
OTHER EXPENSES 0.13% 0.13% 0.13%
- ----------------------------------------
TOTAL (GROSS) 0.76% 1.11% 0.56%
WAIVERS/
REIMBURSEMENTS -- -- --
- ----------------------------------------
TOTAL (NET) 0.76% 1.11% 0.56%
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SHAREHOLDER EXPENSES (4)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING
PERIOD CLASS A CLASS C CLASS R
- ---------------------------------
<S> <C> <C> <C>
1 YEAR $ 33 $ 11 $ 6
3 YEARS $ 49 $ 35 $18
5 YEARS $ 66 $ 61 $31
10 YEARS $117 $135 $70
</TABLE>
Information as of 8/31/96 See Notes on Next Page
- --------------------------------------------------------------------------------
PAGE 10
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
- --------------------------------------------- ---------------------------------
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31, Value Income Investments(a) Income Gains Value
---------------- --------- ---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (10/87)
1997(e) $10.57 $.25 $ .20 $(.25) $ -- $10.77
- -------------------------------------------------------------------------------------
1996 10.65 .51 (.09) (.50) -- 10.57
- -------------------------------------------------------------------------------------
1995 10.60 .51 .04 (.50) -- 10.65
- -------------------------------------------------------------------------------------
1994 10.74 .52 (.13) (.52) (.01) 10.60
- -------------------------------------------------------------------------------------
1993 10.29 .55 .45 (.55) -- 10.74
- -------------------------------------------------------------------------------------
1992 10.04 .60 .26 (.60) (.01) 10.29
- -------------------------------------------------------------------------------------
1991 9.92 .63 .13 (.64) -- 10.04
- -------------------------------------------------------------------------------------
1990 9.91 .64 .01 (.64) -- 9.92
- -------------------------------------------------------------------------------------
1989 9.88 .62 .02 (.61) -- 9.91
- -------------------------------------------------------------------------------------
1988(d) 9.75 .36 .13 (.36) -- 9.88
- -------------------------------------------------------------------------------------
CLASS C (12/95)
1997(e) 10.56 .24 .20 (.23) -- 10.77
- -------------------------------------------------------------------------------------
1996(d) 10.76 .22 (.19) (.23) -- 10.56
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31, Return(b) (millions) Assets(c) Net Assets(c) Rate
- ------------------ --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A (10/87)
1997(e) 8.59%+ $467.2 .81%+ 4.74%+ 14%
- -------------------------------------------------------------------------------------
1996 4.03 489.2 .79 4.77 39
- -------------------------------------------------------------------------------------
1995 5.41 569.2 .74 4.88 20
- -------------------------------------------------------------------------------------
1994 3.58 704.6 .70 4.76 22
- -------------------------------------------------------------------------------------
1993 10.02 570.5 .70 5.10 20
- -------------------------------------------------------------------------------------
1992 9.04 284.5 .47 5.88 48
- -------------------------------------------------------------------------------------
1991 8.08 67.5 .56 6.32 167
- -------------------------------------------------------------------------------------
1990 6.83 19.0 .70 6.48 38
- -------------------------------------------------------------------------------------
1989 6.81 13.4 .56 6.28 50
- -------------------------------------------------------------------------------------
1988(d) 7.44 9.8 .41+ 5.84+ 67
- -------------------------------------------------------------------------------------
CLASS C (12/95)
1997(e) 8.48+ 20.2 1.11+ 4.41+ 14
- -------------------------------------------------------------------------------------
1996(d) .46 15.4 1.19+ 4.17+ 39
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value without any sales charge
and are annualized in the first year after commencement of class
operations.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Flagship Financial, predecessor to Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the six months ending November 30, 1996.
- -------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase
or for certain eligible categories of investors. A CDSC of 1% is imposed
on redemptions of certain purchases of $1 million or more within 18 months
of purchase.
(2) Imposed only on redemptions within 12 months of purchase.
(3) Effective February 1, 1997, the fund eliminated the 0.20% distribution fee
on Class A shares and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table and are
expected to reduce total operating expenses on Class A shares from 0.96%
to 0.76% and on Class C shares from 1.31% to 1.11%, as reflected in the
table. Long-term holders of Class C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under
National Association of Securities Dealers (NASD) Rules of Fair Practice.
The waiver/reimbursement levels shown reflect Nuveen's current undertak-
ing, made in connection with its acquisition of Flagship Resources as
described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(4) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to
the end of each stated period, your expenses might be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- -------------------------------------------------------------------------------
PAGE 11
<PAGE>
FUND STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level of
current interest income exempt from regular federal income taxes as is consis-
tent with preservation of capital. There is no assurance that the funds will
achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401k plan;
. Avoid fluctuations in share price.
- --------------------------------------------------------------------------------
HOW THE FUNDS SELECT
INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal income taxes. Income from these bonds may be subject to
the federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by the
full faith and credit, or taxing authority, of the issuer and may be repaid
from any revenue source; revenue bonds may be repaid only from the revenues of
a specific facility or source.
The Nuveen Insured Fund primarily purchases insured municipal bonds. See
"Insurance" below. Under normal market conditions, the Nuveen Insured Fund will
invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds focus on quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. Each fund except the Insured Municipal Bond Fund will
invest at least 80% of its net assets in investment-grade quality bonds. The
Insured Municipal Bond Fund will invest at least 80% of its net assets in
insured municipal bonds or municipal bonds backed by an escrow or trust account
that contains sufficient U.S. government-backed securities to assure timely
payment of interest and principal.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase leases where the issuer has a strong
incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not iden-
tical--S&P and Fitch consider bonds rated BBB to have adequate capacity to pay
principal and interest; Moody's considers bonds rated Baa to have some specula-
tive characteristics. Bond ratings represent the opinions of the ratings agen-
cies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The adviser
then monitors each fund's portfolio to assure that municipal bonds purchased
continue to represent over time, in its opinion, the best values available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an invest-
ment portfolio with an overall weighted average maturity within a defined
range. The Limited-Term Fund maintains a weighted average portfolio maturity of
1 to 7 years. The Intermediate Fund maintains a weighted average portfolio
maturity of 5 to 10 years. All of the other three funds described in this
- --------------------------------------------------------------------------------
PAGE 12
<PAGE>
prospectus are long-term funds and normally maintain a weighted average port-
folio maturity of 15 to 30 years. See "Defensive Investment Strategies" below
for further information.
INSURANCE
Insured municipal bonds are purchased primarily by the Insured Fund. Insured
municipal bonds are either covered by individual, permanent insurance policies
(obtained either at the time of issuance or subsequently), or covered "while in
fund" under a master portfolio insurance policy purchased by a fund. Insurance
guarantees only the timely payment of interest and principal on the bonds; it
does not guarantee the value of either individual bonds or fund shares.
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of such
a bond would not benefit from the insurance. Insurers under master portfolio
insurance policies currently include MBIA Insurance Corp., AMBAC Indemnity
Corp., Financial Security Assurance, Inc., and Financial Guaranty Insurance Co.
The funds' investment adviser may obtain master policies from other insurers,
but only from insurers that specialize in insuring municipal bonds and whose
claims-paying ability is rated Aaa or AAA by Moody's or S&P. Insurers are
responsible for making their own assessment of the insurability of a municipal
bond.
An insured fund can invest up to 20% of its net assets in uninsured municipal
bonds which are backed by an escrow containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment of principal and
interest. Such bonds are normally regarded as having the credit characteristics
of the underlying U.S. Government-backed securities.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is sold
and replaced with new securities during a year is known as the fund's portfolio
turnover rate. The funds intend to keep portfolio turnover relatively low in
order to reduce trading costs and the realization of taxable capital gains.
Each fund, however, may make limited short-term trades to take advantage of
market opportunities and reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of risk
because no interest accrues on the bonds prior to settlement and, since securi-
ties are subject to market fluctuation, the value of the bonds at time of
delivery may be less (or more) than cost.
- --------------------------------------------------------------------------------
RISK REDUCTION
STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is the
risk that changes in market interest rates will affect the value of a fund's
investment portfolio. In general, the value of a municipal bond falls when
interest rates rise, and increases when interest rates fall. Credit risk is the
risk that an issuer of a municipal bond is unable to meet its obligation to
make interest and principal payments. In general, lower rated municipal bonds
are perceived to carry a greater degree of risk in the issuer's ability to make
interest and principal payments. Municipal bonds with longer maturities (dura-
tions) or lower ratings generally provide higher current income, but are
subject to greater price fluctuation due to changes in market conditions than
bonds with shorter maturities or higher ratings, respectively.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios geographically as well as across different industry sectors.
The funds should be considered long-term investments and may not be suitable
for investors with short-term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund
assets) designed to limit your investment risk and maintain portfolio diversi-
fication. Each fund may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
. 25% in any one industry sector, such as electric utilities or health care;
. 10% in borrowings (33% if used to meet redemptions).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities that
are exempt from regular federal income tax, although the funds may invest up to
100% as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
- --------------------------------------------------------------------------------
PAGE 13
<PAGE>
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA,
by Moody's or S&P, respectively, or issued by the U.S. government, and that
have a maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the
risk of bond price fluctuations and to preserve capital. These hedging strate-
gies include using financial futures contracts, options on financial futures,
or options based on either an index of long-term tax-free securities or on
debt securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," "Insurance," and "Risk Reduction Strate-
gies" are fundamental and may not be changed without the approval of a
majority of the shareholders of each fund.
INVESTING IN THE FUNDS
- -------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
You may open an account with $3,000 and make additional investments at any
time with as little as $50. Reinvestment of Nuveen unit trust distributions
have no purchase minimums. The share price you pay will depend on when Nuveen
receives your order: orders received before the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time) will receive that
day's share price; otherwise you will receive the next business day's share
price.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial
advisers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments
continue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can
refer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to
the appropriate fund) to the address listed under "How to Contact Nuveen."
Sales charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or
increase minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
- -------------------------------------------------------------------------------
PAGE 14
<PAGE>
- --------------------------------------------------------------------------------
HOW TO SELECT A PURCHASE
OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your financial
adviser work on a commission or fee basis, the types of services that you will
receive, the amount you intend to buy, how long you plan to own your investment
and whether or not you will reinvest dividends. If you compensate your finan-
cial adviser directly, you should consider the fees your financial adviser
charges for investment advice or handling your trades in addition to any sales
charges and fees imposed by the funds. Please refer to your financial adviser's
sales material for further information. Each class of shares is described in
more detail below and under "Fund Service Providers--The Distributor." Your
financial adviser can explain each option and help you determine which is most
appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of
purchase. The price you pay will equal the Class A NAV (net asset value) plus a
sales charge based upon the amount of your purchase. Class A shares also bear a
0.20% annual service fee which compensates your financial adviser for providing
you with ongoing service.
The following Class A sales charges and commissions apply to all funds
described in this prospectus except the Intermediate Fund and Limited Term
Funds.
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over --(1) -- --(1)
</TABLE>
The following Class A sales charges and commissions apply to the Intermediate
Fund:
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 3.00% 3.09% 2.50%
$50,000-100,000 2.50 2.56 2.00
$100,000-250,000 2.00 2.04 1.50
$250,000-500,000 1.50 1.52 1.25
$500,000-1,000,000 1.25 1.27 1.00
$1,000,000 and over --(1) -- --(1)
</TABLE>
The following Class A sales charges and commissions apply to the Limited Term
Municipal Bond Fund:
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 2.50% 2.56% 2.00%
$50,000-100,000 2.00 2.04 1.60
$100,000-250,000 1.50 1.52 1.20
$250,000-500,000 1.25 1.27 1.00
$500,000-1,000,000 0.75 0.76 0.60
$1,000,000 and over --(1) -- --(1)
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commission,
you may be assessed a contingent deferred sales charge (CDSC) of 1% if you
redeem any of your shares within 18 months of purchase. The CDSC is calcu-
lated on the lower of your purchase price or redemption proceeds.
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
Nuveen periodically undertakes sales promotion programs with authorized
dealers and may pay them the full applicable sales charge as a commission. In
addition, Nuveen may provide support to authorized dealers in connection with
sales meetings, seminars, prospecting seminars and other events at which
Nuveen presents its products and services. Under certain circumstances, Nuveen
also will share with authorized dealers up to half the costs of advertising
that features the products and services of both parties. The statement of
additional information contains further information about these programs.
Nuveen pays for these programs at its own expense and not out of fund assets.
- -------------------------------------------------------------------------------
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions Sales Charge Waivers
. Rights of Accumulation . Unit Trust Reinvestment
. Letter of Intent (LOI) . Purchases using Redemptions from Unrelated Funds
. Group Purchase . Fee-Based Programs
. Bank Trust Departments
. Certain Employees of Nuveen or Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of
purchase. The price you pay will equal the Class B NAV. There is no initial
sales charge, but Class B shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your finan-
cial adviser a 4% commission at the time of purchase. The Intermediate Fund
and Limited Term Fund do not currently offer B Shares.
Class B shares convert automatically to Class A shares eight years after
purchase. Class B shares will convert only if the fund is assured that the
conversion does not generate tax consequences for investors, based upon the
opinion of outside counsel or the written assurance of the IRS.
- -------------------------------------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be
assessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
<TABLE>
<CAPTION>
DURING YEAR
---------------------------
1 2 3 4 5 6 7+
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of
purchase. The price you pay will equal the Class C NAV. There is no initial
sales charge, but Class C shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.55% (0.35% for the Limited Term Fund) annual distribution fee which compen-
sates Nuveen for paying your financial adviser for the sale, including a 1%
commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you are investing at least $1 million or would otherwise
qualify to purchase Class A shares without a sales charge as described under
"Other Sales Charge Discounts" above. There are no sales charges or ongoing
fees. Class R Shares have lower ongoing expenses than Class A Shares.
- -------------------------------------------------------------------------------
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
- -------------------------------------------------------------------------------
PAGE 16
<PAGE>
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will be
issued only to the shareholder on record and mailed to the address on record.
If you have established electronic funds transfer privileges on your account,
you may have redemption proceeds transferred electronically to your bank
account; if you are redeeming $1,000 or more, you may expedite your request by
having your redemption proceeds wired directly into your bank account.
Nuveen, Shareholder Services, Inc. ("SSI") and Boston Financial Data Services
("Boston Financial") will be liable for losses resulting from unauthorized
telephone redemptions only if they do not follow reasonable procedures designed
to verify the identity of the caller. You should immediately verify your trade
confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
. The address you want your redemption proceeds sent to, if other than the
address of record;
. Any certificates you have for the shares; and
. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A notary
public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no event
more than seven days from receipt of your redemption request. If any shares
were purchased less than 15 days prior to your request, the fund will not mail
your redemption proceeds until the check for your purchase has cleared, which
may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more than
seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the fund
will first redeem any shares that are not subject to a CDSC or that represent
an increase in the value of your fund account due to capital 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.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an involun-
tary redemption.
- --------------------------------------------------------------------------------
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in
another Nuveen mutual fund registered for sale in your state. You may exchange
fund shares by calling (800) 621-7227 or by mailing your written request to
Nuveen at the address listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are
- --------------------------------------------------------------------------------
PAGE 17
<PAGE>
exchanging. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of deter-
mining any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on fund
shareholders. In order to limit excessive exchange activity and in other
circumstances where the funds' investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges, or
reject any exchange. You will be notified in the event this happens to the
extent required by law.
- --------------------------------------------------------------------------------
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund
Direct--Electronic Funds Transfer" below), or directly from your paycheck. To
invest regularly from your bank account, simply complete the appropriate
section of the account application. To invest regularly from your paycheck,
call Nuveen for a Payroll Direct Deposit Enrollment form. If you need addi-
tional copies of these forms, or would like assistance completing them, contact
your financial adviser or call Nuveen at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to
continue investing in declining as well as rising markets before deciding to
invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
- --------------------------------------------------------------------------------
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
<TABLE>
<CAPTION>
(CHART APPEARS HERE)
ACCOUNT VALUES FOR TOTAL RETURNS OF
AMOUNT -------------------------------------
YEAR INVESTED 4.00% 5.00% 6.00%
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
0 $ 2,874 $ 2,874 $ 2,874 $ 2,874
5 8,622 9,861 10,203 10,561
10 14,370 18,391 19,610 20,929
15 20,118 28,807 31,681 34,913
20 25,866 41,525 47,173 53,779
</TABLE>
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly or semi-annually, and may choose to receive a
check, have the monies transferred directly into your bank account (see "Fund
Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must
complete the appropriate section of the account application to participate in
the fund's systematic withdrawal plan. If you need additional copies of this
form, or would like assistance completing it, contact your financial adviser or
call Nuveen at (800) 621-7227.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares on which you paid an initial sales charge or contin-
gent deferred sales charge
- --------------------------------------------------------------------------------
PAGE 18
<PAGE>
(CDSC), you may reinvest all or part of your redemption proceeds up to one
year later without incurring any additional charge. You may only reinvest into
the same class of shares you redeemed and will receive the share price next
determined after Nuveen receives your reinvestment request. You may exercise
this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of
exercising your reinstatement privilege.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation. If you need additional copies of this form, or would like assistance
completing it, contact your financial adviser or call Nuveen at (800) 621-
7227. You may Fund Direct transfer to quickly and conveniently purchase or
sell shares by telephone, systematically invest or withdraw funds, or send
dividend payments directly to your bank account.
If you have established electronic funds transfer privileges on your account,
you may request that redemption proceeds of $1,000 or more be wired directly
into your bank account. While you will generally receive your redemption
proceeds more quickly than a regular telephone redemption, the fund may charge
you a fee for this expedited service.
- -------------------------------------------------------------------------------
PAGE 19
<PAGE>
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends on or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares unless you request otherwise. You may request to have your dividends
paid to you by check, deposited directly into your bank account, paid to a
third party, sent to an address other than your address of record or rein-
vested in shares of another Nuveen mutual fund. If you wish to do so, complete
the appropriate section of the account application, contact your financial
adviser or call Nuveen at (800) 621-7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
- -------------------------------------------------------------------------------
TAXES AND TAX REPORTING
The discussion below and in the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
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.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of
its investment income by state and the portion of its income that is subject
to AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, this is commonly known as "buying a dividend." The entire dividend you
receive may be taxable to you even though a portion of the dividend effec-
tively 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.
TAX CONSEQUENCES OF PRIVATE ACTIVITY BONDS
Because each fund may invest in private activity bonds, the portion of your
regular monthly dividends derived from the income earned on these bonds that
would otherwise be tax-exempt will be treated as taxable income if:
. you are subject to the AMT (including corporate shareholders);
. you are a "substantial user" of a facility financed by these bonds; or
. you are a "related person" of a substantial user.
- -------------------------------------------------------------------------------
PAGE 20
<PAGE>
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be
taxable as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free
income is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
<TABLE>
<CAPTION>
TAX-FREE YIELD
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- -------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or
conduct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
Nuveen Mutual Funds
c/o Shareholder Services Inc.
P.O. Box 5330
Denver, CO 80217-5330
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the Fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are
opening a new account; if you are adding to an existing account, Nuveen will
assume you wish to buy more shares of the class you already own.
- -------------------------------------------------------------------------------
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The activities of Nuveen
Advisory, which also include managing the funds' business affairs and
- -------------------------------------------------------------------------------
PAGE 21
<PAGE>
providing certain clerical, bookkeeping and other administrative services, are
overseen by the funds' Board of Trustees. Established in 1976, Nuveen Advisory
is a wholly-owned subsidiary of John Nuveen & Co. Incorporated, which itself
is approximately 78% owned by the St. Paul Companies, Inc. Effective January
1, 1997, The John Nuveen Company acquired Flagship Resources Inc., and as part
of that acquisition, Flagship Financial, the adviser to the Flagship Funds,
was merged with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management
fee. The following schedule applies to all funds described in this prospectus
except the Limited Term Fund:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
NET ASSET VALUE FEE
- --------------------------------------
<S> <C>
For the first $125 million 0.5000%
For the next $125 million 0.4875%
For the next $250 million 0.4750%
For the next $500 million 0.4625%
For the next $1 billion 0.4500%
For assets over $2 billion 0.4250%
</TABLE>
The following schedule applies to the Limited Term Fund:
- -------------------------------------------------------------------------------
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
NET ASSET VALUE FEE
- --------------------------------------
<S> <C>
For the first $125 million 0.4500%
For the next $125 million 0.4375%
For the next $250 million 0.4250%
For the next $500 million 0.4125%
For the next $1 billion 0.4000%
For assets over $2 billion 0.3750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and port-
folio managers of Nuveen Advisory and meets regularly to review economic
conditions, the outlook for the financial markets in general and the status of
the municipal markets in particular. Day-to-day operation of each fund and the
execution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Thomas C. Spalding is the portfolio manager for the Municipal Bond Fund. Mr.
Spalding has managed the fund since 1976 and has been a Vice President of
Nuveen Advisory since 1978. Steven J. Krupa is the portfolio manager for the
Insured Fund. Mr. Krupa has managed the fund since 1994 and has been a Vice
President of Nuveen Advisory since 1990. Richard Huber is the portfolio
manager for the All-American Fund and the Limited-Term Fund. Mr. Huber has
managed the funds since 1995 and since 1995, had been a Vice President of
Flagship Financial Inc., the funds' prior investment adviser, until becoming a
Vice President of Nuveen Advisory upon the acquisition of Flagship Resources
Inc. by The John Nuveen Company in January 1997. Paul Brennan is the portfolio
manager for the Intermediate Fund. Mr. Brennan has managed or co-managed the
fund since September 1995 and since 1991 had been an employee of Flagship
Financial Inc., the funds' prior investment adviser, until becoming an Assis-
tant Vice President of Nuveen Advisory upon the acquisition of Flagship
Resources Inc. by The John Nuveen Company in January 1997.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor
of the funds' shares. In this capacity, Nuveen manages the offering of the
funds' shares and is responsible for all sales and promotional activities. In
order to reimburse Nuveen for its costs in connection with these activities,
including compensation paid to authorized dealers, each fund has adopted a
distribution and service plan under Rule 12b-1 of the Investment Company Act
of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding. The plan also
authorizes each fund (excluding the Intermediate Municipal Bond Fund and
Limited Term Municipal Bond Fund which do not currently offer Class B shares)
to pay Nuveen an annual 0.75% distribution fee on the average daily net assets
of Class B shares outstanding. The plan also authorizes each fund to pay
Nuveen an annual 0.55% (0.35% for the Limited Term Municipal Bond Fund)
distribution fee on the average daily net assets of Class C shares outstand-
ing. In order to help compensate Nuveen for the sales commission paid to
financial advisers at the time of sale on sales of Class B and Class C shares,
Nuveen retains the first year's service fee on sales of Class B shares and all
Class B distribution fees; and retains the first year's service and distribu-
tion fees on sales of Class C shares. Otherwise, Nuveen pays these fees to the
broker of record. The statement of additional information contains a detailed
description of the plan and its provisions.
- -------------------------------------------------------------------------------
PAGE 22
<PAGE>
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder
accounts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330,
currently serves as transfer agent for the Municipal Bond Fund and the Insured
Municipal Bond Fund. Boston Financial, P.O. Box 8509, Boston, MA, 02266-8509,
currently serves as transfer agent for the All-American Fund, the Intermediate
Fund, and the Limited Term Fund. The funds intend to consolidate transfer
agent activities with a single firm in the future.
- -------------------------------------------------------------------------------
HOW THE FUNDS REPORT
PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar
investment objectives. Comparative performance information may include data
from Lipper Analytical Services, Inc., Morningstar, Inc. and other industry
publications. See the statement of additional information for a more detailed
discussion.
- -------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets,
subtracting any liabilities or other debts, and dividing by the total number
of its shares outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for
municipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
- -------------------------------------------------------------------------------
ORGANIZATION
The Trust is an open-end diversified investment company under the Investment
Company Act of 1940, consisting of multiple funds. The shares of each fund are
divided into classes. Each class of shares represents an interest in the same
portfolio of investments and the shares of each class have equal rights as to
voting, redemption, dividends and liquidation. However, each class bears
different sales charges and service fees. B shares convert to A shares after 8
years. C shares purchased before February 1, 1997 convert to A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
- -------------------------------------------------------------------------------
PAGE 23
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety of funds designed to help
you reach your financial goals. The funds below are grouped by
investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
Notes
1. Long-term, insured long-term, intermediate-term and limited-term
portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
VPR-NAT
<PAGE>
FEBRUARY 1, 1997
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN MUNICIPAL BOND FUND
NUVEEN INSURED MUNICIPAL BOND FUND
NUVEEN FLAGSHIP ALL-AMERICAN MUNICIPAL BOND FUND
NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND
NUVEEN FLAGSHIP LIMITED TERM MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectus of
the Nuveen Flagship Municipal Trust dated February 1, 1997. The Prospectus may
be obtained without charge from certain securities representatives, banks, and
other financial institutions that have entered into sales agreements with John
Nuveen & Co. Incorporated, or from the Funds, by mailing a written request to
the Funds, c/o John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago,
Illinois 60606 or by calling (800) 414-7447.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-12
Investment Adviser and Investment Management Agreement..................... S-16
Portfolio Transactions..................................................... S-17
Net Asset Value............................................................ S-17
Tax Matters................................................................ S-18
Performance Information.................................................... S-21
Additional Information on the Purchase and Redemption of Fund Shares....... S-27
Distribution and Service Plan.............................................. S-30
Independent Public Accountants and Custodian............................... S-31
Financial Statements....................................................... S-31
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports and the unaudited financial statements for
the most recent semi-annual period for each Fund appear in the Funds' Semi-
Annual Reports; each is included herein by reference. The Semi-Annual Reports
accompany this Statement of Additional Information.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of that Fund:
(1) Invest in securities other than Municipal Obligations and temporary
investments, as those terms are defined in the Prospectus.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government or to the investment of 25% of such Fund's assets.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. Where a security is also backed by the 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.
S-2
<PAGE>
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 Municipal Trust (the "Trust") is an open-end diversified
management series investment company organized as a Massachusetts business
trust on July 1, 1996. Each of the Funds is an open-end management investment
company organized as a series of the Nuveen Municipal Trust. The Trust is an
open-end management series company under SEC Rule 18f-2. Each Fund is a
separate series issuing its own shares. The Trust currently has five series:
the Nuveen Municipal Bond Fund (originally incorporated in Maryland on October
8, 1976 and reorganized as a Massachusetts business trust on June 12, 1995);
the Nuveen Insured Municipal Bond Fund (formerly a series of the Nuveen Insured
Tax-Free Bond Fund, Inc., a Minnesota corporation incorporated on July 14,
1986); the Nuveen Flagship All-American Municipal Bond Fund (formerly the
Flagship All-American Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Intermediate Municipal Bond Fund (formerly
the Flagship Intermediate Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); and the Nuveen Flagship Limited Term Municipal Bond Fund
(formerly the Flagship Limited Term Tax Exempt Fund, a series of the Flagship
Tax Exempt Funds Trust). Certain matters under the Investment Company Act of
1940 which must be submitted to a vote of the holders of the outstanding voting
securities of a series company shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
voting securities of each series affected by such matter.
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 Fund invests primarily in a diversified
portfolio of Municipal Obligations issued within the 50 states and certain U.S.
possessions and territories. In general, Municipal Obligations include debt
obligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public
facilities such as airports, bridges, highways, hospitals, housing, mass
transportation, schools, streets and water and sewer works. Industrial
development bonds and pollution control bonds that are issued by or on behalf
of public authorities to finance various privately-rated facilities are
included within the term Municipal Obligations if the interest paid thereon is
exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have
credit characteristics equivalent to bonds rated within the four highest grades
by Moody's, S&P or Fitch, except that the Fund may not invest more than 20% of
its net assets in unrated bonds and (3) temporary investments as described
below, the income from which may be subject to state income tax or to both
federal and state income taxes. See Appendix A for more information about
ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase
S-3
<PAGE>
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.
INSURANCE
Each insured Municipal Obligation held by the Nuveen Insured Municipal Bond
Fund will either be (1) covered by an insurance policy applicable to a specific
security and obtained by the issuer of the security or a third party at the
time of original issuance ("Original Issue Insurance"), (2) covered by an
insurance policy applicable to a specific security and obtained by the Fund or
a third party subsequent to the time of original issuance ("Secondary Market
Insurance"), or (3) covered by a master municipal insurance policy purchased by
the Fund ("Portfolio Insurance"). The Fund currently maintains a policy of
Portfolio Insurance with MBIA Insurance Corporation, AMBAC Indemnity
Corporation, Financial Security Assurance, Inc., and Financial Guaranty
Insurance Company, and may in the future obtain other policies of Portfolio
Insurance, depending on the availability of such policies on terms favorable to
the Fund. However, the Fund may determine not to obtain such policies and to
emphasize investments in Municipal Obligations insured under Original Issue
Insurance or Secondary Market Insurance. In any event, the Fund will only
obtain policies of Portfolio Insurance issued by insurers whose claims-paying
ability is rated Aaa by Moody's Investors Service, Inc. ("Moody's") or AAA by
Standard & Poor's Corporation ("S&P"). The Fund currently intends to obtain
insurance polices only from mono-line insurers specializing in insuring
municipal debt. Municipal Obligations covered by Original Issue Insurance or
Secondary Market Insurance are themselves typically assigned a rating of Aaa or
AAA, as the case may be, by virtue of the Aaa or AAA claims-paying ability of
the insurer and would generally be assigned a lower rating if the ratings were
based primarily upon the credit characteristics of the issuer without regard to
the insurance feature. By way or contrast, the ratings, if any, assigned to
Municipal Obligations insured under Portfolio Insurance will be based primarily
upon the credit characteristics of the issuers without regard to the insurance
feature, and will generally carry a rating that is below Aaa or AAA. While in
the portfolio of the Fund, however, a Municipal Obligation backed by Portfolio
Insurance will effectively be of the same quality as a Municipal Obligation
issued by an issuer of comparable credit characteristics that is backed by
Original Issue Insurance or Secondary Market Insurance.
The Fund's policy of investing in Municipal Obligations insured by insurers
whose claims-paying ability is rated Aaa or AAA will apply only at the time of
the purchase of a security, and a Fund will not be required to dispose of
securities in the event Moody's or S&P, as the case may be, downgrades its
assessment of the claims-paying ability of a particular insurer or the credit
characteristics of a particular issuer. In this connection, it should be noted
that in the event Moody's or S&P or both should down-grade its assessment of
the claims-paying ability of a particular insurer, it could also be expected to
downgrade the ratings assigned to Municipal Obligations insured under Original
Issue Insurance or Secondary Market Insurance issued by such insurer, and
Municipal Obligations insured under Portfolio Insurance issued by such insurer
would also be of reduced quality in the portfolio of the Fund. Moody's and S&P
continually assess the claims-paying ability of insurers and the credit
characteristics of issuers, and there can be no assurance that they will not
downgrade their assessments subsequent to the time the Fund purchases
securities.
In addition to insured Municipal Obligations, the Fund may invest in
Municipal Obligations that are entitled to the benefit of an escrow or trust
account which contains securities issued or guaranteed by the U.S. Government
or U.S. Government agencies, backed by the full faith and credit of the United
States, and sufficient in amount to ensure the payment of interest and
principal on the original interest payment and maturity dates ("collateralized
obligations"). These collateralized obligations generally will not be insured
and will include, but are not limited to, Municipal Obligations that have been
(1) advance refunded where the proceeds of the refunding have been used to
purchase U.S. Government or U.S. Government agency securities that are placed
in escrow and whose interest or maturing principal payments, or both, are
sufficient to cover the remaining scheduled debt service on the Municipal
Obligations, and (2) issued under state or local housing finance programs which
use the issuance proceeds to fund mortgages that are then exchanged for U.S.
Government or U.S. Government agency securities and deposited with a trustee as
security for the Municipal Obligations. These collateralized obligations are
normally regarded as having the credit characteristics of the underlying U.S.
Government or U.S. Government agency securities. Collateralized obligations
will not constitute more than 20% of the Fund's assets.
Each insured Municipal Obligation in which the Fund invests will be covered
by Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
There is no limitation on the percentage of the Fund's assets that may be
invested in Municipal Obligations insured by any given insurer.
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Original Issue Insurance. Original Issue Insurance is purchased with respect
to a particular issue of Municipal Obligations by the issuer thereof or a third
party in conjunction with the original issuance of such Municipal Obligations.
Under such insurance, the insurer unconditionally guarantees to the holder of
the Municipal Obligation the timely payment of principal and interest on such
obligation when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the payments guaranteed may be made in such amounts and at such
times as payments of principal would have been due had there not been such
acceleration. The insurer is responsible for such payments less any amounts
received by the holder from any trustee for the Municipal Obligation issuers or
from any other source. Original Issue Insurance does not guarantee payment on
an accelerated basis, the payment of any redemption premium (except with
respect to certain premium payments in the case of certain small issue
industrial development and pollution control Municipal Obligations), the value
of the shares of the Fund, the market value of Municipal Obligations, or
payments of any tender purchase price upon the tender of the Municipal
Obligations. Original Issue Insurance also does not insure against nonpayment
of principal of or interest on Municipal Obligations resulting from the
insolvency, negligence or any other act or omission of the trustee or other
paying agent for such obligations.
In the event that interest on or principal of a Municipal Obligation covered
by insurance is due for payment but is unpaid by the issuer thereof, the
applicable insurer will make payments to its fiscal agent (the "Fiscal Agent")
equal to such unpaid amounts of principal and interest not later than one
business day after the insurer has been notified that such nonpayment has
occurred (but not earlier than the date such payment is due). The Fiscal Agent
will disburse to the Fund the amount of principal and interest which is then
due for payment but is unpaid upon receipt by the Fiscal Agent of (i) evidence
of the Fund's right to receive payment of such principal and interest and (ii)
evidence, including any appropriate instruments of assignment, that all of the
rights to payment of such principal or interest then due for payment shall
thereupon vest in the insurer. Upon payment by the insurer of any principal or
interest payments with respect to any Municipal Obligations, the insurer shall
succeed to the rights of the Fund with respect to such payment.
Original Issue Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether the Fund ultimately disposes of such Municipal
Obligations. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the Municipal Obligations
so insured, but the exact effect, if any, of this insurance on such market
value cannot be estimated.
Secondary Market Insurance. Subsequent to the time of original issuance of a
Municipal Obligation, the Fund or a third party may, upon the payment of a
single premium, purchase insurance on such Municipal Obligation. Secondary
Market Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and remains in effect as long as the Municipal
Obligation covered thereby remain outstanding, the holder of such Municipal
Obligation does not voluntarily relinquish the Secondary Market Insurance and
the insurer remains in business, regardless of whether the Fund ultimately
disposes of such Municipal Obligation.
One of the purposes of acquiring Secondary Market Insurance with respect to a
particular Municipal Obligation would be to enable the Fund to enhance the
value of such Municipal Obligation. The Fund, for example, might seek to
purchase a particular Municipal Obligation and obtain Secondary Market
Insurance with respect thereto if, in the opinion of Nuveen Advisory, the
market value of such Municipal Obligation, as insured, would exceed the current
value of the Municipal Obligation without insurance plus the cost of the
Secondary Market Insurance. Similarly, if the Fund owns but wishes to sell a
Municipal Obligation that is then covered by Portfolio Insurance, the Fund
might seek to obtain Secondary Market Insurance with respect thereto if, in the
opinion of Nuveen Advisory, the net proceeds of a sale by the Fund of such
obligation, as insured, would exceed the current value of such obligation plus
the cost of the Secondary Market Insurance.
Portfolio Insurance. Portfolio Insurance guarantees the payment of principal
and interest on specified eligible Municipal Obligations purchased by the Fund.
Except as described below, Portfolio Insurance generally provides the same type
of coverage as is provided by Original Issue Insurance or Secondary Market
Insurance. Municipal Obligations insured under one Portfolio Insurance policy
would generally not be insured under any other policy purchased by the Fund. A
Municipal Obligation is eligible for coverage under a policy if it meets
certain requirements of the insurer. Portfolio Insurance is intended to reduce
financial risk, but the cost thereof and compliance with investment
restrictions imposed under the policy will reduce the yield to shareholders of
the Fund.
If a Municipal Obligation is already covered by Original Issue Insurance or
Secondary Market Insurance, then such Municipal Obligation is not required to
be additionally insured under any policy of Portfolio Insurance that the Fund
may purchase. All premiums respecting Municipal Obligations covered by Original
Issue Insurance or Secondary Market Insurance are paid in advance by the issuer
or other party obtaining the insurance.
Portfolio Insurance policies are effective only as to Municipal Obligations
owned by and held by the Fund, and do not cover Municipal Obligations for which
the contract for purchase fails. A "when-issued" Municipal Obligation will be
covered under a Portfolio Insurance policy upon the settlement date of the
issue of such "when-issued" Municipal Obligation. In determining whether to
insure Municipal Obligations held by the Fund, an insurer will apply its own
standards, which correspond generally to the standards it has established for
determining the insurability of new issues of Municipal Obligations. See
"Original Issue Insurance" above.
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Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as the Fund is in existence, the Municipal Obligations covered
by the policy continue to be held by the Fund, and the Fund pays the premiums
for the policy. Each insurer will generally reserve the right at any time upon
90 days' written notice to the Fund to refuse to insure any additional
securities purchased by the Fund after the effective date of such notice. The
Board of Trustees will
generally reserve the right to terminate each policy upon seven days' written
notice to an insurer if it determines that the cost of such policy is not
reasonable in relation to the value of the insurance to the Fund.
Each Portfolio Insurance policy will terminate as to any Municipal Obligation
that has been redeemed from or sold by the Fund on the date of such redemption
or the settlement date of such sale, and an insurer shall not have any
liability thereafter under a policy as to any such Municipal Obligation, except
that if the date of such redemption or the settlement date of such sale occurs
after a record date and before the related payment date with respect to any
such Municipal Obligation, the policy will terminate as to such Municipal
Obligation on the business day immediately following such payment date. Each
policy will terminate as to all Municipal Obligations covered thereby on the
date on which the last of the covered Municipal Obligations mature, are
redeemed or are sold by the Fund.
One or more policies of Portfolio Insurance may provide a Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") with respect to a
Municipal Obligation that is to be sold by the Fund. The Fund would exercise
the right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such Municipal
Obligation. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a Municipal Obligation only if, in the opinion of
Nuveen Advisory, upon such exercise the net proceeds from the sale by the Fund
of such obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance.
The Permanent Insurance premium with respect to each such obligation is
determined based upon the insurability of each such obligation as of the date
of purchase by the Fund and will not be increased or decreased for any change
in the creditworthiness of such obligation unless such obligation is in default
as to payment or principal or interest, or both. In such event, the Permanent
Insurance premium shall be subject to an increase predetermined at the date of
purchase by the Fund.
The Fund generally intends to retain any insured securities covered by
Portfolio Insurance that are in default or in significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated BBB) that are not
in default. In certain circumstances, however, Nuveen Advisory may determine
that an alternative value for the insurance, such as the difference between the
market value of the defaulted security and either its par value or the market
value of securities of a similar nature that are not in default or in
significant risk of default, is more appropriate. To the extent that the Fund
holds such defaulted securities, it may be limited in its ability to manage its
investment portfolio and to purchase other Municipal Obligations. Except as
described above with respect to securities covered by Portfolio Insurance that
are in default or subject to significant risk of default, the Funds will not
place any value on the insurance in valuing the Municipal Obligations that it
holds.
Because each Portfolio Insurance policy will terminate as to Municipal
Obligations sold by the Fund on the date of sale, in which event the insurer
will be liable only for those payments of principal and interest that are then
due and owing (unless Permanent Insurance is obtained by the Fund), the
provision for this insurance will not enhance the marketability of securities
held by the Fund, whether or not the securities are in default or in
significant risk of default. On the other hand, since Original Issue Insurance
and Secondary Market Insurance generally will remain in effect as long as
Municipal Obligations covered thereby are outstanding, such insurance may
enhance the marketability of such securities, even when such securities are in
default or in significant risk of default, but the exact effect, if any, on
marketability cannot be estimated. Accordingly, the Funds may determine to
retain or, alternatively, to sell Municipal Obligations covered by Original
Issue Insurance or Secondary Market Insurance that are in default or in
significant risk of default.
Premiums for a Portfolio Insurance policy are paid monthly, and are adjusted
for purchases and sales of Municipal Obligations covered by the policy during
the month. The yield on the Fund is reduced to the extent of the insurance
premiums it pays. Depending upon the characteristics of the Municipal
Obligations held by the Fund, the annual premium rate for policies of Portfolio
Insurance is estimated to range from .15% to .30% of the value of the Municipal
Obligations covered under the policy. Because the majority of the Municipal
Obligations in the Fund were not covered by policies of Portfolio Insurance
during the year ended February 29, 1996, premium expenses as a percentage of
the value of Municipal Obligations held by the Fund for such period were .00%.
Set forth below is information about the various municipal bond insurers with
whom the Nuveen Insured Municipal Bond Fund currently maintains policies of
Portfolio Insurance.
AMBAC INDEMNITY CORPORATION ("AMBAC INDEMNITY")
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states, the District of Columbia,
the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets
of approximately $2,440,000,000 (unaudited) and statutory capital of
approximately $1,387,000,000 (unaudited) as of March 31, 1996. Statutory
capital
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consists of AMBAC Indemnity's policyholders' surplus and statutory contingency
reserve. AMBAC Indemnity is a wholly-owned subsidiary of AMBAC, Inc., a 100%
publicly-held company. Moody's , S&P and Fitch Investors Service, L.P., each
have assigned a triple-A claims-paying ability rating to AMBAC Indemnity.
AMBAC Indemnity has obtained a ruling from the Internal Revenue Service to
the effect that the insuring of an obligation by AMBAC Indemnity will not
affect the treatment for federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing interest paid by
AMBAC Indemnity under policy provisions substantially identical to those
contained in its municipal bond insurance policy shall be treated for federal
income tax purposes in the same manner as if such payments were made by the
issuer of the bonds.
Copies of AMBAC Indemnity's financial statements prepared in accordance with
statutory accounting standards are available from AMBAC Indemnity. The address
of AMBAC Indemnity's administrative offices and its telephone number are One
State Street Plaza, 17th Floor, New York, New York 10004 and (212) 668-0340.
FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY")
Financial Security is a monoline insurance company incorporated under the
laws of the State of New York. Financial Security is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of
Columbia and Puerto Rico.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U.S. West Capital Corporation and the Tokio Marine and Fire Insurance Co., Ltd.
No shareholder is obligated to pay any debts of or any claims against Financial
Security. Financial Security is domiciled in the State of New York and is
subject to regulation by the State of New York Insurance Department. As of
March 31, 1996, the total policyholders' surplus and contingency reserves and
the total unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $650,052,000 (unaudited) and $387,239,000
(unaudited), the total shareholders' equity and the total unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $779,177,000 (unaudited) and $340,226,000 (unaudited). Copies of
Financial Security's financial statements may be obtained by writing to
Financial Security at 350 Park Avenue, New York, New York 10022, Attention:
Communications Department. Financial Security's telephone number is (212) 826-
0100.
MBIA INSURANCE CORPORATION ("MBIA")
MBIA, formerly known as Municipal Bond Investors Assurance Corporation, is
the principal operating subsidiary of MBIA Inc., a New York Stock Exchange
listed company. MBIA Inc. is not obligated to pay the debts of or claims
against MBIA. MBIA is a limited liability corporation rather than a several
liability association. MBIA is domiciled in the State of New York and licensed
to do business to all 50 states, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin
Islands of the United States and the Territory of Guam.
As of December 31, 1994, MBIA had admitted assets of $3.4 billion (audited),
total liabilities of $2.3 billion (audited), and total capital and surplus of
$1.1 billion (audited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. As of
December 31, 1995, MBIA had admitted assets of $3.8 billion (audited), total
liabilities of $2.5 billion (audited), and total capital and surplus of $1.3
billion (audited), determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities. Copies of MBIA's
year end financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King Street,
Armonk, New York 10504.
MBIA's policy unconditionally and irrevocably guarantees to the Nuveen
Insured Municipal Bond Fund the full and complete payment required to be made
by or on behalf of the issuer to the applicable paying agent or its successor
of an amount equal to (i) the principal of (either at the stated maturity or by
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on, the Municipal Obligations as such payments shall become due but
shall not be so paid (except that in the event of any acceleration of the due
date of such principal by reason of mandatory or optional redemption or
acceleration resulting from default or otherwise, other than any advancement of
maturity pursuant to a mandatory sinking fund payment, the payments guaranteed
by MBIA's policy shall be made in such amounts and at such times as such
payments of principal would have been due had there not been any such
acceleration) and (ii) the reimbursement of any such payment which is
subsequently recovered from the Fund pursuant to a final judgment by a court of
competent jurisdiction that such payment constitutes an avoidable preference to
the Fund within the meaning of any applicable bankruptcy law (a "Preference").
MBIA's policy does not insure against loss of any prepayment premium which
may at any time be payable with respect to any Municipal Obligation. MBIA's
policy does not, under any circumstance, insure against loss relating to: (i)
optional or mandatory redemptions (other than mandatory sinking fund
redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of Municipal Obligations upon tender thereof; or
(iv) any Preference relating to (i) through (iii) above. MBIA's policy also
does not insure against nonpayment of principal of or interest on the Municipal
Obligations resulting from the insolvency, negligence or any other act or
omission of any paying agent for the Municipal Obligations.
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With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the policy, MBIA guarantees the full and
complete payments required to be made by or on behalf of an issuer of such
bonds if there occurs pursuant to the terms of the bonds an event which results
in the loss of the tax-exempt status of interest on such bonds, including
principal, interest or premium payments payable thereon, if any, as and when
required to be made by or on behalf of the issuer pursuant to the terms of such
bonds.
When MBIA receives from the paying agent or the Fund, (1) telephonic or
telegraphic notice (subsequently confirmed in writing by registered or
certified mail), or (2) written notice by registered or certified mail, that a
required payment of any insured amount which is then due has not been made,
MBIA on the due date of such payment or within one business day after receipt
of notice of such nonpayment, whichever is later, will make a deposit of funds,
in an account with State Street Bank and Trust Company, N.A., in New York, New
York, or its successor, sufficient for the payment of any such insured amounts
which are then due. Upon presentment and surrender of such Municipal
Obligations or presentment of such other proof of ownership of the Municipal
Obligations, together with any appropriate instruments of assignment to
evidence the assignment of the insured amounts due on the Municipal Obligations
as are paid by MBIA, and appropriate instruments to effect the appointment of
MBIA as agent for the Fund in any legal proceeding related to payment of
insured amounts on Municipal Obligations, such instruments being in a form
satisfactory to State Street Bank and Trust Company, N.A., State Street Bank
and Trust Company, N.A. shall disburse to the Fund or the paying agent payment
of the insured amounts due on such Municipal Obligations, less any amount held
by the paying agent for the payment of such insured amounts and legally
available therefor.
FINANCIAL GUARANTY INSURANCE COMPANY ("FINANCIAL GUARANTY")
The Portfolio Insurance Policy is non-cancellable except for failure to pay
the premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by the Fund and are adjusted for
purchases, sales and payments prior to maturity of Insured Bonds during the
month. In the event of a sale of any Insured Bond by the Fund or payment
thereof prior to maturity, the Portfolio Insurance policy terminates as to such
Insured Bond.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to State Street Bank and Trust
Company, or its successor, as its agent (the "Fiscal Agent"), that portion of
the principal of and interest on the Insured Bonds which shall become due for
payment but shall be unpaid by reason of nonpayment by the issuer of the
Insured Bonds. The term "due for payment" means, when referring to the
principal of an Insured Bond, its stated maturity date or the date on which it
shall have been called for mandatory sinking fund redemption and does not refer
to any earlier date on which payment is due by reason of call for redemption
(other than by mandatory sinking fund redemption), acceleration or other
advancement of maturity and means, when referring to interest on an Insured
Bond, the stated date for payment of interest. In addition, the Portfolio
Insurance Policy covers nonpayment by the issuer that results from any payment
of principal or interest made by such issuer on the Insured Bond to the Fund
which has been recovered from the Fund or its shareholders pursuant to the
United States Bankruptcy Code by a trustee in bankruptcy in accordance with a
final, nonappealable order of a court having competent jurisdiction.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse the Trustee the
face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer, but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of
such principal or interest due for payment thereupon shall vest in Financial
Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of
the Insured Bond, appurtenant coupon or right to payment of principal or
interest on such Insured Bond and shall be fully subrogated to all of the
Trustee's rights thereunder, including the right to payment, thereof.
In determining whether to insure municipal securities held in the Fund,
Financial Guaranty will apply its own standards which are not necessarily the
same as the criteria used in regard to the selection of securities by the Fund.
Certain of the municipal securities insured under the Portfolio Insurance
Policy may also be insured under an insurance policy obtained by the issuer of
such municipal securities. The premium for any insurance policy or policies
obtained by an issuer or Insured Bonds has been paid in advance by such issuer
and any such policy or policies are non-cancellable and will continue in force
so long as the Insured Bonds so insured are outstanding. Financial Guaranty has
also agreed, if requested by the Funds on or before the fifth day preceding the
1st day of any month, to insure to maturity Insured Bonds sold by the Trustee
during the month immediately following such request of the Funds. The premium
for any such insurance to maturity provided by Financial Guaranty is paid by
the Fund and any such insurance is non-cancellable and will continue in force
so long as the Bonds so insured are outstanding.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a subsidiary of
General Electric Capital Corporation. Financial Guaranty is a monoline
financial guaranty insurer domiciled in the State of New York and subject to
regulation by the State of New York Insurance Department. As of March 31, 1996,
the total capital and surplus of Financial Guaranty was approximately
$1,032,675,000. Financial Guaranty prepares financial statements on the basis
of both statutory accounting principles and
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generally accepted accounting principles. Copies of such financial statements
may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New
York 10006, Attention: Communications Department (telephone number :
(212) 312-3000) or to the New York State Insurance Department at 160 West
Broadway, 18th Floor, New York, New York 10013, Attention: Property Companies
Bureau (telephone number: (212) 602-0389).
The policies of insurance obtained by the Fund from Financial Guaranty and
the negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Fund. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with the Fund or the Board of Trustees of the
Fund.
The above municipal bond insurers have insurance claims-paying ability
ratings of AAA from S&P and Aaa from Moody's. Financial Guaranty also has an
insurance claims-paying ability rating of AAA from Fitch.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with its terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is adjudged by S&P to be extremely strong
and highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of Aaa is adjudged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of Aaa carry the smallest degree of credit risk and, while the financial
strength of these companies is likely to change, such changes as can be
visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment, nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully or
partially supported by insurance policies, contracts or guarantees is a
separate process form the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
S&P's and Moody's ratings are not recommendations to buy, sell or hold the
Municipal Obligations insured by policies issued by AMBAC Indemnity, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to
revision or withdrawal at any time by the rating agencies. Any downward
revision or withdrawal of either or both ratings may have an adverse effect on
the market price of the Municipal Obligations insured by policies issued by
AMBAC Indemnity, Financial Security, MBIA or Financial Guaranty.
S&P's ratings of AMBAC Indemnity, Financial Security, MBIA and Financial
Guaranty should be evaluated independent of Moody's ratings. Any further
explanation as to the significance of the ratings may be obtained only from the
applicable rating agency. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
PORTFOLIO TRADING AND TURNOVER
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with its investment objective. Securities may be
sold in anticipation of market decline or purchased in anticipation of market
rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage
of what Nuveen Advisory believes to be a temporary disparity in the normal
yield relationship between the two securities. Each Fund may make changes in
its investment portfolio in order to limit its exposure to changing market
conditions. Changes in a Fund's investments are known as "portfolio turnover."
While it is impossible to predict future portfolio turnover rates, the annual
portfolio turnover rate for each of the Funds is generally not expected to
exceed 75%. However, each Fund reserves the right to make changes in its
investments whenever it deems such action advisable and, therefore, a Fund's
annual portfolio turnover rate may exceed 75% in particular years depending
upon market conditions.
The portfolio turnover rates for the Funds, for the fiscal year-end of each
Fund as a series of its predecessor entity (described above), as indicated,
were
<TABLE>
<CAPTION>
FISCAL
YEAR
---------
1995 1996
---- ----
<S> <C> <C>
Nuveen Municipal Bond Fund (2/28)............................... 17% 17%
Nuveen Insured Municipal Bond Fund (2/28)....................... 25% 27%
Nuveen Flagship All-American Municipal Bond Fund (5/31)......... 71% 79%
Nuveen Flagship Intermediate Municipal Bond Fund (5/31)......... 102% 81%
Nuveen Flagship Limited Term Municipal Bond Fund (5/31)......... 20% 39%
</TABLE>
S-9
<PAGE>
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a delayed delivery commitment are ignored
in calculating net asset value so long as the commitment remains in effect. The
Funds will maintain designated readily marketable assets at least equal in
value to commitments to purchase when-issued or delayed delivery securities,
such assets to be segregated by the Custodian specifically for the settlement
of such commitments. The Funds will only make commitments to purchase Municipal
Obligations on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities, but the Fund reserves the right to sell
these securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be tax-
exempt. The Funds commonly engage in when-issued transactions in order to
purchase or sell newly-issued Municipal Obligations, and may engage in delayed
delivery transactions in order to manage its operations more effectively.
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 by
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series' portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to hedging transactions will reduce yield. Net gains, if
any, from hedging and other portfolio transactions will be distributed as
taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
TEMPORARY INVESTMENTS
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable "temporary investments."
Temporary investments will not exceed 20% of a Fund's assets except when made
for defensive purposes. The Funds will invest only in taxable temporary
investments that are either U.S. Government securities or are rated within the
highest grade by Moody's, S&P, or Fitch and mature within one year from the
date of purchase or carry a variable or floating rate of interest. See Appendix
A for more information about ratings by Moody's, S&P, and Fitch.
S-10
<PAGE>
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.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
S-11
<PAGE>
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has eight
trustees, two of whom are "interested persons" (as the term "interested
persons" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 47 Chairman and Chairman since July 1, 1996 of The John Nuveen
Schwertfeger* Trustee Company, John Nuveen & Co. Incorporated, Nuveen
333 West Wacker Drive Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp.; prior thereto Executive Vice President and
Director of The John Nuveen Company (since March
1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Anthony T. Dean* 51 President and President since July 1, 1996 of The John Nuveen
333 West Wacker Drive Trustee Company, John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory
Corp.; prior thereto, Executive Vice President and
Director of The John Nuveen Company (since March
1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Lawrence H. Brown 62 Trustee Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company.
Highwood, IL 60040
Robert P. Bremner 56 Trustee Private Investor and Management Consultant.
3725 Huntington
Street, N.W.
Washington, D.C. 20015
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Anne E. 64 Trustee President and Chief Executive Officer of Blanton-
Impellizzeri Peale Institute (since December 1990); prior
3 West 29th thereto, Vice President of New York City
Street Partnership (from 1987 to 1990).
New York,
NY 10001
Margaret K. 70 Trustee Helen Ross Professor of Social Welfare Policy,
Rosenheim School of Social Service Administration,
969 East University of Chicago.
60th Street
Chicago, IL
60637
Peter R. 63 Trustee Adjunct Professor of Business and Economics,
Sawers University of Dubuque, Iowa; Adjunct Professor,
22 The Lake Forest Graduate School of Management, Lake
Landmark Forest, Illinois (since January 1992); prior
Northfield, thereto, Executive Director, Towers Perrin
IL 60093 Australia (management consultant); Chartered
Financial Analyst; Certified Management
Consultant.
William J. 52 Trustee Senior Partner, Miller-Valentine Partners, Vice
Schneider President, Miller-Valentine Realty, Inc.
4000
Miller-
Valentine
Ct.
P.O. Box
744
Dayton, OH
45401
William M. 32 Vice President Vice President of Nuveen Advisory Corp. (since
Fitzgerald December 1995); Assistant Vice President of Nuveen
333 West Advisory Corp. (from September 1992 to December
Wacker 1995), prior thereto Assistant Portfolio Manager
Drive of Nuveen Advisory Corp. (from June 1988 to
Chicago, IL September 1992).
60606
Kathleen M. 49 Vice President Vice President of John Nuveen & Co. Incorporated.
Flanagan
333 West
Wacker
Drive
Chicago, IL
60606
J. Thomas 41 Vice President Vice President of Nuveen Advisory Corp.
Futrell
333 West
Wacker
Drive
Chicago, IL
60606
Richard A. 33 Vice President Vice President of Nuveen Advisory Corp. (since
Huber January 1997); Vice President and Portfolio
3450 Manager (since August 1985) of Flagship Financial.
Cassandra
Drive
Tipp City,
OH 45371
Steven J. 39 Vice President Vice President of Nuveen Advisory Corp.
Krupa
333 West
Wacker
Drive
Chicago, IL
60606
Anna R. 50 Vice President Vice President of John Nuveen & Co. Incorporated.
Kucinskis
333 West
Wacker
Drive
Chicago, IL
60606
Larry W. 45 Vice President Vice President (since September 1992), and
Martin Assistant Secretary and Assistant General Counsel
333 West of John Nuveen & Co. Incorporated; Vice President
Wacker (since May 1993) and Assistant Secretary of Nuveen
Drive Advisory Corp.; Vice President (since May 1993)
Chicago, IL and Assistant Secretary (since January 1992) of
60606 Nuveen Institutional Advisory Corp.; Assistant
Secretary of The John Nuveen Company (since
February 1993).
Edward F. 31 Vice President Vice President (since September 1996), previously
Neild, IV Assistant Vice President (since December 1993) of
One South Nuveen Advisory Corp., portfolio manager prior
Main Street thereto (since January 1992); Vice President
Dayton, OH (since September 1996), previously Assistant Vice
45402 President (since May 1995) of Nuveen Institutional
Advisory Corp., portfolio manager prior thereto
(since January 1992).
O. Walter 57 Vice President Vice President and Controller of The John Nuveen
Renfftlen Company (since March 1992), John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and Nuveen
Wacker Institutional Advisory Corp.
Drive
Chicago, IL
60606
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Thomas C. 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen
Spalding, Institutional Advisory Corp.; Chartered Financial
Jr. Analyst.
333 West
Wacker
Drive
Chicago,
IL 60606
H. 62 Vice President Vice President and Treasurer of The John Nuveen
William Company (since March 1992), John Nuveen & Co.
Stabenow Incorporated, Nuveen Advisory Corp. and Nuveen
333 West Institutional Advisory Corp. (since January 1992).
Wacker
Drive
Chicago,
IL 60606
Gifford 40 Vice President Vice President (since September 1992), Assistant
R. and Assistant Secretary and Assistant General Counsel of John
Zimmerman Secretary Nuveen & Co. Incorporated; Vice President (since
333 West May 1993) and Assistant Secretary of Nuveen
Wacker Advisory Corp.; Vice President (since May 1993)
Drive and Assistant Secretary (since January 1992) of
Chicago, Nuveen Institutional Advisory Corp.
IL 60606
</TABLE>
Anthony Dean, Margaret Rosenheim and Timothy Schwertfeger serve as members of
the Executive Committee of the Board of Trustees. The Executive Committee,
which meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are also directors or trustees, as the case may be,
of 38 other Nuveen open-end funds. Mr. Dean, Mr. Schwertfeger, Mr. Brown, Ms.
Impellizzeri, Ms. Rosenheim and Mr. Sawers also are directors or trustees of 52
Nuveen closed-end funds.
The following table sets forth estimated compensation paid or accrued by the
Trust to each of the trustees of the Trust for the first full fiscal year and
the total compensation that all Nuveen Funds paid to each trustee during the
calendar year 1996. The Trust has no retirement or pension plans. The officers
and trustees affiliated with Nuveen serve without any compensation from the
Trust.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- ----------------
<S> <C> <C>
Robert P. Bremner........................ $4,200(3) $20,500(3)
Lawrence H. Brown........................ $6,433 $58,500
Anne E. Impellizzeri..................... $6,433 $58,500
Margaret K. Rosenheim.................... $7,881(1) $66,315(2)
Peter R. Sawers.......................... $6,433 $58,500
William J. Schneider..................... $4,405(3) $21,500(3)
</TABLE>
- --------
(1) Includes $365 in interest accrued on deferred compensation from prior
years.
(2) Includes $1,565 in interest accrued on deferred compensation from prior
years.
(3) As a trustee of the Flagship Funds, for the 12 months ended May 31, 1996.
Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a
fee. The Trust requires no employees other than its officers, all of whom are
compensated by Nuveen.
The officers and directors of each Fund, in the aggregate, own less than 1%
of the shares of the Fund.
The following table sets forth the percentage ownership of each person, who,
as of January 3, 1997, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENTAGE
NAME OF FUND AND CLASS OWNER OF OWNERSHIP
---------------------- ------------------- ------------
<C> <S> <C>
Nuveen Municipal Bond Fund
Class C Shares.................. Bill W. Hickey & 18.71%
Erin E. Hickey Jt. Ten.
Wros.
20 Bowen St.
Longmont, CO 80501-5862
Oppenheimer & Co., Inc. 5.51
FBO 020-38275-14
P.O. Box 3484
Church Street Station
New York, NY 10008-8484
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENTAGE
NAME OF FUND AND CLASS OWNER OF OWNERSHIP
---------------------- ------------------- ------------
<C> <S> <C>
Fasteners, Inc. 7.72
c/o Edward D. Otto
P.O. Box 11188
Newington, CT 06111
Nuveen Insured Municipal Bond
Fund Class A Shares............. NFSC FEBO # DBV-055646 5.79%
Jack H. Martinelli
Harriet L. Martinelli
TTEE
Martinelli Family Trust
U/A 3/27/92--748 Pico
Ave.
San Mateo, CA 94403
Nuveen Flagship All-American 36.57
Municipal Bond Fund Class A Merrill Lynch, Pierce,
Shares.......................... Fenner
& Smith for the sole
benefit of its
Customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-
6484
Nuveen Flagship All-American 64.80
Municipal Bond Fund Class C Merrill Lynch, Pierce,
Shares.......................... Fenner
& Smith for the sole
benefit of its
Customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-
6484
Nuveen Flagship Intermediate 33.97
Municipal Bond Fund Class A Merrill Lynch, Pierce,
Shares.......................... Fenner
& Smith for the sole
benefit of its
Customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-
6484
Nuveen Flagship Intermediate 70.15
Municipal Bond Fund Class C Merrill Lynch, Pierce,
Shares.......................... Fenner
& Smith for the sole
benefit of its
Customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-
6484
Nuveen Flagship Limited Term 28.56
Municipal Bond Fund Class A Merrill Lynch, Pierce,
Shares.......................... Fenner
& Smith for the sole
benefit of its
Customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-
6484
Nuveen Flagship Limited Term 60.15
Municipal Bond Fund Class C Merrill Lynch, Pierce,
Shares.......................... Fenner
& Smith for the sole
benefit of its
Customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-
6484
</TABLE>
S-15
<PAGE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE
- --------------------------------- --------------
<S> <C>
For the first $125 million....................................... .5000 of 1%
For the next $125 million........................................ .4875 of 1%
For the next $250 million........................................ .4750 of 1%
For the next $500 million........................................ .4625 of 1%
For the next $1 billion.......................................... .4500 of 1%
For assets over $2 billion....................................... .4250 of 1%
</TABLE>
Nuveen Advisory has agreed to waive some or all of its fees or reimburse
expenses to prevent total operating expenses (not counting distribution and
service fees, taxes, interest, fees incurred in acquiring and disposing of
portfolio securities and, to the extent permitted, extraordinary expenses) from
exceeding 0.75% of the Nuveen Municipal Bond Fund's average daily net assets,
and 0.975% of the Nuveen Insured Municipal Bond Fund's average daily net
assets.
For the All-American, Intermediate, and Limited Term Funds, Nuveen Advisory
has committed through at least 1998 to waive fees or reimburse expenses to the
extent necessary to maintain a dividend level competitive with that of similar
funds.
For the last three fiscal years, the Nuveen Municipal Bond Fund and the
Nuveen Insured Municipal Bond Fund paid net management fees to Nuveen Advisory
as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO NUVEEN REIMBURSEMENTS
ADVISORY FOR THE YEAR ENDED FOR THE YEAR ENDED
--------------------------------- -----------------------
2/28/94 2/28/95 2/29/96 2/28/94 2/28/95 2/29/96
----------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Municipal Bond
Fund................... $11,645,399 11,932,164 12,797,372 0 0 4,313
Nuveen Insured Municipal
Bond Fund.............. 3,265,386 3,439,021 3,756,793 0 10,570 1,303
</TABLE>
For the last three fiscal years, the Nuveen Flagship All-American Municipal
Bond Fund, the Nuveen Flagship Intermediate Municipal Bond Fund, and the Nuveen
Flagship Limited Term Municipal Bond Fund paid net management fees to Flagship
Financial, predecessor to Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO FLAGSHIP REIMBURSEMENTS
FINANCIAL FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------ -----------------------
5/31/94 5/31/95 5/31/96 5/31/94 5/31/95 5/31/96
---------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
All American Fund........ $ 267,846 420,954 644,844 753,169 632,023 588,351
Intermediate Fund........ 0 0 0 146,230 187,583 269,930
Limited Term Fund........ 1,313,071 1,369,218 1,259,810 657,881 458,100 332,579
</TABLE>
As discussed in the Prospectus, in addition to the management fee of Nuveen
Advisory, each Fund pays all other costs and expenses of its operations and a
portion of the Trust's general administrative expenses allocated in proportion
to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. Founded in 1898,
Nuveen is the oldest and largest investment banking firm specializing in the
underwriting and distribution of tax-exempt securities and maintains the
largest research department in the investment banking community devoted
exclusively to the analysis of municipal securities. In 1961, Nuveen began
sponsoring the Nuveen Tax-Exempt Unit Trust and since that time has issued more
than $36 billion in tax-exempt unit trusts, including over $12 billion in tax-
exempt insured unit trusts. In addition, Nuveen open-end and closed-end funds
held approximately $35 billion in tax-exempt securities under management as of
the date of this Statement. Over 1,000,000 individuals have invested to date in
Nuveen's tax-exempt funds and trusts. Nuveen is a subsidiary of The John Nuveen
Company which, in turn, is approximately 78% owned by The St. Paul Companies,
Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota and is
principally engaged in providing property-liability insurance through
subsidiaries. Effective January 1, 1997, The John Nuveen Company acquired
Flagship Resources Inc., and as part of that acquisition, Flagship Financial,
the adviser to the Flagship Funds, was merged with Nuveen Advisory.
S-16
<PAGE>
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to
pay any brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price. Given the
best price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers and general economic reports) and statistical and
other services to Nuveen Advisory. It is not possible to place a dollar value
on information and statistical and other services received from dealers. Since
it is only supplementary to Nuveen Advisory's own research efforts, the receipt
of research information is not expected to reduce significantly Nuveen
Advisory's expenses. While Nuveen Advisory will be primarily responsible for
the placement of the business of the Funds, the policies and practices of
Nuveen Advisory in this regard must be consistent with the foregoing and will,
at all times, be subject to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to a Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Funds' shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the New York Stock Exchange (the
"Exchange") is normally open for trading. The Exchange is not open for trading
on New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of a class of shares of a Fund will be computed by dividing the
value of the Fund's assets attributable to the class, less the liabilities
attributable to the class, by the number of shares of the class outstanding.
In determining net asset value for the Funds, each Fund's custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. The pricing service values portfolio securities at the mean
between the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily
available (which constitute a majority of the securities held by the Funds) are
valued at fair value as determined by the pricing service using methods which
include consideration of the following: yields or prices of
S-17
<PAGE>
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating; indications as to value from dealers; and general market conditions.
The pricing service may employ electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Trust under the general
supervision of the Board of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities and (ii) certain options, futures, or forward
contracts (the "short-short test"). Third, a Fund must diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the value of its total assets is comprised of cash, cash items, United States
Government securities, securities of other regulated investment companies and
other securities limited in respect of any one issuer to an amount not greater
in value than 5% of the value of a Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the total assets is invested in the securities of any one
issuer (other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by a Fund and
engaged in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed capital gains included in the
shareholder's gross income. Each Fund intends to distribute at least annually
to its shareholders all or substantially all of its net tax-exempt interest and
any investment company taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will be excludable from federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the insurer representing interest on "non-appropriation" lease
obligations will be excludable from gross income for federal income tax
purposes. See "Investment Policies and Investment Portfolio; Portfolio
Securities."
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or
S-18
<PAGE>
additional shares. If a Fund purchases a Municipal Obligation at a market
discount, any gain realized by the Fund upon sale or redemption of the
Municipal Obligation will be treated as taxable interest income to the extent
such gain does not exceed the market discount, and any gain realized in excess
of the market discount will be treated as capital gains. Any net long-term
capital gains realized by a Fund and distributed to shareholders in cash or
additional shares, will be taxable to shareholders as long-term capital gains
regardless of the length of time investors have owned shares of a Fund.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends, or capital gain dividends will be treated as a
return of capital to the extent of (and in reduction of) the shareholder's tax
basis in his or her shares. Any excess will be treated as gain from the sale of
his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Internal Revenue Code for the
dividends received deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, net capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) will be taxed at a maximum
marginal rate of 28%, while short-term capital gains and other ordinary income
will be taxed at a maximum marginal rate of 39.6%. Because of the limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective tax rate may be higher in certain
circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of a Fund if the shareholder purchases other shares of such Fund
(whether through reinvestment of distributions or otherwise) or the shareholder
acquires or enters into a contract or option to acquire securities that are
substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the
extent the redemption or exchange price exceeds the shareholder's tax basis in
the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized
S-19
<PAGE>
capital gains over its realized capital losses (generally computed on the basis
of the one-year period ending on October 31 of such year) and 100% of any
taxable ordinary income and the excess of realized capital gains over realized
capital losses for the prior year that was not distributed during such year and
on which such Fund paid no federal income tax. For purposes of the excise tax,
a regulated investment company may reduce its capital gain net income (but not
below its net capital gain) by the amount of any net ordinary loss for the
calendar year. The Funds intend to make timely distributions in compliance with
these requirements and consequently it is anticipated that they generally will
not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Among the requirements that a Fund must meet in order to qualify under
Subchapter M in any year is that less than 30% of its gross income must be
derived from the sale or other disposition of securities and certain other
assets held for less than three months.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
S-20
<PAGE>
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%.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
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 right hand column. None of the Funds had Class B Shares
outstanding as of the date of this Statement of Additional Information.
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Nuveen Municipal Bond Fund
Class A Shares............. 4.67% 39.6% 7.73%
Class C Shares............. 4.11% 39.6% 6.80%
Class R Shares............. 5.13% 39.6% 8.49%
Nuveen Insured Municipal Bond
Fund
Class A Shares............. 4.51% 39.6% 7.47%
Class C Shares............. 3.94% 39.6% 6.52%
Class R Shares............. 4.96% 39.6% 8.21%
<CAPTION>
AS OF NOVEMBER 30, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Nuveen Flagship All-American
Municipal Bond Fund
Class A Shares............. 4.96% 39.6% 8.21%
Class C Shares............. 4.64% 39.6% 7.68%
Class R Shares............. N/A N/A N/A
Nuveen Flagship Intermediate
Municipal Bond Fund
Class A Shares............. 4.84% 39.6% 8.01%
Class C Shares............. 4.44% 39.6% 7.35%
Class R Shares............. N/A N/A N/A
Nuveen Flagship Limited Term
Municipal Bond Fund
Class A Shares............. 4.02% 39.6% 6.66%
Class C Shares............. 3.82% 39.6% 6.32%
Class R Shares............. N/A N/A N/A
</TABLE>
- --------
*The combined tax rates used in these tables represent the highest or one of
the highest combined tax rates applicable to state taxpayers, rounded to the
nearest .5%; these rates do not reflect the current federal tax limitations
on itemized deductions and personal exemptions, which may raise the
effective tax rate and taxable equivalent yield for taxpayers above certain
income levels.
S-21
<PAGE>
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen UITs, or the maximum public
offering price). The distribution rate differs from yield and total return and
therefore is not intended to be a complete measure of performance. Distribution
rate may sometimes differ from yield because a Fund may be paying out more than
it is earning and because it may not include the effect of amortization of bond
premiums to the extent such premiums arise after the bonds were purchased.
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 4.2% for the Municipal Bond Fund,
the Insured Municipal Bond Fund, and the All-American Fund; the maximum sales
charge for Class A Shares of 3.0% for the Intermediate Municipal Bond Fund; and
the maximum sales charge for Class A Shares of 2.5% for the Limited Term
Municipal Bond Fund, were as follows:
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1996 DISTRIBUTION RATES
----------------------------------------------
CLASS A CLASS C CLASS R
-------------- -------------- --------------
<S> <C> <C> <C>
Nuveen Municipal Bond
Fund.................... 4.87% 4.36% 5.35%
Nuveen Insured Municipal
Bond Fund............... 4.80% 4.27% 5.26%
<CAPTION>
AS OF NOVEMBER 30, 1996 DISTRIBUTION RATES
------------------------------------------
CLASS A CLASS C CLASS R
-------------- -------------- --------------
<S> <C> <C> <C>
Nuveen Flagship All-
American Municipal Bond
Fund.................... 5.08% 4.78% N/A
Nuveen Flagship
Intermediate Municipal
Bond Fund............... 4.60% 4.21% N/A
Nuveen Flagship Limited
Term Municipal Bond
Fund.................... 4.43% 4.26% N/A
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Total returns for the oldest class of each fund reflect actual performance
for all periods. For other classes existing prior to February 1, 1997, total
returns reflect actual performance for periods since class inception, and the
oldest class's performance for periods prior to inception, adjusted for the
differences in sales charges and fees between the classes. For classes created
on February 1, 1997, total returns reflect the oldest class's performance for
all periods, adjusted for the differences in sales charges and fees between the
classes.
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
-----------------
<S> <C>
Nuveen Municipal Bond Fund
Class A Shares........................................ June 13, 1995
Class B Shares........................................ February 1, 1997
Class C Shares........................................ June 13, 1995
Class R Shares........................................ November 29, 1976
Nuveen Insured Municipal Bond Fund
Class A Shares........................................ September 6, 1994
Class B Shares........................................ February 1, 1997
Class C Shares........................................ September 6, 1994
Class R Shares........................................ December 10, 1986
Nuveen Flagship All-American Municipal Bond Fund
Class A Shares........................................ October 3, 1988
Class B Shares........................................ February 1, 1997
Class C Shares........................................ June 2, 1993
Class R Shares........................................ February 1, 1997
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
Nuveen Flagship Intermediate Municipal Bond Fund
Class A Shares....................................... September 15, 1992
Class C Shares....................................... December 1, 1995
Class R Shares....................................... February 1, 1997
Nuveen Flagship Limited Term Municipal Bond Fund
Class A Shares....................................... October 19, 1987
Class C Shares....................................... December 1, 1995
Class R Shares....................................... February 1, 1997
</TABLE>
The Nuveen Municipal Bond Fund's average annual return figures, including the
effect of the maximum sales charge for Class A Shares, for the one-year, five-
year and ten-year periods (as applicable) ended August 31, 1996, and for the
period from inception through August 31, 1996, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
---------------------------------------
FROM
ONE YEAR TEN YEARS INCEPTION
ENDED FIVE YEARS ENDED THROUGH
AUG. 31, ENDED AUG. AUG. 31, AUG. 31,
1996 31, 1996 1996 1996
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Nuveen Municipal Bond Fund
Class A Shares................ 0.84% 5.58% 6.69% 6.70%
Class B Shares................ 0.43% 5.59% 6.57% 6.64%
Class C Shares................ 4.52% 5.70% 6.38% 6.15%
Class R Shares................ 5.42% 6.76% 7.41% 7.20%
</TABLE>
The Nuveen Insured Municipal Bond Fund's average annual return figures,
including the effect of the maximum sales charge for Class A Shares, for the
one-year and five-year periods (as applicable) ended August 31, 1996, and for
the period from inception through August 31, 1996, respectively, were as
follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1996
---------- ---------- ----------
<S> <C> <C> <C> <C>
Nuveen Insured Municipal Bond Fund
Class A Shares................... 1.05% 6.49% 7.04%
Class B Shares................... 0.64% 6.43% 6.89%
Class C Shares................... 4.72% 6.47% 6.65%
Class R Shares................... 5.64% 7.60% 7.74%
</TABLE>
The Nuveen Flagship All-American Municipal Bond Fund's average annual return
figures, including the effect of the maximum sales charge for Class A shares,
for one-year and five-year periods (as applicable) ended November 30, 1995, and
for the period from inception through November 30, 1996 were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Nuveen Flagship All-American
Municipal Bond Fund
Class A Shares................ 1.88% 7.57% 8.35%
Class B Shares................ 1.77% 7.76% 8.34%
Class C Shares................ 5.77% 7.85% 8.30%
Class R Shares................ 6.35% 8.50% 8.93%
</TABLE>
S-23
<PAGE>
The Nuveen Flagship Intermediate Municipal Bond Fund's average annual return
figures, including the effect of the maximum sales charge for Class A Shares
for the one-year period ended (as applicable) November 30, 1996, and for the
same period from inception through November 30, 1996 were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-------------------------
FROM
ONE YEAR INCEPTION
ENDED THROUGH
NOVEMBER 30, NOVEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
Nuveen Flagship Intermediate Municipal Bond
Fund
Class A Shares............................. 2.65% 6.72%
Class C Shares............................. 4.93% 6.82%
Class R Shares............................. 5.83% 7.49%
</TABLE>
The Nuveen Flagship Limited-Term Municipal Bond Fund's average annual return
figures, including the effect of the maximum sales charge for Class A Shares
for the one-year and five-year periods (as applicable) ended November 30, 1996,
and for the period from inception through November 30, 1996 were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Nuveen Flagship Limited-Term
Municipal Bond Fund
Class A Shares................ 2.27% 5.75% 6.57%
Class C Shares................ 4.55% 5.96% 6.55%
Class R Shares................ 4.89% 6.28% 6.87%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
The Nuveen Municipal Bond Fund cumulative total return figures, including the
effect of the maximum sales charge for the Class A Shares, for the one-year,
five-year, and ten year periods (as applicable) ended August 31, 1996, and for
the period since inception through August 31, 1996, using the performance of
the oldest class for periods prior to the inception of the newer classes, as
described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nuveen Municipal Bond Fund
Class A Shares............ 0.84% 31.18% 91.02% 260.15%
Class B Shares............ 0.43% 31.26% 88.90% 256.16%
Class C Shares............ 4.52% 31.97% 85.57% 225.25%
Class R Shares............ 5.42% 38.69% 104.42% 294.78%
</TABLE>
S-24
<PAGE>
The Nuveen Insured Municipal Bond Fund cumulative total return figures,
including the effect of the maximum sales charge for the Class A Shares, for
the one and five-year periods (as applicable) ended August 31, 1996, and for
the period since inception through August 31, 1996, using the performance of
the oldest class for periods prior to the inception of the newer classes, as
described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Nuveen Insured Municipal Bond Fund
Class A Shares........................ 1.05% 36.99% 93.31%
Class B Shares........................ 0.64% 36.57% 90.70%
Class C Shares........................ 4.72% 36.84% 86.56%
Class R Shares........................ 5.64% 44.24% 105.97%
</TABLE>
The Nuveen Flagship All-American Municipal Bond Fund cumulative total return
figures, including the effect of the maximum sales charge for the Class A
Shares, for the one-year and five-year periods ended November 30, 1996, and for
the period since inception through November 30, 1996, using the performance of
the oldest class for periods prior to the inception of the newer classes, as
described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Nuveen Flagship All-American
Municipal Bond Fund
Class A Shares................ 1.88% 44.03% 92.44%
Class B Shares................ 1.77% 45.30% 92.28%
Class C Shares................ 5.77% 45.91% 91.60%
Class R Shares................ 6.35% 50.35% 100.88%
</TABLE>
The Nuveen Flagship Intermediate Municipal Bond Fund cumulative total return
figures, including the effect of the maximum sales charge for the Class A
Shares, for the one-year period ended November 30, 1996, and for the period
since inception through November 30, 1996, using the performance of the oldest
class for periods prior to the inception of the newer classes, as described
above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------
FROM
ONE YEAR INCEPTION
ENDED THROUGH
NOVEMBER 30, NOVEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
Nuveen Flagship Intermediate Municipal Bond
Fund
Class A Shares............................. 2.65% 31.46%
Class C Shares............................. 4.93% 32.01%
Class R Shares............................. 5.83% 35.52%
</TABLE>
The Nuveen Flagship Limited Term Municipal Bond Fund cumulative total return
figures, including the effect of the maximum sales charge for the Class A
Shares, for the one and five year periods ended November 30, 1996, and for the
period since inception through November 30, 1996, using the performance of the
oldest class for periods prior to the inception of the newer classes, as
described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Nuveen Flagship Limited Term
Municipal Bond Fund
Class A Shares................ 2.27% 32.24% 78.69%
Class C Shares................ 4.55% 33.58% 78.28%
Class R Shares................ 4.89% 35.63% 83.27%
</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
S-25
<PAGE>
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 39.6% maximum marginal federal tax rate for 1997, the annual
taxable equivalent total return for the Nuveen Municipal Bond Fund's Class R
Shares for the ten year period ended August 31, 1996, was 11.67%.
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 (3.0% for the Intermediate
Municipal Bond Fund and 2.5% for the Limited Term Municipal Bond Fund). This
current maximum sales charge will typically be used for purposes of calculating
performance figures. Yield, returns and net asset value of each class of shares
of the Funds will fluctuate. Factors affecting the performance of the Funds
include general market conditions, operating expenses and investment
management. Any additional fees charged by a securities representative or other
financial services firm would reduce returns described in this section. Shares
of the Funds are redeemable at net asset value, which may be more or less than
original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Fund primarily invests in investment 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-26
<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 shares expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES
Cumulative Discount. You may qualify for a reduced sales charge on a purchase
of Class A Shares of any Fund if the amount of your purchase, when added to the
value that day of all of your prior purchases of shares of any Fund or of
another Nuveen Municipal Mutual Fund, or units of a Nuveen unit trust, on which
an up-front sales charge or ongoing distribution fee is imposed, falls within
the amounts stated in the Class A Sales Charges and Commissions table in "How
to Select a Purchase Option" in the Prospectus. You or your financial adviser
must notify Nuveen or the Fund's transfer agent of any cumulative discount
whenever you plan to purchase Class A Shares of a Fund that you wish to qualify
for a reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How to
Select a Purchase Option" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Municipal
Mutual Fund that you already own on which you paid an up-front sales charge or
an ongoing distribution fee and any Class C Shares of a Nuveen Mutual Fund that
you purchase over the next 13 months towards completion of your investment
program, but you will receive a reduced sales charge only on new Class A Shares
you purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without
a sales charge through investment of distributions from a Nuveen Municipal
Mutual Fund or a Nuveen unit trust, or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount specified, you must pay
Nuveen an amount equal to the difference between the amounts paid for these
purchases and the amounts which would have been paid if the higher sales charge
had been applied. If you do not pay the additional amount within 20 days after
written request by Nuveen or your financial adviser, Nuveen will redeem an
appropriate number of your escrowed Class A Shares to meet the required
payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as
attorney to give instructions to redeem any or all of your escrowed shares,
with full power of substitution in the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Unit Trust Distributions. You may purchase Class A
Shares without an up-front sales charge by reinvestment of distributions from
any of the various unit trusts sponsored by Nuveen. There is no initial or
subsequent minimum investment requirement for such reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Municipal Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
S-27
<PAGE>
"qualified group" is one which has been in existence for more than six months,
has a purpose other than investment, has five or more participating members,
has agreed to include Fund sales publications in mailings to members and has
agreed to comply with certain administrative requirements relating to its group
purchases.
Under any group purchase program, the minimum monthly investment in Class A
Shares of any particular Fund or portfolio by each participant is $25, and the
minimum monthly investment in Class A Shares of any particular Fund or
portfolio for all participants in the program combined is $1,000. No
certificate will be issued for any participant's account. All dividends and
other distributions by a Fund will be reinvested in additional Class A Shares
of the same Fund. No participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by checking the
applicable box on the enclosed Application Form or by calling Nuveen toll-free
at (800) 621-7227.
Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also
purchase Class A Shares at net asset value without a sales charge if the
purchase takes place through a broker-dealer and represents the reinvestment of
the proceeds of the redemption of shares of one or registered investment
companies not affiliated with Nuveen. You must provide appropriate
documentation that the redemption occurred not more than 60 days prior to the
reinvestment of the proceeds in Class A Shares, and that you either paid an up-
front sales charge or were subject to a contingent deferred sales charge in
respect of the redemption of such shares of such other investment company.
Class A Shares of a Fund may be purchased at net asset value without a sales
charge, and Class R Shares may be purchased, by the following categories of
investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
and
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after 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.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, their parents, their children
and their grandchildren); or (3) all purchases made through a group purchase
program as described above.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 621-7277.
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
S-28
<PAGE>
exceeded $1 million, where the Authorized Dealer did not waive the sales
commission, a CDSC of 1% is imposed on any redemption within 18 months of
purchase. In the case of Class B Shares redeemed within six years of purchase,
a CDSC is imposed, beginning at 5% for redemptions within the first year,
declining to 4% for redemptions within years two and three, and declining by 1%
each year thereafter until disappearing after the sixth year. Class C Shares
are redeemed at net asset value, without any CDSC, except that a CDSC of 1% is
imposed upon redemption of Class C Shares that are redeemed within 12 months of
purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, and then in the reverse order in which the shares were
purchased, unless the shareholder specifies another order. No CDSC is charged
on shares purchased as a result of automatic reinvestment of dividends or
capital gains paid. In addition, no CDSC will be charged on exchanges of shares
into another Nuveen Mutual Fund or money market Fund. The holding period is
calculated on a monthly basis and begins the first day of the month in which
the order for investment is received. The CDSC is calculated based on the lower
of the redeemed shares' cost or net asset value at the time of the redemption
and is deducted from the redemption proceeds. Nuveen receives the amount of any
CDSC shareholders pay. If Class A or Class C shares subject to a CDSC are
exchanged for shares of a Nuveen money market fund, the CDSC would be imposed
on the subsequent redemption of those money market shares, and the period
during which the shareholder holds the money market fund shares would be
counted in determining the remaining duration of the CDSC. The Fund may elect
not to so count the period during which the shareholder held the money market
fund shares, in which event the amount of any applicable CDSC would be reduced
in accordance with applicable SEC rules by the amount of any 12b-1 plan
payments to which those money market funds shares may be subject.
The CDSC may be waived or reduced under the following six special
circumstances: 1) redemptions within one year following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended, of a shareholder; 2) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge; 4)
in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are
reinvested in shares of certain Funds within a specified number of days; 5) in
connection with the exercise of a Fund's right to redeem all shares in an
account that does not maintain a certain minimum balance or that the applicable
board has determined may have material adverse consequences to the shareholders
of such Fund; and 6) redemptions made pursuant to a Fund's automatic withdrawal
plan, up to specified amounts. If a Fund waives or reduces the CDSC, such
waiver or reduction would be uniformly applied to all Fund shares in the
particular category. In waiving or reducing a CDSC, the Funds will comply with
the requirements of Rule 22d-1 of the Investment Company Act of 1940, as
amended.
GENERAL MATTERS
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
To help advisers and investors better understand and most efficiently use the
Fund to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software or additional sales literature to promote the advantages of using the
Funds to meet these and other specific investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day. 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 assets value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
S-29
<PAGE>
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Fund
Shares" in the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Nuveen Municipal Trust, dated February 1, 1997
("Distribution Agreement"). Pursuant to the Distribution Agreement, the Trust
appointed Nuveen to be its agent for the distribution of the Funds' shares on a
continuous offering basis. Nuveen sells shares to or through brokers, dealers,
banks or other qualified financial intermediaries (collectively referred to as
"Dealers"), or others, in a manner consistent with the then effective
registration statement of the Trust. Pursuant to the Distribution Agreement,
Nuveen, at its own expense, finances certain activities incident to the sale
and distribution of the Funds' shares, including printing and distributing of
prospectuses and statements of additional information to other than existing
shareholders, the printing and distributing of sales literature, advertising
and payment of compensation and giving of concessions to Dealers. Nuveen
receives for its services the excess, if any, of the sales price of the Funds'
shares less the net asset value of those shares, and reallows a majority or all
of such amounts to the Dealers who sold the shares; Nuveen may act as such a
Dealer. Nuveen also receives compensation pursuant to a distribution plan
adopted by the Trust pursuant to Rule 12b-1 and described herein under
"Distribution and Service Plan." Nuveen receives any CDSCs imposed on
redemptions of Shares.
The aggregate amounts of underwriting commissions with respect to the sale of
Fund shares and the amount thereof retained by Nuveen for the Nuveen Municipal
Bond Fund's fiscal years ended February 29, 1996, February 28, 1995, and
February 28, 1994 were $1,575, $316; $2,248, $467; and $5,703, $1,093,
respectively. For the Nuveen Insured Municipal Bond Fund's fiscal years ended
February 29, 1996, February 28, 1995, and February 28, 1994, the amounts
retained were $880, $97; $1,554, $296; and $4,490, $707, respectively. The
aggregate amounts of underwriting commissions with respect to the sale of Fund
shares and the amount thereof retained by Flagship Financial, Inc., which
Nuveen acquired on January 1, 1997, for the Nuveen Flagship All-American
Municipal Bond Fund for the fiscal years ended May 31, 1996, May 31, 1995 and
May 31, 1994 were $556,900, $73,800; $763,400, $104,100; $1,188,000, $161,798,
respectively. For the Nuveen Flagship Intermediate Municipal Bond Fund for the
fiscal years ended May 31, 1996, May 31, 1995 and May 31, 1994 the amounts
retained were $136,700, $27,900; $171,100, $34,400; $460,600, $89,100,
respectively. For the Nuveen Flagship Limited Term Municipal Bond Fund for the
fiscal years ended May 31, 1996, May 31, 1995 and May 31, 1994 the amounts
retained were $543,300, $108,400; $797,200, $160,100; $4,055,400, $818,100.
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal years indicated below, 100% of service fees and distribution
fees were paid out as compensation to authorized dealers. For such periods, the
service fee for the Nuveen Municipal Bond Fund and the Nuveen Insured Municipal
Bond Fund was .25% for both Class A and C Shares and the distribution fee was
.75% for Class C Shares. For the Nuveen Flagship All-American Municipal Bond
Fund, the Nuveen Flagship Intermediate Municipal Bond Fund and the Nuveen
Flagship Limited Term Municipal Bond Fund, the service fee was .20% for all
classes and the distribution fee was .20% for Class A Shares and .75% for Class
C Shares.
S-30
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1996
----------------------
<S> <C>
Nuveen Municipal Bond Fund (2/29/96)
Class A........................................ $36,112
Class C........................................ $7,054
Nuveen Insured Municipal Bond Fund (2/29/96)
Class A........................................ $82,071
Class C........................................ $44,298
Nuveen Flagship All-American Municipal Bond Fund
(5/31/96)
Class A........................................ $800,411
Class C........................................ $436,430
Nuveen Flagship Intermediate Municipal Bond Fund
(5/31/96)
Class A........................................ $180,903
Class C........................................ $3,450
Nuveen Flagship Limited Term Municipal Bond Fund
(5/31/96)
Class A........................................ $2,109,177
Class C........................................ $28,351
</TABLE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast in person at a meeting called for the
purpose of considering such amendments. During the continuance of the Plan, the
selection and nomination of the non-interested trustees of the Trust will be
committed to the discretion of the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago Illinois 60603 has been selected as auditors for the Nuveen Municipal
Bond Fund and the Nuveen Insured Municipal Bond Fund. Deloitte & Touche, LLP,
independent public accountants, 1700 Courthouse Plaza N.E., Dayton, Ohio 45402
has been selected as auditors for the Nuveen Flagship All-American Municipal
Bond Fund, the Nuveen Flagship Intermediate Municipal Bond Fund, and the Nuveen
Flagship Limited Term Municipal Bond Fund. In addition to audit services, the
auditors will provide consultation and assistance on accounting, internal
control, tax and related matters. The financial statements incorporated by
reference elsewhere in this Statement of Additional Information and the
information for prior periods set forth under "Financial Highlights" in the
Prospectus have been audited by the respective auditors as indicated in their
report with respect thereto, and are included in reliance upon the authority of
that firm in giving that report.
The custodian of the assets of the Funds is The Chase Manhattan Bank, 770
Broadway, New York, New York 10003. The custodian performs custodial, fund
accounting and portfolio accounting services.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports and the unaudited financial statements for
the most recent semi-annual period for each Fund appear in the Funds' Semi-
Annual Reports; each is included herein by reference. The Annual Reports and
the Semi-Annual Reports accompany this Statement of Additional Information.
S-31
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-1
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Funds'
defensive hedging techniques and use of repurchase agreements.
FUTURES AND INDEX TRANSACTIONS
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to 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.
B-1
<PAGE>
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
REPURCHASE AGREEMENTS
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's Board of Trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-2
<PAGE>
[Logo of Statement of Investments in November 30, 1996
Ship Art] Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
========================================================================================================================
Municipal Bonds
Face
Amount Face
(000) Description Rate Maturity Market Value
<S> <C> <C> <C> <C>
Alaska
$ 280 Alaska State Housing Finance Corporation 7.800% 12/01/30 $ 285,256
California
2,000 California Pollution Control Financing Authority Revenue -
San Diego Gas and Electric Company - Series 1996 A 5.900 06/01/14 2,119,320
8,000 Contra Costa, CA Home Mortgage Finance Authority -
Multifamily Mortgage Revenue - Series 1984 0.000 09/01/17 2,436,880
2,000 Foothill/Eastern Transportation Corridor Agency -
Toll Road Revenue - Series 1995 0.000 01/01/05 1,291,540
6,000 Long Beach, CA Aquarium of the Pacific Revenue - Series 1995 A 6.125 07/01/23 5,910,600
4,000 Los Angeles, CA Regional Airports Improvement Corporation - Facilities
Sublease Revenue - Delta Air Lines, Incorporated - Series 1996 6.350 11/01/25 4,108,320
500 Sacramento, CA Cogeneration Authority Revenue - Procter & Gamble -
Series 1995 6.200 07/01/06 527,995
1,000 Sacramento, CA Cogeneration Authority Revenue - Procter & Gamble -
Series 1995 6.500 07/01/21 1,043,480
5,000 Sacramento, CA Power Authority Revenue - Cogeneration Project -
Series 1995 5.875 07/01/15 5,022,650
Colorado
6,000 Arapahoe County, CO E-470 Public Highway Authority Revenue -
E-470 Project - Series 1986 0.000 08/31/05 3,631,380
3,000 Arapahoe County, CO E-470 Public Highway Authority Revenue -
E-470 Project - Series 1986 0.000 08/31/06 1,704,750
2,000 Arapahoe County, CO E-470 Public Highway Authority Revenue -
E-470 Project - Series 1986 6.950 08/31/20 2,209,800
2,500 Hyland Hills Park and Recreation District - Adams County -
Special Revenue - Series 1996 A 6.750 12/15/15 2,621,975
Connecticut
2,000 Connecticut State Health and Educational Facilities Authority Revenue -
AHF/Hartford, Incorporated - Series 1994 7.125 11/01/14 2,268,320
District of Columbia
1,480 District of Columbia Revenue - Georgetown University - Series 1990B 7.150 04/01/21 1,583,467
Florida
1,000 Lady Lake, FL Industrial Development Revenue - Sunbelt Utilities 9.625 07/01/15 1,192,860
1,975 Nassau County, FL Amelia Island Properties - Series 1993A 9.750 01/01/23 2,190,512
1,965 Sanford Airport Authority, Florida - Industrial Development Revenue
Bonds - (Central Florida Terminals, Inc. Project) - Series 1995 A and B 7.500 05/01/10 1,989,307
Georgia
2,000 Georgia Municipal Electric Authority Power Revenue - Series 1993 C 5.700 01/01/19 2,035,240
1,000 Municipal Electric Authority - Georgia Project One Special
Obligation - Fifth Crossover - Series 1992 6.500 01/01/17 1,118,010
Illinois
1,750 Chicago, IL Gas Supply Revenue - Peoples Gas Light and Coke Company 8.100 05/01/20 1,940,960
1,000 Chicago, IL Gas Supply Refunding Revenue - Peoples Gas Light and
Coke Company - Series 1995 A 6.100 06/01/25 1,039,460
2,000 Illinois Development Finance Authority Revenue -
Presbyterian Home Lake Forest Place Project - Series 1996 A and B 6.300 09/01/22 2,082,420
4,000 Illinois Educational Facilities Authority Revenue -
Columbia College - Series 1992 6.875 12/01/17 4,183,760
3,750 Illinois Educational Facilities Authority Revenue -
Loyola College and University - Series 1991 7.125 07/01/21 4,110,038
4 All-American
</TABLE>
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity Market Value
<S> <C> <C> <C> <C>
$ 1,000 Illinois Health Facilities Authority Revenue - Galesburg Cottage
Hospital - Series 1992 6.250% 05/01/11 $ 1,040,210
3,000 Illinois Health Facilities Authority Revenue - Fairview Obligated
Group - Series 1995 A, B and C 7.125 08/15/17 2,997,930
6,000 Illinois Health Facilities Authority Revenue - Sarah Bush Lincoln
Health Center - Series 1996 B 5.750 02/15/22 5,760,600
145 Illinois Health Facilities Authority Revenue - Westlake Community
Hospital 7.875 01/01/13 153,043
Indiana
1,000 Fishers, IN Economic Development Revenue First Mortgage 8.375 09/01/14 1,055,260
1,750 Indiana State Health Facilities Authority Revenue -
Hancock Memorial Hospital 8.300 08/15/20 2,010,085
1,250 Indiana Transportation Finance Authority Revenue - Airport
Facilities - Series A 6.750 11/01/11 1,335,638
4,000 Indiana University of Trustees - Student Fee Revenue - Series K 0.000 08/01/11 1,789,000
2,000 Indianapolis, IN Airport Authority Revenue - Federal Express
Corporation - Series 1994 7.100 01/15/17 2,163,480
4,000 Indianapolis, IN Airport Authority Revenue - United Air Lines,
Incorporated, Indianapolis Maintenance Center - Series 1995 A 6.500 11/15/31 4,100,680
5,450 Indianapolis, IN Economic Developmment Revenue - Willowbrook
Apartments Project - Series 1996 A, B, C and D 6.500 07/01/26 5,489,294
500 Monroe County, IN Hospital Authority - Bloomington Hospital -
Series 1992 6.700 05/01/12 546,470
1,000 Rockport, IN Industrial Pollution Control Revenue - Indiana-Michigan
Power 7.600 03/01/16 1,082,260
Kentucky
5,000 Ashland, KY Sewage and Solid Waste Revenue - Ashland Inc. - Series 1995 7.125 02/01/22 5,428,750
5,000 Henderson County, KY Solid Waste Disposal Revenue - MacMillan Bloedel -
Series 1995 7.000 03/01/25 5,312,050
3,250 Jefferson County, KY Health Facilities Revenue - Jewish Hospital Health
Care Services 6.500 05/01/15 3,509,252
4,500 Jefferson County, KY Capital Projects Corporation Revenue -
Municipal Lease - Series 1992 A 0.000 08/15/12 1,863,765
5,000 Louisville and Jefferson County, KY Metropolitan Sewer District
Revenue - Sewer and Drainage System - Series 1994 A 6.750 05/15/25 5,632,700
2,500 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue -
Series 1993 A 6.200 03/01/18 2,564,600
3,500 Pendleton County, KY Multi-County Lease Revenue Program -
Series 1993 A 6.500 03/01/19 3,724,595
Louisiana
2,000 New Orleans, LA Audubon Park Commission - Aquarium Revenue -
Series 1992A 8.000 04/01/12 2,201,640
Maryland
2,000 Maryland Energy Financing Administration - Limited Obligation Solid
Waste Disposal Revenue - Wheelabrator Water Technologies
Baltimore L.L.C. Projects - Series 1996 6.450 12/01/16 2,094,540
Massachusetts
3,000 Massachusetts State Housing Finance Agency - Series 1993 A 6.300 10/01/13 3,077,850
4,900 Massachusetts State Health and Educational Facilities Authority
Revenue - Dana-Farber Cancer Institute - Series G-1 and G-2 6.250 12/01/22 5,097,764
2,750 Massachusetts Industrial Finance Agency Revenue - Holy Cross College -
Series 1996 5.500 03/01/20 2,735,452
Michigan
2,000 Pontiac, MI Hospital Finance Authority Revenue - NOMC Group -
Series 1993 6.000 08/01/13 1,919,500
420 Western Townships Michigan Utility Authority - Sewer Disposal System 8.200 01/01/18 460,051
</TABLE>
All-American 5
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity Market Value
<S> <C> <C> <C> <C>
Mississippi
$ 2,000 Claiborne County, MS Pollution Control Revenue - System Energy
Resources Incorporated - Series 19 7.300% 05/01/25 $ 2,101,880
1,725 Gautier, MS Combined Utility District System Revenue -
Jackson County - Series 1992 6.375 03/01/19 1,849,942
New Hampshire
700 New Hampshire Higher Educational and Health Facilities Authority
Revenue - Catholic Medical Center 6.000 07/01/17 677,481
600 New Hampshire Higher Educational and Health Facilities Authority
Revenue - St. Joseph Hospital 7.500 01/01/16 633,042
New Jersey
425 Essex County, NJ Improvement Authority - General Obligation Lease
Revenue - Series 1994 6.600 04/01/14 448,894
2,400 New Jersey Economic Development Authority - Electric Energy
Facility Revenue - Vineland Cogeneration Project - Series 1992 7.875 06/01/19 2,604,984
1,375 New Jersey Economic Development Authority Revenue - Educational
Testing Services - Series 1995 B 6.125 05/15/15 1,462,890
New York
2,700 Metropolitan Transportation Authority, NY - Transit Facilities
Revenue - Series 1996 A 6.100 07/01/21 2,856,303
1,900 New York City, NY General Obligation - Series 1991 B 7.500 02/01/09 2,125,872
750 New York City, NY General Obligation - Series 1992 D 7.500 02/01/18 834,818
3,810 New York City General Obligation - Fiscal Series 1997 E and F 6.000 08/01/26 3,773,119
35 New York City General Obligation - Series 1992 D 7.500 02/01/17 40,124
650 New York City General Obligation - Series 1992 D 7.500 02/01/17 724,132
1,750 New York City Housing Development Corporation - Multifamily 7.350 06/01/19 1,871,748
1,720 New York State Dormitory Authority Revenue - Department of Education -
Series 1994 A 6.250 07/01/24 1,757,186
1,480 New York State Dormitory Authority Revenue - City University System
Consolidated Revenue - Series 1993 B 5.750 07/01/18 1,505,663
2,500 New York State Dormitory Authority Revenue - Department of Health -
Series 1995 6.625 07/01/24 2,700,375
3,000 New York State Housing Finance Agency Revenue - Service Contract -
Series 1995 A 6.375 09/15/15 3,117,120
1,590 New York State Mortgage Agency Revenue - Single Family - Series UU 7.750 10/01/23 1,683,031
5,500 New York State Urban Development Corporation Revenue -
State Facilities - Series 1995 5.700 04/01/20 5,527,830
1,500 New York State Urban Development Corporation Revenue -
Center for Industrial Innovation - Series 1995 5.500 01/01/13 1,479,450
2,125 New York State Urban Development Corporation Project Revenue -
University Facilities Grants - Series 1995 5.500 01/01/19 2,079,695
4,750 Port Authority of New York and New Jersey - Special Project -
KIAC Partners Project - Series 4 6.750 10/01/19 4,875,305
North Carolina
1,299 Woodfin, NC Treatment Facilities - Certificates of Participation -
Series 1993 6.750 12/01/13 1,349,740
North Dakota
595 North Dakota State Housing Finance Agency - Single Family Mortgage
Revenue - Series B 8.000 07/01/13 622,435
</TABLE>
6 All-American
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity Market Value
<S> <C> <C> <C> <C>
Ohio
$ 1,400 Cleveland, OH Public Power System First Mortgage Revenue - Series 1994 7.000% 11/15/17 $ 1,573,166
1,350 Columbiana County, OH Jail Facilities Construction -
General Obligation - Series 1994 6.700 12/01/24 1,492,560
1,000 Cuyahoga County, OH Health Care Facilities Revenue -
Altenheim Nursing Home 9.280 06/01/15 1,095,980
3,000 Cuyahoga County, OH Hospital Revenue - Meridia Health System -
Series 1995 6.250 08/15/24 3,089,370
1,000 Cuyahoga County, OH Hospital Facilities Revenue - Fairview General
Hospital/ Lutheran Medical Center - Series 1993 6.300 08/15/15 1,020,410
2,350 Garfield Heights, OH Hospital and Improvement Revenue -
Marymont Hospital - Series 1992 A 6.700 11/15/15 2,501,740
1,500 Lucas County, OH Hospital Revenue - Flower Memorial Hospital -
Series A 8.125 12/01/11 1,774,875
500 Mahoning Valley, OH Sanitary District - Series 1991 7.900 12/15/15 552,365
1,600 Mahoning Valley, OH Sanitary District - Series 1991 7.900 12/15/16 1,767,568
3,500 Miami County, OH Hospital Facilities Revenue - Upper Valley Medical
Center - Series 1996 A, B and C 6.375 05/15/26 3,555,335
2,750 Ohio State Air Quality Development Authority Revenue - Dayton Power
and Light Company - Series 1995 6.100 09/01/30 2,835,470
1,750 Ohio State Higher Educational Facilities Commission Revenue -
University of Dayton - Series 1992 6.600 12/01/17 1,962,870
3,500 Shelby County, OH Hospital Facilities and Improvement Revenue -
Wilson Memorial Hospital 7.700 09/01/18 3,796,100
Oklahoma
2,750 Tulsa, OK Municipal Airport Trustees Trust Revenue - AMR Corporation -
Series 1995 6.250 06/01/20 2,794,440
Pennsylvania
2,500 Allegheny County, PA Higher Education Building Authority Revenue -
Robert Morris College - Series 1996 A 6.400 02/15/14 2,513,600
1,500 Clarion County, PA Hospital Authority Revenue - Clarion Hospital 8.100 07/01/12 1,593,570
1,000 Delaware County, PA Industrial Development Authority - Pollution
Control Revenue - Philadelphia Electric Company - Series 1991 A 7.375 04/01/21 1,126,470
500 Falls Township, PA Hospital Authority Revenue - Delaware Valley
Medical Center - Series 1992 7.000 08/01/22 527,190
1,000 Latrobe, PA Industrial Development Authority Revenue -
St. Vincent College - Series 1994 6.750 05/01/24 1,053,320
1,700 Philadelphia, PA Gas Works Revenue - Fourteenth Series - Series 1993 6.375 07/01/26 1,751,612
3,500 Philadelphia, PA Hospitals and Higher Education Facilities Revenue -
Temple University Hospital - Series 1993 A 6.625 11/15/23 3,657,220
Puerto Rico
1,540 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1996 A 5.400 07/01/25 1,483,513
Rhode Island
1,600 Rhode Island Housing and Mortgage Finance Corporation -
Homeownership Series 3A 7.850 10/01/16 1,693,808
South Carolina
1,975 Berkeley County, SC School District - Certificates of Participation -
Berkeley School Facilities Group, Incorporated - Series 1994 6.300 02/01/16 2,119,787
1,770 Georgetown County, SC Water and Sewer District - Water and Sewer
System Revenue - Series 1995 6.500 06/01/25 1,782,036
</TABLE>
All-American 7
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
========================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity Market Value
<S> <C> <C> <C> <C>
$ 1,000 South Carolina State Housing Finance and Development Authority -
Multifamily Housing Mortgage Revenue - United Dominion-Hunting
Ridge - Series 1995 6.750% 06/01/25 $ 1,038,130
1,000 South Carolina State Housing Finance And Development Authority
Revenue - Multifamily - Runaway Bay Apartments - Series 1995 6.125 12/01/15 1,018,830
1,750 York County, SC Water and Sewer Revenue - Series 1995 6.500 12/01/25 1,760,638
Tennessee
1,085 Shelby County, TN Health, Educational and Housing Facilities Board
Revenue - Open Arms Development Center - Series 1992A 9.750 08/01/19 1,278,000
1,100 Shelby County, TN Health, Educational and Housing Facilities Board
Revenue - Open Arms Development Center - Series 1992C 9.750 08/01/19 1,299,727
1,380 South Fulton, TN Industrial Development Board Revenue - Tyson Foods -
Series 1995 6.350 10/01/15 1,420,158
1,500 Wilson County, TN Educational Facilities Corporation -
Certificates of Participation - Series 1994 6.250 06/30/15 1,556,835
Texas
7,000 Alliance Airport Authority, Incorporated, TX - Special Facilities
Revenue - Federal Express Corporation Project - Series 1996 6.375 04/01/21 7,087,150
2,000 Dallas-Fort Worth, TX International Airport Facility Improvement
Revenue - American Airlines, Inc. - Series 1992 7.250 11/01/30 2,163,820
2,000 North Central Texas Health Facilities Development Corporation -
Health Facilities Development Revenue - C.C. Young Memorial Home
Project - Series 1996 6.375 02/15/20 2,014,880
2,895 Port of Bay City Authority Revenue - Matagorda County, Texas -
Hoechst Celanese Corporation Project - Series 1996 6.500 05/01/26 3,010,829
Utah
2,000 Carbon County, UT Solid Waste Disposal Revenue -
Laidlaw, Incorporated/ECDC - Series 1995 A 7.500 02/01/10 2,217,360
Virginia
3,000 Fairfax County, VA Redevelopment and Housing Authority Revenue -
Multifamily Housing - Mount Vernon Apartments - Series 1995 6.625 09/20/20 3,156,390
2,000 Hanover County, VA Industrial Development Authority Hospital Revenue -
Memorial Regional Medical Center - Series 1995 6.375 08/15/18 2,269,560
3,250 Prince William County, VA Industrial Development Authority Revenue -
Hospital Facility - Potomac Hospital - Series 1995 6.850 10/01/25 3,524,138
1,930 Virginia State Housing Development Authority - Commonwealth Mortgage -
Series 1995 B, Subseries B-3 6.350 01/01/16 2,020,633
West Virginia
500 Mason County, WV Pollution Control Revenue - Appalachian Power
Company - Series G 7.400 01/01/14 529,100
Wisconsin
855 Fall Creek, WI Municipal Nursing Home Mortgage Revenue 9.875 07/01/19 915,893
Total Investments in Securities - Municipal Bonds (cost $253,271,063) - 98.4% 269,894,264
Excess of Other Assets over Liabilities - 1.6% 4,284,700
Total Net Assets - 100.0% $274,178,964
</TABLE>
See notes to financial statements.
8 All-American
<PAGE>
[Logo of Ship Art]
Statement of Assets and Liabilities November 30, 1996 (Unaudited)
................................................................................
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (cost $253,271,063) $269,894,264
Cash 3,638,152
Receivable for investments sold 30,000
Receivable for Fund shares sold 505,253
Interest receivable 4,601,564
Other 9,219
TOTAL ASSETS 278,678,452
LIABILITIES:
Payable for investments purchased 2,841,790
Payable for Fund shares reacquired 225,595
Distributions payable 1,185,650
Accrued expenses 246,453
TOTAL LIABILITIES 4,499,488
NET ASSETS 274,178,964
CLASS A:
APPLICABLE TO 19,887,465 SHARES OF BENEFICIAL
INTEREST ISSUED AND OUTSTANDING $220,958,867
NET ASSET VALUE PER SHARE $ 11.11
CLASS C:
APPLICABLE TO 4,793,713 SHARES OF BENEFICIAL
INTEREST ISSUED AND OUTSTANDING $ 53,220,097
NET ASSET VALUE PER SHARE $ 11.10
[Logo of Ship art]
Statement of Operations For the six months ended November 30, 1996
(Unaudited)
................................................................................
INVESTMENT INCOME - INTEREST $ 8,498,533
EXPENSES:
Distribution fees - Class A (Note E) 429,799
Distribution fees - Class C (Note E) 237,696
Investment advisory fees (Note E) 662,665
Custody and accounting fees 54,518
Transfer agent's fees 73,200
Registration fees 23,789
Legal fees 2,013
Audit fees 8,845
Trustees' fees 3,660
Shareholder services fees (Note E) 12,261
Other 4,167
Advisory fees waived (Note E) (178,935)
TOTAL EXPENSES BEFORE CREDITS 1,333,678
Custodian fee credit (Note B) (26,118)
NET EXPENSES 1,307,560
NET INVESTMENT INCOME 7,190,973
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 1,780,365
Change in unrealized appreciation (depreciation) of
investments 9,057,912
NET GAIN ON INVESTMENTS 10,838,277
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,029,250
See notes to financial statements.
All-American 9
</TABLE>
<PAGE>
[LOGO OF SHIP ART]
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Six Months Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS November 30, 1996 May 31, 1996
Operations: (Unaudited)
Net investment income $ 7,190,973 $ 13,630,068
Net realized gain (loss) on security transactions 1,780,365 4,802,765
Change in unrealized appreciation (depreciation) of investments 9,057,912 (8,074,381)
Net increase in net assets resulting from operations 18,029,250 10,358,452
Distributions to Class A shareholders:
From net investment income (5,931,385) (11,330,827)
Distributions to Class C shareholders:
From net investment income (1,242,982) (2,350,784)
Net decrease in net assets from distributions to shareholders (7,174,367) (13,681,611)
Fund share transactions (Note C):
Proceeds from shares sold 22,071,576 64,410,375
Net asset value of shares issued in reinvestment of distributions 3,757,014 7,107,483
Cost of shares reacquired (17,810,052) (43,626,650)
Net increase in net assets from Fund share transactions 8,018,538 27,891,208
Total increase in net assets 18,873,421 24,568,049
NET ASSETS:
Beginning of period 255,305,543 230,737,494
End of period $274,178,964 $255,305,543
NET ASSETS CONSIST OF:
Paid-in surplus $255,603,772 $247,585,234
Undistributed net investment income 16,606
Accumulated net realized gain (loss) on security transactions 1,935,385 155,020
Unrealized appreciation (depreciation) of investments 16,623,201 7,565,289
$274,178,964 $255,305,543
See notes to financial statements.
</TABLE>
10 All-American
<PAGE>
[LOGO OF SHIP ART]
Notes to Financial Statements
- --------------------------------------------------------------------------------
A. DESCRIPTION OF BUSINESS
The Flagship All-American Tax Exempt Fund is a sub-trust of the Flagship Tax
Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund commenced investment operations on October 3, 1988. On June 2, 1993,
the Fund began to offer Class C shares to the investing public. Class A
shares are sold with a front-end sales charge. Class C shares are sold with
no front-end sales charge but are assessed a contingent deferred sales
charge if redeemed within one year from the time of purchase. Both classes
of shares have identical rights and privileges except with respect to the
effect of sales charges, the distribution and/or service fees borne by each
class, expenses specific to each class, voting rights on matters affecting a
single class and the exchange privilege of each class. Shares of beneficial
interest in the Fund, which are registered under the Securities Act of 1933,
as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Estimates: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax exempt net
investment income and net realized gains on security transactions.
Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if applicable, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders at least annually.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
All-American 11
<PAGE>
Notes to Financial Statements
================================================================================
The Fund has entered into an agreement with the custodian, whereby it
earns custodian fee credits for temporary cash balances. These credits,
which offset custodian fees that may be charged to the Fund, are based on
80% of the daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Fund may, upon
adequate segregation of securities as collateral, purchase and sell
portfolio securities on a "when-issued" basis. These securities are
registered by a municipality or government agency, but have not been issued
to the public. Delivery and payment take place after the date of the
transaction and such securities are subject to market fluctuations during
this period. The current market value of these securities is determined in
the same manner as other portfolio securities. There were no "when-issued"
purchase commitments included in the statement of investments at November
30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of
beneficial interest with no par value authorized for each class.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares sold 1,418,588 $ 15,315,037 4,757,928 $ 51,859,159
Shares issued on reinvestment 281,914 3,045,140 529,263 5,744,859
Shares reacquired (1,310,745) (14,193,448) (2,979,351) (32,444,225)
Net increase 389,757 $ 4,166,729 2,307,840 $ 25,159,793
CLASS C:
Shares sold 623,376 $ 6,756,539 1,153,142 $ 12,551,216
Shares issued on reinvestment 65,951 711,874 125,662 1,362,624
Shares reacquired (334,192) (3,616,604) (1,035,684) (11,182,425)
Net increase 355,135 $ 3,851,809 243,120 $ 2,731,415
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November
30, 1996, aggregated $65,755,439 and $60,482,666, respectively. At November
30, 1996, cost for federal income tax purposes is $253,148,496 and net
unrealized appreciation aggregated $16,745,768, all of which related to
appreciated securities.
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities
to the Fund, receives fees computed monthly on the average daily net assets
of the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its discretion, permanently waived
$178,935 of its advisory fees. Included in accrued expenses at November 30,
1996 are accrued advisory fees of $85,026. Also, under an agreement with
the Fund, the Advisor may subsidize certain expenses excluding advisory and
distribution fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity
is responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distribu-
12 All-American
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
tor for its actual expenses incurred in the distribution and promotion of
all classes of the Fund's shares. The maximum amount payable for these
expenses on an annual basis is .40% and .95% of the Fund's average daily
net assets for Class A and Class C shares, respectively. Included in
accrued expenses at November 30, 1996 are accrued distribution fees of
$72,266 and $40,935 for Class A and Class C shares, respectively. Certain
non-promotional expenses directly attributable to current shareholders are
aggregated by the Distributor and passed through to the Fund as shareholder
services fees.
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's
shares of approximately $264,800 for the six months ended November 30,
1996, of which approximately $229,700 was paid to other dealers. For the
six months ended November 30, 1996, the Distributor received approximately
$3,300 of contingent deferred sales charges on redemptions of shares.
Certain officers and trustees of the Trust are also officers and/or
directors of the Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may
temporarily borrow up to $10 million under the line of credit. Borrowings
are collateralized with pledged securities and are due on demand with
interest at 1% above the federal funds rate. The average daily amount of
borrowings under the line of credit during the six months ended November
30, 1996 was approximately $211,900, at a weighted average annualized
interest rate of 6.36%. At November 30, 1996, the Fund had no borrowings
outstanding under the line of credit.
G. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory
and Distribution agreements with The John Nuveen Company ("Nuveen")
pursuant to an Agreement and Plan of Merger. Any consolidation or
reorganization of the Nuveen and Flagship mutual fund families is expected
to be effective January 31, 1997.
All-American 13
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship art]
Financial Highlights Selected data for each share of beneficial
interest outstanding throughout the period.
===========================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
CLASS A (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.67 $ 10.79 $ 10.61 $ 11.07 $ 10.40
Income from investment operations:
Net investment income 0.30 0.61 0.63 0.65 0.67
Net realized and unrealized gain
(loss) on securities 0.44 (0.12) 0.18 (0.30) 0.76
TOTAL FROM INVESTMENT OPERATIONS 0.74 0.49 0.81 0.35 1.43
Less distributions:
From net investment income (0.30) (0.61) (0.63) (0.65) (0.67)
From net realized capital gains (0.06) (0.09)
In excess of net realized capital gains (0.10)
TOTAL DISTRIBUTIONS (0.30) (0.61) (0.63) (0.81) (0.76)
NET ASSET VALUE, END OF PERIOD $ 11.11 $ 10.67 $ 10.79 $ 10.61 $ 11.07
Total return(a) 14.05% 4.64% 8.01% 2.99% 14.25%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.90% 0.83% 0.76% 0.62% 0.65%
Net investment income 5.51% 5.60% 6.02% 5.77% 6.24%
Assuming credits and no waivers
or reimbursements:
Expenses 1.02% 1.02% 1.06% 1.05% 1.05%
Net investment income 5.39% 5.41% 5.72% 5.34% 5.84%
Net assets at end of period (000's) $220,959 $207,992 $185,495 $159,867 $170,831
Portfolio turnover rate 23.10% 78.75% 70.54% 81.29% 72.49%
</TABLE>
(a) The total returns shown do not include the effect of applicable
front-end sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.88% and 0.79%, respectively; prior period numbers have not been
restated to reflect these credits.
14 All-American
<PAGE>
[LOGO OF SHIP ART]
Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
<TABLE>
<CAPTION>
========================================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 June 2, 1993 to
Class C (Unaudited) May 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.66 $ 10.78 $ 10.60 $ 11.09
Income from investment operations:
Net investment income 0.27 0.55 0.57 0.57
Net realized and unrealized gain
(loss) on securities 0.44 (0.12) 0.18 (0.32)
Total from investment operations 0.71 0.43 0.75 0.25
Less distributions:
From net investment income (0.27) (0.55) (0.57) (0.57)
From net realized capital gains (0.07)
In excess of net realized capital gains (0.10)
Total distributions (0.27) (0.55) (0.57) (0.74)
Net asset value, end of period $ 11.10 $ 10.66 $ 10.78 $ 10.60
Total return(a) 13.47% 4.07% 7.42% 2.16%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 1.45% 1.37% 1.31% 1.09%
Net investment income 4.95% 5.05% 5.47% 5.16%
Assuming credits and no waivers
or reimbursements:
Expenses 1.57% 1.57% 1.61% 1.63%
Net investment income 4.83% 4.85% 5.17% 4.62%
Net assets at end of period (000's) $53,220 $47,314 $45,242 $39,997
Portfolio turnover rate 23.10% 78.75% 70.54% 81.29%
</TABLE>
(a) The total returns shown do not include the effect of applicable
contingent deferred sales charge and are annualized where appropriate.
(b) During the six months ended November 30, l996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.43% and 1.33%, respectively; prior period numbers have not been
restated to reflect these credits.
All-American 15
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity** Value
<S> <C> <C> <C> <C>
Arizona
$1,790 Maricopa County, AZ Unified School District Number 41 - Gilbert - Series 1994 0.000% 07/01/05 $1,177,122
500 Pinal County, AZ Industrial Development Authority Solid Waste Disposal Revenue -
Browning-Ferris Industries, Incorporated Product - Series 1996 5.000 02/01/06 497,785
California
1,000 Sacramento, CA Cogeneration Authority Revenue - Procter & Gamble - Series 1995 6.200 07/01/06 1,055,990
Colorado
2,300 Arapahoe County, CO E-470 Public Highway Authority Revenue - E-470 Project -
Series 1986 0.000 08/31/06 1,306,975
500 Colorado Health Facilities Authority Revenue - Covenant Retirement Communities,
Incorporated - Series 1995 6.200 12/01/07 517,090
1,000 Denver, CO City and County Airport System Revenue - Series 1995 5.400 11/15/06 1,030,270
1,000 Eagle County, CO Air Terminal Corporation - Airport Revenue - Series 1996 6.750 05/01/06 1,021,080
Connecticut
1,000 Connecticut State Health and Educational Facilities Authority Revenue -
Quinnipiac College - Series D 5.625 07/01/03 1,009,520
100 Connecticut State Health and Educational Facilities Authority Revenue -
Hartford University - Series 1992 D 6.100 07/01/00 101,567
335 Eastern Connecticut Resource Recovery Authority - Solid Waste Revenue -
Wheelabrator Lisbon Project - Series 1993 A 5.150 01/01/05 331,928
District of Columbia
1,000 District of Columbia General Obligation - Series 1993 A-1 4.850 06/01/04 999,870
205 District of Columbia University Revenue - American University - Series 1996 5.375 10/01/08 208,672
Florida
275 Florida State Broward County Expressway Authority - Series 1984 9.875 07/01/09 394,256
180 Gulf Breeze, FL Local Government Loan Program Floating Rate Demand Revenue -
Series 1985 B 5.600 12/01/07 187,200
1,000 Palm Beach County, FL School Board - Certificates of Participation - Series 1994A 5.800 08/01/04 1,081,460
40 Pensacola, FL Sales and Excise Tax Revenue - Series 1996 4.900 10/01/06 40,559
1,000 Sanford Airport Authority, Florida - Industrial Development Revenue Bonds -
(Central Florida Terminals, Inc. Project) - Series 1995 A and B 7.500 05/01/06 1,019,910
Guam
600 Guam Government General Obligation - Series 1993 A 4.900 11/15/04 574,266
Illinois
770 Illinois Health Facilities Authority Revenue - Fairview Obligated Group -
Series 1995 A, B and C 6.500 08/15/06 781,527
1,000 Illinois Health Facilities Authority Revenue - Mercy Hospital and Medical Center
Project - Series 1996 6.000 01/01/06 1,033,160
Kansas
420 Lenexa, KS Multifamily Housing Revenue - Barrington Park Apartments Project -
Series 1993A 6.200 02/01/08 437,422
Kentucky
1,165 Kentucky Infrastructure Authority Revenue - Governmental Agencies -
Series 1995 H 5.600 08/01/06 1,226,221
1,000* Louisville and Jefferson County, KY Regional Airport Authority System Revenue -
Series 1997 A 5.750 07/01/01 1,040,850
1,000 McCracken County, KY Hospital Facilities Revenue - Mercy Health System -
Series 1994 A 6.100 11/01/04 1,090,430
</TABLE>
4 Intermediate
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
===================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<S> <C> <C> <C> <C>
Louisiana
$ 345 Louisiana Public Facilities Authority Revenue - Student Loan - Series 1992A-2 6.600% 03/01/03 $ 368,163
Massachusetts
500 Massachusetts State Health and Educational Facilities Authority Revenue -
Dana-Farber Cancer Institute - Series G-1 and G-2 6.500 12/01/05 552,325
750 Massachusetts State Health and Educational Facilities Authority Revenue -
Dana-Farber Cancer Institute - Series G-1 and G-2 6.500 12/01/06 832,110
1,000 Massachusetts Water Pollution Abatement Trust Revenue - SESD Loan - Series 1994 A 5.700 02/01/05 1,064,350
Michigan
750 Michigan Municipal Bond Authority Revenue - State Revolving Fund - Series 1994 7.000 10/01/04 865,148
750 Michigan State Hospital Finance Authority Revenue - Detroit Medical Center
Obligated Group - Series 1993 B 5.100 08/15/07 754,628
530 Michigan State Hospital Finance Authority Revenue - Port Huron Hospital -
Series 1995 5.250 07/01/06 542,402
1,000 Michigan State Hospital Finance Authority Revenue - Gratiot Community Hospital,
Alma, Michigan - Series 1995 6.100 10/01/07 1,017,350
1,000 Monroe County, MI Pollution Control Revenue - Detroit Edison Company -
Series 1994 A 6.350 12/01/04 1,106,220
Missouri
1,000 Branson, MO Tax Increment Allocation - Branson Meadows Project - Series 1995 6.400 11/01/05 1,012,120
1,000 Missouri State Health and Educational Facilities Authority Revenue -
SSM Health Care - Series 1992AA 5.800 06/01/02 1,063,520
350 St. Louis County, MO Industrial Development Revenue Authority - Kiel Center
Multipurpose Arena - Series 1992 7.625 12/01/09 374,448
300 St. Louis, MO Airport and Improvement Revenue - Lambert-St. Louis International
Airport - Series 1992 5.900 07/01/03 320,007
600 Sikeston, MO Electric Revenue - Series 1992 6.000 06/01/04 652,806
Nevada
1,000 Las Vegas, NV Downtown Redevelopment Agency - Tax Increment Revenue - Series 1995 A 5.300 06/01/06 1,026,280
New Hampshire
1,000 New Hampshire State Turnpike System Revenue - Series 1994 4.800 02/01/07 979,920
New Jersey
500 New Jersey Economic Development Authority Revenue -Educational Testing Services -
Series 1995 B 5.500 05/15/05 524,095
New Mexico
100 New Mexico Educational Assistance Foundation - Student Loan Revenue - Series 1A 6.300 12/01/02 107,261
New York
500 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.700 10/01/06 503,250
700 New York City, NY General Obligation - Series 1995 F 6.375 02/15/06 745,549
200 New York City, NY General Obligation - Series 1996 F and G 5.750 02/01/06 203,690
500 New York City, NY General Obligation Municipal Receipts Series 1996 0.000 02/01/04 346,235
275 New York City, NY General Obligation - Series 1996 H and I 6.500 03/15/06 295,809
250 New York State Energy Research and Development Authority Revenue - State Service
Contract - Western New York Nuclear Service Center - Series 1995 B 5.500 04/01/05 251,475
</TABLE>
Intermediate 5
SAR-86
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
============================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<S> <C> <C> <C> <C>
$ 750 New York State Housing Finance Agency - Health
Facilities Revenue - New York City - Series 1996 A 6.000% 05/01/06 $ 777,810
500 New York State Thruway Authority Revenue - Local
Highway and Bridge Service Contract - Series 1995 5.750 04/01/06 522,360
1,000 Port Authority of New York and New Jersey - Special
Project - KIAC Partners Project - Series 4 7.000 10/01/07 1,074,610
Ohio
1,000 Franklin County, OH Hospital Refunding and Improvement
Revenue - The Children's Hospital Project - Series 1996 A 5.550 11/01/07 1,033,900
1,000 Hamilton County, OH Hospital Facilities Revenue -
Children's Hospital Medical Center - Series 1993 5.200 05/15/09 1,016,690
900 Miami County, OH Hospital Facilities Revenue -
Upper Valley Medical Center - Series 1996 A, B and C 6.000 05/15/06 920,826
1,000 Ohio State Building Authority Facilities -
Administrative Building Fund Projects - Series 1994 A 5.650 10/01/05 1,068,000
1,000 Ohio State Public Facilities Commission Higher
Education - Capital Facilities Revenue - Series II-B 5.750 11/01/04 1,074,900
Pennsylvania
1,010 Lehigh County, PA General Purpose Authority Hospital
Revenue - Lehigh Valley Hospital, Incorporated -
Series 1995 A 5.400 07/01/06 1,050,572
1,000 Philadelphia, PA General Obligation - Series 1995 4.900 05/15/06 1,002,230
500 Philadelphia, PA Gas Works Revenue - Fourteenth
Series - Series 1993 7.000 07/01/02 545,030
1,500 Westmoreland County, PA Municipal Service Authority
Revenue - Series 1995 0.000 08/15/07 874,635
Puerto Rico
50 Commonwealth of Puerto Rico Public Improvement -
General Obligation - Series 1993 5.375 07/01/05 51,646
South Carolina
240 Myrtle Beach, SC Public Facilities Corporation -
Certificates of Participation - Convention Center
Project - Series 1992 6.750 07/01/02 256,570
South Dakota
550 South Dakota Student Loan Finance Corporation
Revenue - Series 1994 A 5.850 08/01/00 569,938
Tennessee
500 Clarksville, TN Hospital and Improvement Revenue -
Clarksville Memorial Project - Series 1993 6.000 07/01/03 509,485
1,000 Jackson, TN Hospital Revenue - Jackson-Madison County
General Hospital - Series 1995 5.300 04/01/06 1,011,680
500 Metropolitan Nashville and Davidson County - Tennessee
Industrial Development Board Revenue - OSCO Treatment -
Series 1993 6.000 05/01/03 511,990
Texas
400 Brazos, TX Higher Education Authority - Student Loan
Revenue - Series 1993 A-1 6.200 12/01/02 427,628
535* Texas Department of Housing and Community Affairs -
Multifamily Housing Revenue - NHP Foundation - Asmara
Project - Series 1996 A, B and C 5.800 01/01/06 540,232
Washington
1,000 Washington State Public Power Supply System - Nuclear
Project Number 2 Revenue - Series 1993 B 5.100 07/01/04 1,018,210
</TABLE>
6 Intermediate
SAR-87
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets November 30, 1996 (Unaudited)
==========================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<S> <C> <C> <C> <C>
Wyoming
$ 200 Wyoming State Farm Loan Board Facilities Reveune -
Series 1992 6.100% 10/01/06 $ 214,528
Total Investments in Securities - Municipal Bonds
(cost $47,460,401) - 101.4% 49,747,761
Excess of Liabilities over Other Assets - (1.4)% (703,367)
Total Net Assets - 100.0% $49,044,394
</TABLE>
*Securities purchased on a "when-issued" basis.
**Maturity date represents actual maturity or earlier put date.
See notes to financial statements.
Intermediate 7
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art] Statement of Assets and Liabilities November 30, 1996 (Unaudited)
====================================================================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $47,460,401) $49,747,761
Cash 230,921
Receivable for investments sold 157,662
Receivable for Fund shares sold 16,759
Interest receivable 686,609
Other 1,738
Total assets 50,841,450
LIABILITIES:
Payable for investments purchased 1,538,250
Payable for Fund shares reacquired 11,592
Distributions payable 193,244
Accrued expenses 53,970
Total liabilities 1,797,056
NET ASSETS 49,044,394
Class A:
Applicable to 4,392,230 shares of beneficial interest issued and outstanding $46,758,941
Net asset value per share $ 10.65
Class C:
Applicable to 214,560 shares of beneficial interest issued and outstanding $ 2,285,453
Net asset value per share $ 10.65
For the six months ended November 30, 1996
[Logo of Ship art] Statement of Operations (Unaudited)
====================================================================================================================================
INVESTMENT INCOME - INTEREST $ 1,368,072
EXPENSES:
Distribution fees - Class A (Note E) 94,114
Distribution fees - Class C (Note E) 7,872
Investment advisory fees (Note E) 121,807
Custody and accounting fees 32,046
Transfer agent's fees 25,490
Registration fees 13,420
Legal fees 549
Audit fees 6,405
Reimbursement of organizational expenses (Note F) 3,587
Trustees' fees 732
Shareholder services fees (Note E) 3,025
Other 792
Advisory fees waived (Note E) (114,994)
Expense subsidy (Note E) (18,715)
Total expenses before credits 176,130
Custodian fee credit (Note B) (4,596)
Net expenses 171,534
Net investment income 1,196,538
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 50,739
Change in unrealized appreciation (depreciation) of investments 1,711,007
Net gain on investments 1,761,746
Net increase in net assets resulting from operations $ 2,958,284
See notes to financial statements.
8 Intermediate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF SHIP ART] Statements of Changes in Net Assets
=================================================================================================================
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 1,196,538 $ 2,231,236
Net realized gain (loss) on security transactions 50,739 1,178,381
Change in unrealized appreciation (depreciation) of investments 1,711,007 (1,349,675)
Net increase in net assets resulting from operations 2,958,284 2,059,942
Distributions to Class A shareholders:
From net investment income (1,162,857) (2,230,105)
Distributions to Class C shareholders:
From net investment income (36,085) (15,633)
Net decrease in net assets from distributions to shareholders (1,198,942) (2,245,738)
Fund share transactions (Note C):
Proceeds from shares sold 4,885,840 16,566,991
Net asset value of shares issued in reinvestment of distributions 796,223 1,433,834
Cost of shares reacquired (6,325,774) (11,954,767)
Net (decrease) increase in net assets from Fund share transactions (643,711) 6,046,058
Total increase in net assets 1,115,631 5,860,262
NET ASSETS:
Beginning of period 47,928,763 42,068,501
End of period $ 49,044,394 $ 47,928,763
NET ASSETS CONSIST OF:
Paid-in surplus $ 47,151,444 $ 47,795,155
Overdistributed net investment income (2,404)
Accumulated net realized gain (loss) on security transactions (392,006) (442,745)
Unrealized appreciation (depreciation) of investments 2,287,360 576,353
$ 49,044,394 $ 47,928,763
</TABLE>
See notes to financial statements.
Intermediate 9
SAR-90
<PAGE>
[LOGO OF SHIP ART] Notes to Financial Statements
================================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Intermediate Tax Exempt Fund is a sub-trust of the Flagship Tax
Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund commenced investment operations on September 15, 1992. On December 1,
1995, the Fund began to offer Class C shares to the investing public. Class
A shares are sold with a front-end sales charge. Class C shares are sold
with no front-end sales charge but are assessed a contingent deferred sales
charge if redeemed within one year from the time of purchase. Both classes
of shares have identical rights and privileges except with respect to the
effect of sales charges, the distribution and/or service fees borne by each
class, expenses specific to each class, voting rights on matters affecting a
single class and the exchange privilege of each class. Shares of beneficial
interest in the Fund, which are registered under the Securities Act of 1933,
as amended, are offered to the public on a continuous basis.
B. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund.
Estimates: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions, and
actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute to its shareholders all of its tax exempt net
investment income and net realized gains on security transactions.
Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of certain
book-to-tax timing differences is presented as excess distributions in the
statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and losses
on security transactions are determined on the identified cost basis.
Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if applicable, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders at least annually.
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
10 Intermediate
SAR-91
<PAGE>
Notes to Financial Statements
================================================================================
The Fund has entered into an agreement with the custodian, whereby it
earns custodian fee credits for temporary cash balances. These credits,
which offset custodian fees that may be charged to the Fund, are based on
80% of the daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when-issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner as
other portfolio securities. There were $1,535,000 "when-issued" purchase
commitments included in the statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of
beneficial interest with no par value authorized for each class.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
------------------------ --------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 357,450 $ 3,704,608 1,461,305 $ 15,332,025
Shares issued on reinvestment 74,510 771,977 136,334 1,423,816
Shares reacquired (591,365) (6,150,424) (1,134,391) (11,928,052)
Net (decrease) increase (159,405) $(1,673,839) 463,248 $ 4,827,789
Six Months Ended Period From
November 30, 1996 December 1, 1995 to May 31, 1996
(Unaudited)
------------------------ --------------------------------
Shares Amount Shares Amount
CLASS C:
Shares sold 113,474 $ 1,181,232 117,137 $ 1,234,966
Shares issued on reinvestment 2,336 24,246 957 10,018
Shares reacquired (16,755) (175,350) (2,589) (26,715)
Net increase 99,055 $ 1,030,128 115,505 $ 1,218,269
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November 30,
1996, aggregated $4,685,951 and $5,420,055, respectively. At November 30,
1996, cost for federal income tax purposes is $47,460,401 and net unrealized
appreciation aggregated $2,287,360, of which $2,288,749 related to
appreciated securities and $1,389 related to depreciated securities.
At November 30, 1996, the Fund has available a capital loss
carryforward of approximately $392,000 to offset future net capital gains
through May 31, 2003.
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of 1/2 of 1%. During the six months ended
November 30, 1996, the Advisor, at its dis-
Intermediate 11
SAR-92
<PAGE>
Notes to Financial Statements
================================================================================
cretion, permanently waived $114,994 of its advisory fees. Included in
accrued expenses at November 30, 1996 are accrued advisory fees of $4,018.
Also, under an agreement with the Fund, the Advisor may subsidize certain
expenses excluding advisory and distribution fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares,
respectively. Included in accrued expenses at November 30, 1996 are accrued
distribution fees of $15,339 and $1,743 for Class A and Class C shares,
respectively. Certain non-promotional expenses directly attributable to
current shareholders are aggregated by the Distributor and passed through to
the Fund as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of
the Fund, the Distributor received commissions on sales of the Fund's shares
of approximately $44,800 for the six months ended November 30, 1996, of
which approximately $35,300 was paid to other dealers. For the six months
ended November 30, 1996, the Distributor received approximately $3,200 of
contingent deferred sales charges on redemptions of shares. Certain officers
and trustees of the Trust are also officers and/or directors of the
Distributor and/or Advisor.
F. ORGANIZATIONAL EXPENSES
The organizational expenses incurred on behalf of the Fund (approximately
$35,700) will be reimbursed to the Advisor on a straight-line basis over a
period of five years. As of November 30, 1996, $17,915 has been reimbursed.
In the event that the Advisor's current investment in the Trust falls below
$100,000 prior to the full reimbursement of the organizational expenses,
then it will forego any further reimbursement.
G. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may
temporarily borrow up to $2 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest
at 1% above the federal funds rate. The average daily amount of borrowings
under the line of credit during the six months ended November 30, 1996 was
approximately $10,748, at a weighted average annualized interest rate of
6.33%. At November 30, 1996, the Fund had no borrowings outstanding under
the line of credit.
H. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective January
31, 1997.
12 Intermediate
SAR-93
<PAGE>
<TABLE>
<CAPTION>
Selected data for each share of beneficial
[LOGO OF SHIP ART] Financial Highlights interest outstanding throughout the period.
====================================================================================================================================
Six Months Ended Year Ended Year Ended Year Ended Period From
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 September 15, 1992 to
CLASS A (Unaudited) May 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.27 $ 10.29 $ 10.16 $ 10.35 $ 9.70
Income from investment operations:
Net investment income 0.26 0.51 0.51 0.52 0.36
Net realized and unrealized gain
(loss) on securities 0.38 (0.02) 0.13 (0.13) 0.64
Total from investment operations 0.64 0.49 0.64 0.39 1.00
Less distributions:
From net investment income (0.26) (0.51) (0.51) (0.52) (0.35)
From net realized capital gains (0.05)
In excess of net realized capital gains (0.01)
Total distributions (0.26) (0.51) (0.51) (0.58) (0.35)
Net asset value, end of period $ 10.65 $ 10.27 $ 10.29 $ 10.16 $ 10.35
Total return(a) 12.57% 4.84% 6.63% 3.72% 14.06%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.71% 0.62% 0.54% 0.40% 0.39%
Net investment income 4.91% 4.86% 5.15% 4.93% 4.98%
Assuming credits and no waivers
or reimbursements:
Expenses 1.23% 1.17% 1.24% 1.29% 1.59%
Net investment income 4.39% 4.31% 4.45% 4.04% 3.78%
Net assets at end of period (000's) $46,759 $46,742 $42,069 $35,891 $18,971
Portfolio turnover rate 9.56% 80.90% 102.06% 69.14% 102.38%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.69% and 0.58%, respectively; prior period numbers have not been
restated to reflect these credits.
Intermediate 13
SAR-94
<PAGE>
Financial Highlights Selected data for each share of beneficial
[LOGO OF SHIP ART] interest outstanding throughout the period.
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Period From
November 30, 1996 December 1, 1995 to
CLASS C (Unaudited) May 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.28 $10.57
Income from investment operations:
Net investment income 0.22 0.23
Net realized and unrealized gain
(loss) on securities 0.38 (0.30)
Total from investment operations 0.60 (0.07)
Less distributions:
From net investment income (0.23) (0.22)
Total distributions (0.23) (0.22)
Net asset value, end of period $10.65 $10.28
Total return(a) 11.77% (1.78%)
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 1.26% 1.13%
Net investment income 4.29% 4.28%
Assuming credits and no waivers
or reimbursements:
Expenses 1.77% 1.73%
Net investment income 3.78% 3.68%
Net assets at end of period (000's) $2,285 $1,187
Portfolio turnover rate 9.56% 80.90%
</TABLE>
(a) The total returns shown do not include the effect of applicable contingent
deferred sales charge and are annualized.
(b) During the six months ended November 30, 1996 and the period ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.24% and 1.09%, respectively; prior period numbers have not been
restated to reflect these credits.
14 Intermediate
SAR-95
<PAGE>
<TABLE>
<CAPTION> November 30, 1996
[Logo of Ship Art] Statement of Investments in Securities and Net Assets (Unaudited)
==========================================================================================================================
<S> <C> <C> <C> <C>
Municipal Bonds
Face
Amount Face Market
(000) Description Rate Maturity** Value
Alabama
$ 1,900 Alabama Mental Health Finance Authority - Special Tax Revenue 7.375% 05/01/00 $ 2,073,356
Alaska
945 Alaska Industrial Development and Export Authority - Series 1992 A 5.700 04/01/99 973,652
Arizona
250 Arizona Educational Loan Revenue - Series 1992 6.125 09/01/02 264,662
1,000 Salt River Pima-Maricopa Indian Community - Arizona Special Obligation
Revenue - Phoenix Cement Company 7.750 02/15/97 1,007,920
2,000 Tucson, AZ General Obligation - Series 1995 5.375 07/01/05 2,107,420
California
1,250 Long Beach, CA Aquarium of the Pacific Revenue - Series 1995 A 5.750 07/01/05 1,260,038
2,500 Los Angeles County, CA Public Works Financing Authority - Lease Revenue -
County of Los Angeles 1996 Master Refunding Project - Series 1996 6.000 09/01/06 2,743,550
6,430 Los Angeles County, CA Public Works Financing Authority - Lease Revenue -
County of Los Angeles 1996 Master Refunding Project - Series 1996 5.000 09/01/06 6,553,906
1,000 Sacramento, CA Cogeneration Authority Revenue - Procter & Gamble -
Series 1995 5.900 07/01/02 1,040,640
500 Sacramento, CA Cogeneration Authority Revenue - Procter & Gamble -
Series 1995 6.000 07/01/03 522,900
500 Sacramento, CA Cogeneration Authority Revenue - Procter & Gamble -
Series 1995 7.000 07/01/04 552,845
4,800 Southern California Public Power Authority - Power Project Revenue -
Palo Verde Project - Series 1996 A 5.500 07/01/05 5,103,456
Colorado
6,000 Arapahoe County, CO E-470 Public Highway Authority Revenue - E-470 Project -
Series 1986 0.000 08/31/06 3,409,500
500 Arvada, CO Limited Sales and Use Tax Revenue 6.200 06/01/98 515,885
500 Arvada, CO Limited Sales and Use Tax Revenue 6.300 06/01/99 524,310
400 Arvada, CO Limited Sales and Use Tax Revenue 6.400 06/01/00 426,528
3,135 Colorado Health Facilities Authority Revenue - Covenant Retirement Communities,
Incorporated - Series 1995 5.650 12/01/04 3,195,600
1,515 Colorado Housing Finance Authority - Single Family - Series 1991 A 0.000 11/01/01 1,154,930
3,515 Colorado Housing Finance Authority - Single Family - Series 1991 A 0.000 11/01/02 2,514,033
2,120 Colorado Student Obligation Bond Authority - Student Loan Revenue 6.625 06/01/99 2,227,675
6,475 Denver, CO City and County Department of Aviation - Airport System Revenue -
Series 1996 A and B 5.750 11/15/04 6,869,068
620 Denver, CO City and County Industrial Development Revenue -
University of Denver 6.600 03/01/97 624,371
415 Denver, CO City and County Industrial Development Revenue -
University of Denver 6.800 03/01/98 428,160
1,600 Eagle County, CO Air Terminal Corporation - Airport Revenue - Series 1996 6.750 05/01/06 1,633,728
535 Hyland Hills Park and Recreation District - Adams County - Special Revenue -
Series 1996 A 4.750 12/15/97 540,093
500 Hyland Hills Park and Recreation District - Adams County - Special Revenue -
Series 1996 A 5.000 12/15/98 507,945
500 Hyland Hills Park and Recreation District - Adams County - Special Revenue -
Series 1996 A 5.400 12/15/00 516,085
200 University of Colorado - Certificates of Participation - Series D 7.100 12/01/00 215,202
</TABLE>
4 Limited Term
SAR-128
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
==========================================================================================================================
Municipal Bonds (continued)
<S> <C> <C> <C> <C>
Face
Amount Face Market
(000) Description Rate Maturity** Value
Connecticut
$ 4,650 Bridgeport, CT General Obligation - Series 1996 A and B 5.250% 09/01/04 $ 4,811,216
1,000 Bridgeport, CT General Obligation - Series 1996 A and B 6.000 09/01/05 1,084,880
1,000 Connecticut State Health and Educational Facilities Authority Revenue -
Quinnipiac College - Series D 5.625 07/01/03 1,009,520
1,000 Connecticut State Health and Educational Facilities Authority Revenue -
Hartford University - Series 1992 D 5.700 07/01/98 1,007,630
730 Connecticut State Health and Educational Facilities Authority Revenue -
Hartford University - Series 1992 D 5.900 07/01/99 738,490
435 Connecticut State Health and Educational Facilities Authority Revenue -
Hartford University - Series 1992 D 6.100 07/01/00 441,816
500 New Haven, CT General Obligation - Series 1992 A 7.100 03/01/97 503,865
1,025 New Haven, CT General Obligation - Series 1992 A 9.250 03/01/02 1,210,525
625 New Haven, CT General Obligation - Series 1992 B 5.900 12/01/98 640,638
625 Stratford, CT General Obligation 6.500 03/01/97 629,394
610 Stratford, CT General Obligation 6.750 03/01/98 630,557
650 Stratford, CT General Obligation 6.900 03/01/99 687,550
District of Columbia
500 District of Columbia Redevelopment Land Agency - Washington, D.C. -
Sports Arena Special Tax Revenue - Series 1996 4.850 11/01/97 502,355
500 District of Columbia Redevelopment Land Agency - Washington, D.C. -
Sports Arena Special Tax Revenue - Series 1996 5.300 11/01/99 507,130
Florida
1,000 Dade County, FL Aviation Revenue - Series 1991 U 6.400 10/01/98 1,039,730
455 Florida School Boards Association - Certificates of Participation - Hendry
County 7.500 07/01/97 465,524
200 Jacksonville, FL Electric Authority - St. Johns River Power System Revenue -
Issue 2 - Series 10 5.000 10/01/04 205,550
540 North Springs, FL Improvement District Water and Sewer Revenue -
Broward County - Series 1991 7.900 10/01/01 581,537
2,625 Sanford Airport Authority, Florida - Industrial Development Revenue Bonds -
(Central Florida Terminals, Inc. Project) - Series 1995 A and B 7.300 05/01/04 2,664,638
Georgia
3,000 Atlanta, GA Airport Facilities Revenue - Series 1996 6.500 01/01/06 3,376,650
Idaho
1,825 Idaho Fund Marketing Association - Student Loan Revenue - Series 1992 6.000 10/01/97 1,839,089
Illinois
450 DeKalb, IL Home Rule Units - Single Family Mortgage Revenue -
GNMA Mortgage-Backed Securities Program - Series 1991 6.700 12/01/99 465,376
540 Evergreen Park, IL Hospital Facility Revenue - Little Company Mary Hospital 5.750 08/15/97 547,987
925 Illinois Health Facilities Authority Revenue - Galesburg Cottage Hospital -
Series 1992 5.250 05/01/99 943,269
970 Illinois Health Facilities Authority Revenue - Galesburg Cottage Hospital -
Series 1992 5.400 05/01/00 994,580
1,105 Illinois Health Facilities Authority Revenue - Fairview Obligated Group -
Series 1995 A, B and C 6.250 08/15/01 1,127,398
1,245 Illinois Health Facilities Authority Revenue - Fairview Obligated Group -
Series 1995 A, B and C 6.250 08/15/03 1,258,421
1,500 Illinois Health Facilities Authority Revenue - Sarah Bush Lincoln Health
Center - Series 1996 B 5.500 02/15/06 1,502,010
</TABLE>
Limited Term 5
SAR-129
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
====================================================================================================================================
Municipal Bonds (continued)
<S> <C> <C> <C> <C>
Face
Amount Face Market
(000) Description Rate Maturity** Value
$ 1,550 Illinois Health Facilities Authority Revenue - ServantCor - Series B 7.500% 08/15/01 $ 1,704,768
325 Illinois Health Facilities Authority Revenue - Carle Foundation - Series 1989 C 6.700 01/01/99 341,071
3,000 Illinois State General Obligation - Series 1992 6.200 10/01/04 3,268,800
405 Romeoville, IL General Obligation - Series B 7.700 01/01/97 406,098
1,975 Romeoville, IL General Obligation - Series B 7.850 01/01/01 2,105,587
Indiana
560 Valparaiso, IN Multi-Schools Building Corporation - Porter County - Series 1992 6.100 07/01/01 601,647
690 Valparaiso, IN Multi-Schools Building Corporation - Porter County - Series 1992 6.100 07/01/01 737,996
Iowa
2,145 Iowa State Certificates of Participation - Series 1992A 5.750 07/01/98 2,201,156
1,775 Iowa State Certificates of Participation - Series 1992A 6.000 07/01/99 1,848,982
1,000 Iowa Student Loan Liquidity Corporation - Student Loan Revenue - Series 1992 C 6.375 03/01/00 1,039,220
600 Iowa Student Loan Liquidity Corporation - Student Loan Revenue -
Iowa Partnership - Series 1992 5.850 07/01/99 619,260
325 Iowa Student Loan Liquidity Corporation - Student Loan Revenue -
Iowa Partnership - Series 1992 6.000 07/01/00 338,572
600 Iowa Student Loan Liquidity Corporation - Student Loan Revenue -
Iowa Partnership - Series 1992 6.100 07/01/01 630,996
650 Iowa Student Loan Liquidity Corporation - Student Loan Revenue -
Iowa Partnership - Series 1992 6.200 07/01/02 685,321
4,560 Muscatine, IA Electric Revenue - Series 1992 5.200 01/01/99 4,664,789
Kentucky
3,180* Christian County, KY Hospital Revenue - Jennie Stuart Medical Center -
Series 1996 A and 1997 A 5.500 07/01/06 3,156,245
465* Jefferson County, KY School District Finance Corporation -
School Building Revenue - Series 1996 A and B 4.800 11/01/06 465,418
535 Jeffersontown, KY Public Projects Refunding and Improvements -
Certificates of Participation - Series 1996 4.650 11/01/02 541,639
520 Jeffersontown, KY Public Projects Refunding and Improvements -
Certificates of Participation - Series 1996 4.750 11/01/03 527,951
355 Jeffersontown, KY Public Projects Refunding and Improvements -
Certificates of Participation - Series 1996 4.850 11/01/04 361,294
475 Kenton County, KY Water District Number 1 Revenue - Series 1995 B 5.600 02/01/03 504,431
500 Kenton County, KY Water District Number 1 Revenue - Series 1995 B 5.600 02/01/04 532,415
500 Kenton County, KY Water District Number 1 Revenue - Series 1995 B 5.600 02/01/05 533,005
1,280 Kentucky Development Finance Authority Revenue - Sisters of Charity -
Nazareth Health Corporation - Series 1991 5.750 11/01/98 1,314,150
1,330 Kentucky Development Finance Authority Revenue - Sisters of Charity -
Nazareth Health Corporation - Series 1991 6.000 11/01/01 1,402,751
2,720 Kentucky Development Finance Authority Revenue - Sisters of Charity -
Nazareth Health Corporation - Series 1991 6.600 11/01/06 2,929,304
170 Kentucky Economic Development Finance Authority Medical Center
Improvement Revenue - Ashland Hospital - Series 1993A 5.250 02/01/00 174,833
1,460 Kentucky Higher Education Student Loan Corporation Revenue - Series B 6.800 06/01/03 1,612,935
80 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund -
Series 1995 C 5.300 06/01/03 82,981
220 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund -
Series 1995 C 5.400 06/01/04 229,363
</TABLE>
6 Limited Term
SAR-130
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets November 30, 1996
(Unaudited)
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity** Market Value
<S> <C> <C> <C> <C>
$ 200 Kentucky Infrastructure Authority Revenue - Wastewater Revolving Fund -
Series 1995 C 5.500% 06/01/05 $ 209,540
2,500 Kentucky Infrastructure Authority Revenue - Governmental Agencies -
Series 1995 H 5.200 08/01/02 2,580,775
1,945 Kentucky Infrastructure Authority Revenue - Governmental Agencies -
Series 1995 H 5.300 08/01/03 2,018,929
675 Kentucky Infrastructure Authority Revenue - Governmental Agencies -
Series 1995 H 5.400 08/01/04 704,207
1,000 Kentucky Infrastructure Authority Revenue - Governmental Agencies -
Series 1995 H 5.500 08/01/05 1,048,380
500 Kentucky State Property and Buildings Commission Revenue - Project
Number 59 - Series 1995 6.000 11/01/05 546,145
6,575 Kentucky State Property and Buildings Commission Revenue - Project
Number 55 - Series 1993 4.500 09/01/02 6,588,808
2,000 Kentucky State Turnpike Authority - Economic Development Road Revenue -
Revitalization Project - Series 1993 5.300 07/01/04 2,097,880
3,360 Kentucky State Turnpike Authority - Economic Development Road Revenue -
Revitalization Project - Series 1993 5.400 07/01/05 3,543,926
5,000 Kentucky State Turnpike Authority - Economic Development Road Revenue -
Series 1995 5.000 07/01/02 5,158,250
3,025 Kentucky State Turnpike Authority - Economic Development Road Revenue -
Series 1995 5.100 07/01/03 3,137,863
1,000 Kentucky State Turnpike Authority - Resource Recovery Road Revenue -
Series 1985 A 0.000 07/01/05 1,254,850
30 Lexington-Fayette Urban County Government Public Facilities Corporation -
Mortgage Revenue - Series 1995 5.000 11/01/01 31,002
1,030* Louisville and Jefferson County, KY Regional Airport Authority
System Revenue - Series 1997 A 5.750 07/01/98 1,048,674
1,300* Louisville and Jefferson County, KY Regional Airport Authority
System Revenue - Series 1997 A 5.750 07/01/99 1,334,216
1,375* Louisville and Jefferson County, KY Regional Airport Authority
System Revenue - Series 1997 A 5.750 07/01/00 1,422,548
455* Louisville and Jefferson County, KY Regional Airport Authority System
Revenue - Series 1997 A 5.750 07/01/01 473,587
1,535* Louisville and Jefferson County, KY Regional Airport Authority
System Revenue - Series 1997 A 5.750 07/01/02 1,604,121
1,030* Louisville and Jefferson County, KY Regional Airport Authority
System Revenue - Series 1995 A 4.900 07/01/04 1,033,327
3,225 Mt. Sterling, KY League of Cities Funding Trust Lease Program Revenue -
Series 1993 A 5.625 03/01/03 3,335,360
10,800 Owensboro, KY Electric Light and Power System Revenue - Series 1993A 0.000 01/01/04 7,694,676
305 University of Kentucky Revenue - Consolidated Educational Buildings -
Series 1993 5.000 05/01/03 313,586
LOUISIANA
6,000 East Baton Rouge Parish, LA Pollution Control Revenue - Hoechst
Celanese Corporation Project - Series 1993 5.400 12/01/02 6,211,200
1,000 Illinois Health Facilities Authority Revenue - Mercy Hospital and
Medical Center Project - Series 1996 5.600 01/01/02 1,022,110
3,000 Jefferson Parish, LA Sales Tax District - Special Sales Tax Revenue -
Series A 6.125 12/01/97 3,072,570
</TABLE>
Limited Term 7
SAR-131
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity** Market Value
<S> <C> <C> <C> <C>
$ 1,285 Louisiana Public Facilities Authority Hospital Revenue - Our Lady of
Lourdes Regional Medical Center 4.700% 02/01/99 $1,300,536
1,215 Louisiana Public Facilities Authority Hospital Revenue - Our Lady of
Lourdes Regional Medical Center 4.900 02/01/00 1,235,971
1,170 Louisiana Public Facilities Authority Hospital Revenue - Woman's
Hospital Foundation - Series 1992 6.750 10/01/02 1,241,604
3,685 Louisiana Public Facilities Authority Hospital Revenue - Southern
Baptist Hospital - Series 1992 6.100 05/15/01 3,952,199
3,080 Louisiana Public Facilities Authority Hospital Revenue - Southern
Baptist Hospital - Series 1992 6.200 05/15/02 3,347,714
2,500 Louisiana State Offshore Terminal Authority - Deepwater Port Revenue
- LOOP Incorporated Project - Series 1992 B 6.100 09/01/02 2,658,050
400 Office Facilities Corporation A Louisiana Non-Profit Corporation -
Capital Facilities 7.250 12/01/99 431,380
770 Office Facilities Corporation A Louisiana Non-Profit Corporation -
Capital Facilities 7.350 12/01/00 846,422
405 Ouachita Parish, LA Hospital Service District Number 1 Revenue -
Glenwood Regional Medical Center - Series 1991 6.800 07/01/97 412,063
440 Ouachita Parish, LA Hospital Service District Number 1 Revenue -
Glenwood Regional Medical Center - Series 1991 7.000 07/01/98 459,615
425 Ouachita Parish, LA Hospital Service District Number 1 Revenue -
Glenwood Regional Medical Center - Series 1991 7.000 07/01/99 452,906
300 Ouachita Parish, LA Hospital Service District Number 1 Revenue -
Glenwood Regional Medical Center - Series 1991 7.250 07/01/00 328,083
MAINE
260 Maine Educational Loan Marketing Corporation - Student Loan Revenue 6.500 11/01/97 266,245
MARYLAND
2,280 Maryland Energy Financing Administration - Limited Obligation Solid
Waste Disposal Revenue - Wheelabrator Water Technologies Baltimore L.L.C.
Projects - Series 1996 5.650 12/01/03 2,362,582
1,000 Maryland Energy Financing Administration - Limited Obligation Solid
Waste Disposal Revenue - Wheelabrator Water Technologies Baltimore L.L.C.
Projects - Series 1996 5.850 12/01/05 1,044,800
2,400 Northeast Maryland Waste Disposal Authority - Resources Recovery
Revenue Refunding - Southwest Resource Recovery Facility - Series
1993 7.150 01/01/04 2,745,912
MASSACHUSETTS
265 Brockton, MA General Obligation - Municipal Purpose Loan - Series 1993 5.350 06/15/00 272,298
1,000 Massachusetts Educational Financing Authority - Education Loan Revenue -
Series 1995 B 5.500 07/01/01 1,044,370
3,075 Massachusetts Educational Financing Authority - Education Loan Revenue -
Series 1995 B 5.700 07/01/04 3,267,218
2,635 Massachusetts Municipal Wholesale Electric Company - Power Supply
System Revenue - Series 1992 A 6.300 07/01/00 2,810,228
3,800 Massachusetts Municipal Wholesale Electric Company - Power Supply
System Revenue - Series 1992 B 6.300 07/01/00 4,052,700
1,000 Massachusetts State General Obligation - Series 1992 A 6.100 08/01/99 1,048,830
1,000 Massachusetts State General Obligation - Series 1988 C 7.000 12/01/97 1,032,750
975 Massachusetts State General Obligation - Series 1988 C 7.000 12/01/98 1,031,794
1,000 Massachusetts State Convention Center Authority Revenue - Hynes
Convention Center - Series 1992 5.900 09/01/98 1,032,000
</TABLE>
8 Limited Term
SAR-132
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity** Market Value
<S> <C> <C> <C> <C>
$ 1,100 Massachusetts State Industrial Finance Agency - Resource Recovery
Revenue - Refusetech Project - Series 1993 A 5.250% 07/01/99 $1,125,839
600 New Bedford, MA General Obligation 5.250 03/01/00 609,810
600 New Bedford, MA General Obligation 5.400 03/01/01 612,504
600 New Bedford, MA General Obligation 5.500 03/01/02 613,608
2,500 New England Educational Loan Marketing Corporation - Massachusetts
Student Loan Revenue - Series 1993 F 5.625 07/01/04 2,584,800
415 Springfield, MA General Obligation - Series 1992 A 5.800 09/01/99 428,151
815 Springfield, MA General Obligation School Project Loan - Series 1992 B 5.800 09/01/99 835,522
250 Springfield, MA General Obligation School Project Loan - Series 1992 B 6.100 09/01/02 262,222
MICHIGAN
3,315 Detroit, MI Economic Development Corporation - Resource Recovery Revenue -
Series 1991 6.350 05/01/00 3,505,215
3,000 Greater Detroit, MI Resource Recovery Authority Revenue - Series 1996
A and B 5.500 12/13/04 3,154,980
870 Madison Heights, MI Tax Increment Finance Authority Revenue, Tax Increment
Bonds, Series 1991 8.500 03/15/01 915,632
900 Michigan Higher Education Facilities Authority Revenue - Series XII-E 6.375 10/01/00 950,058
2,000 Michigan Higher Education Student Loan Authority Revenue - Series XV-A 5.400 09/01/00 2,043,380
2,700 Michigan State Hospital Finance Authority Revenue - St. John Hospital -
Series 1993A 5.400 05/15/00 2,799,792
3,075 Michigan State Hospital Finance Authority Revenue - Gratiot Community
Hospital, Alma, Michigan - Series 1995 5.300 10/01/01 3,077,368
3,085 Michigan State Housing Development Authority Revenue - Rental Housing -
Series 1995 A and B 5.450 04/01/05 3,145,404
3,325 Michigan State Housing Development Authority Revenue - Rental Housing -
Series 1995 A and B 5.450 10/01/05 3,393,196
200 Michigan State South Central Power Agency Supply System Revenue -
Series 1992 5.700 11/01/04 214,460
4,095 Pontiac, MI Hospital Finance Authority Revenue - NOMC Group - Series 1993 5.800 08/01/03 4,054,091
3,000 Wayne Charter County, MI Airport Revenue - Detroit Metropolitan Airport -
Series 1994 A 5.150 12/01/00 3,085,140
MINNESOTA
615 Brainerd, MN Benedictine Health System - St. Joseph's Medical Center -
Series 1993 E 5.000 02/15/00 627,189
1,045 Duluth, MN Economic Development Authority - Health Care Facilities
Revenue - Benedictine Health System - Saint Mary's Medical Center -
Series 1993 C 5.000 02/15/00 1,064,144
MISSISSIPPI
1,155 Hinds County, MS Methodist Hospital and Rehabilitation Center -
Series 1993 4.900 05/01/00 1,175,698
1,690 Mississippi Hospital Equipment and Facilities Authority Revenue -
Mississippi Baptist Medical Center - Series 1995 5.350 05/01/03 1,757,820
1,000 Mississippi Hospital Equipment and Facilities Authority Revenue -
Mississippi Baptist Medical Center - Series 1995 5.400 05/01/04 1,042,760
MISSOURI
1,740 Branson, MO Tax Increment Allocation - Branson Meadows Project -
Series 1995 5.850 11/01/01 1,747,273
810 Branson, MO Tax Increment Allocation - Branson Meadows Project -
Series 1995 6.400 11/01/05 819,817
770 Missouri State Health and Educational Facilities Authority Revenue -
Heartland Health Systems - Series 1992 6.000 11/15/97 779,987
655 St. Louis, MO Regional Convention and Sports Complex Authority - Series C 7.750 08/15/01 686,322
</TABLE>
Limited Term 9
SAR-133
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
<S> <C> <C> <C> <C>
NEVADA
$ 985 Washoe County, NV Airport Authority - System Improvement Revenue -
Series 1993 A 5.250% 07/01/00 $1,009,192
NEW HAMPSHIRE
505 New Hampshire Higher Educational and Health Facilities Authority Revenue -
St. Joseph Hospital 7.250 01/01/01 543,466
385 New Hampshire Higher Educational and Health Facilities Authority Revenue -
St. Joseph Hospital 6.600 01/01/97 385,859
470 New Hampshire Housing Finance Authority - Single Family - Series D 5.900 01/01/97 470,597
285 New Hampshire Housing Finance Authority - Single Family - Series D 6.050 01/01/98 289,463
365 New Hampshire Housing Finance Authority - Single Family - Series D 6.200 01/01/99 374,833
365 New Hampshire Housing Finance Authority - Single Family - Series D 6.350 01/01/00 379,388
365 New Hampshire Housing Finance Authority - Single Family - Series D 6.450 01/01/01 382,958
865 New Hampshire Housing Finance Authority - Multifamily - Series 1 6.300 01/01/98 879,108
890 New Hampshire Housing Finance Authority - Multifamily - Series 1 6.300 07/01/98 910,960
NEW JERSEY
1,800 Atlantic City, NJ General Obligation - Series 1994 5.650 08/15/99 1,854,000
3,800 New Jersey Economic Development Authority - Electric Energy Facility
Revenue - Vineland Cogeneration Project - Series 1992 6.750 06/01/99 3,969,062
570 New Jersey Economic Development Authority Revenue - Series 1992 R-1 5.800 06/01/01 600,489
100 New Jersey Economic Development Authority Revenue - Burlington Coat
Factory - Series 1995 5.400 09/01/03 103,711
860 New Jersey Health Care Facilities Financing Authority Revenue -
Bayonne Hospital - Series 1994 5.750 07/01/00 900,153
1,000 New Jersey Health Care Facilities Financing Authority Revenue -
Bayonne Hospital - Series 1994 5.800 07/01/01 1,058,840
1,000 New Jersey Health Care Facilities Financing Authority Revenue -
Bayonne Hospital - Series 1994 5.900 07/01/02 1,070,750
4,300 New Jersey Economic Development Authority Revenue -Educational
Testing Services - Series 1995 B 5.500 05/15/05 4,507,217
1,155 New Jersey Educational Facilities Authority - Stevens Institute of
Technology - Series 1992 A 6.000 07/01/99 1,202,852
295 New Jersey Educational Facilities Authority - St. Peter's College -
Series 1992 B 6.100 07/01/00 310,269
1,275 New Jersey Educational Facilities Authority - Stevens Institute of
Technology - Series 1992 A 6.100 07/01/00 1,342,715
355 New Jersey Educational Facilities Authority - St. Peter's College -
Series 1992 B 6.200 07/01/01 377,787
995 New Jersey Educational Facilities Authority - Stevens Institute of
Technology - Series 1992 B 6.200 07/01/01 1,059,715
1,165 New Jersey Educational Facilities Authority - Stevens Institute of
Technology - Series 1992 A 6.300 07/01/02 1,255,334
800 New Jersey Transportation Trust Fund Authority - Transportation System -
Series 1992 A 6.000 06/15/02 860,720
4,895 New Jersey Wastewater Treatment Trust - Series 1996 6.250 05/15/05 5,437,611
NEW MEXICO
115 Bernalillo County, NM Gross Receipts Tax Revenue - Series 1996 A 5.150 04/01/04 118,678
</TABLE>
10 Limited Term
SAR-134
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
==========================================================================================================================
Municipal Bonds (continued)
<S> <C> <C> <C> <C>
Face
Amount Face Market
(000) Description Rate Maturity** Value
New York
$ 250 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 4.900% 10/01/99 $ 251,960
500 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.100 10/01/01 505,515
700 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.250 10/01/02 709,247
750 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.400 10/01/03 762,540
750 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.500 10/01/04 759,945
1,000 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.600 10/01/05 1,008,930
500 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.700 10/01/06 503,250
700 Albany, NY Housing Authority - Multifamily Revenue - Series 1995 5.850 10/01/07 702,723
150 Jamestown, NY General Obligation - Series A 7.000 03/15/04 168,914
750 Jamestown, NY General Obligation - Series A 7.000 03/15/05 850,208
3,315 Metropolitan Transit Authority of New York - Transit Facilities - Service
Contract - Commuter Facilities - Series 7 5.400 07/01/06 3,342,481
1,000 Metropolitan Transit Authority of New York - Transit Facilities Revenue -
Series N 6.625 07/01/02 1,080,100
795 New York City, NY General Obligation - Series 1991 D 7.875 08/01/97 816,290
2,000 New York City, NY General Obligation - Series 1991 B 7.100 02/01/97 2,011,100
1,280 New York City General Obligation - Series A 8.250 11/01/99 1,420,621
4,000 New York City, NY General Obligation - Series 1995 F 6.100 02/15/02 4,191,640
575 New York City, NY General Obligation - Series 1991 F 8.000 11/15/97 598,218
425 New York City, NY General Obligation - Series 1991 F 8.000 11/15/97 441,405
3,000 New York City, NY General Obligation - Series 1996 F and G 5.700 02/01/03 3,079,680
500 New York City, NY General Obligation - Series 1996 F and G 5.750 02/01/06 509,225
355 New York City General Obligation - Fiscal Series 1997 E and F 4.900 08/01/04 359,278
1,000 New York State Dormitory Authority Revenue - State University - Series 1990 A 7.400 05/15/01 1,090,910
4,155 New York State Dormitory Authority Revenue - City University - Series U 5.875 07/01/00 4,325,438
2,900 New York State Dormitory Authority Revenue - Department of Health 6.750 07/01/01 3,145,166
7,500 New York State Dormitory Authority Revenue - State University Educational
Facilities - Series 1995 A 5.250 05/15/01 7,661,100
2,000 New York State Dormitory Authority Revenue - State University Educational
Facilities - Series 1995 A 6.500 05/15/05 2,190,420
2,000 New York State Dormitory Authority Revenue - State University Educational
Facilities - Series 1995 A 6.500 05/15/06 2,195,440
770 New York State Dormitory Authority Revenue - State University - Series 1989 A 7.000 05/15/02 834,911
230 New York State Dormitory Authority Revenue - State University - Series 1989 A 7.000 05/15/02 245,203
1,000 New York State Dormitory Authority Revenue - Nyack Hospital - Series 1996 5.500 07/01/00 1,014,880
1,000 New York State Dormitory Authority Revenue - Nyack Hospital - Series 1996 6.000 07/01/06 1,024,830
3,315 New York State Dormitory Authority - City University System Consolidated
Revenue - Series 1996 A and Series 1 and 2 6.000 07/01/04 3,487,844
5,000 New York State Housing Finance Agency - Health Facilities Revenue -
New York City - Series 1996 A 5.875 05/01/04 5,171,200
4,000 New York State Medical Care Facilities Finance Agency Revenue -
Mental Health Services Facilities - Series A 8.150 02/15/98 4,192,800
1,500 New York State Medical Care Facilities Finance Agency Revenue -
Mental Health Services Facilities - Series A 8.250 02/15/99 1,568,625
2,405 New York State Urban Development Corporation Revenue -
Center for Industrial Innovation - Series 1995 5.300 01/01/04 2,424,649
1,265 New York State Urban Development Corporation Revenue -
Center for Industrial Innovation - Series 1995 6.250 01/01/05 1,347,427
</TABLE>
Limited Term 11
SAR-135
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
============================================================================================================================
<S> <C> <C> <C> <C>
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
$ 700 New York State Urban Development Corporation Revenue - Correctional
Facilities - Series G 7.000% 01/01/98 $ 721,140
695 New York State Urban Development Corporation Revenue - Correctional
Facilities - Series G 6.500 01/01/99 723,648
1,000 New York State Urban Development Corporation Revenue -
Correctional Capital Facilities - Series 1993 5.250 01/01/02 1,012,860
570 Onondaga County, NY Resource Recovery Agency System Revenue -
Development Costs - Series 1992 5.900 05/01/98 572,816
480 Onondaga County, NY Resource Recovery Agency System Revenue -
Development Costs - Series 1992 6.100 05/01/99 487,075
630 Onondaga County, NY Resource Recovery Agency System Revenue -
Development Costs - Series 1992 6.200 05/01/00 642,178
3,700 Port Authority of New York and New Jersey - Special Project -
KIAC Partners Project - Series 4 7.000 10/01/07 3,976,057
850 Ulster County, NY Resource Recovery Agency - Solid Waste System Revenue -
Series 1993 4.875 03/01/98 855,134
Ohio
500 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 6.250 01/01/99 518,345
750 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 6.400 01/01/00 788,640
500 Barberton, OH Hospital Facilities - Barberton Citizens Hospital - Series 1992 6.550 01/01/01 533,445
545 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.500 12/01/98 572,125
595 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.650 12/01/99 637,126
640 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.750 12/01/00 697,050
680 Cambridge, OH Hospital Improvement Revenue - Guernsey Memorial Hospital 7.850 12/01/01 752,379
900 Cleveland, OH General Obligation - Certificates of Participation -
Motor Vehicle and Communications Equipment 6.350 01/01/97 901,818
990 Cleveland, OH General Obligation - Certificates of Participation -
Motor Vehicle and Communications Equipment 6.350 07/01/97 1,003,424
650 Cleveland, OH City School District - General Obligation - Library Improvement
Revenue - Series 1992 A 5.200 12/01/00 672,763
375 Cuyahoga County, OH Health Care Facilities Revenue - Altenheim Nursing Home 8.750 06/01/99 407,318
500 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 5.750 08/15/00 521,625
795 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 5.850 08/15/01 837,628
735 Cuyahoga County, OH Hospital Revenue - Meridia Health System - Series 1995 5.950 08/15/02 782,158
85 East Cleveland, OH Local Government Revenue 7.900 12/01/97 87,921
1,110 Erie County, OH Hospital Improvement Revenue - Firelands Community Hospital -
Series 1992 6.000 01/01/98 1,131,590
1,175 Erie County, OH Hospital Improvement Revenue - Firelands Community Hospital -
Series 1992 6.100 01/01/99 1,213,681
610 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 6.850 12/01/96 610,104
700 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series A 7.200 12/01/98 741,909
575 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.300 12/01/98 589,254
685 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.500 12/01/99 710,681
370 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.800 12/01/01 393,728
790 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 5.900 12/01/02 848,926
435 Lucas County, OH Hospital Revenue - Flower Memorial Hospital - Series 1993 6.000 12/01/03 471,932
5,195 Lucas County, OH Hospital Revenue - ProMedica Healthcare Obligated Group -
Series 1996 6.000 11/15/05 5,664,316
400 Mahoning Valley, OH Sanitary District - Series 1991 6.800 12/15/98 417,100
</TABLE>
12 Limited Term
SAR-136
<PAGE>
Statement of Investments in November 30, 1996
Securities and Net Assets (Unaudited)
<TABLE>
<CAPTION>
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity** Market Value
<S> <C> <C> <C> <C>
$ 400 Mahoning Valley, OH Sanitary District - Series 1991 6.950% 12/15/99 $ 423,428
400 Mahoning Valley, OH Sanitary District - Series 1991 7.100 12/15/00 429,904
400 Mahoning Valley, OH Sanitary District - Series 1991 7.250 12/15/01 435,464
1,000 Miami County, OH Hospital Facilities Revenue - Upper Valley Medical
Center - Series 1996 A, B and C 6.000 05/15/06 1,023,140
5,000 Ohio State Building Authority - Adult Correctional Building -
Series 1993 A 5.750 10/01/05 5,372,050
1,040 Ohio State Economic Development Revenue - Superior Forge and Steel
Corporation 7.250 06/01/01 1,096,732
3,825 Ohio State Elementary and Secondary Education Capital Facilities
Revenue - Series 1995 A 5.700 06/01/02 4,066,931
435 Shelby County, OH Hospital Facilities and Improvement Revenue -
Wilson Memorial Hospital 6.100 09/01/98 448,515
350 Youngstown, OH General Obligation 6.800 12/01/97 360,202
350 Youngstown, OH General Obligation 6.900 12/01/98 367,994
350 Youngstown, OH General Obligation 7.000 12/01/99 375,151
PENNSYLVANIA
350 Allegheny County, PA Hospital Development Authority - St. Margaret
Memorial Hospital - Series 1991A 6.350 10/01/97 357,329
400 Allegheny County, PA Hospital Development Authority - St. Margaret
Memorial Hospital - Series 1991A 6.600 10/01/98 415,928
400 Allegheny County, PA Hospital Development Authority - St. Margaret
Memorial Hospital - Series 1991A 6.700 10/01/99 422,848
400 Allegheny County, PA Hospital Development Authority - St. Margaret
Memorial Hospital - Series 1991A 6.800 10/01/00 429,100
284 Allegheny County, PA Industrial Development Authority - Solid Waste
Disposal - Conversion Systems, Inc. - Series 1991 8.000 03/01/98 297,357
1,000 Monroeville, PA Hospital Authority Revenue - Forbes Health System -
Series 1995 5.750 10/01/05 1,020,040
950 Montgomery County, PA Higher Education and Health Authority Revenue -
Pottstown Memorial Medical Center 7.000 11/15/99 1,000,065
1,000 Pennsylvania Intergovernmental Cooperation Authority - Special Tax
Revenue - Philadelphia Funding Program - Series 1992 5.600 06/15/98 1,025,870
2,500 Pennsylvania Intergovernmental Cooperation Authority - Special Tax
Revenue - Philadelphia Funding Program - Series 1992 6.000 06/15/00 2,645,025
2,000 Pennsylvania State General Obligation - Series 1992 6.000 09/15/99 2,098,140
3,000 Philadelphia, PA General Obligation - Series 1993 5.125 05/15/03 3,095,580
1,900 Philadelphia, PA Gas Works Revenue - Eleventh Series A 7.400 07/01/00 1,979,154
500 Philadelphia, PA Gas Works Revenue - Thirteenth Series - Series 1991 7.100 06/15/97 508,820
3,600 Philadelphia, PA Gas Works Revenue - Fourteenth Series - Series 1993 5.600 07/01/99 3,690,288
3,425 Philadelphia, PA Gas Works Revenue - Fourteenth Series - Series 1993 5.700 07/01/00 3,529,908
1,390 Philadelphia, PA Hospital and Higher Education Facilities Authority
Revenue - Philadelphia MR Project 5.300 08/01/99 1,415,506
3,990 Philadelphia, PA School District - General Obligation - Series 1994 A 5.450 07/01/04 4,194,567
1,080 Philadelphia, PA School District - General Obligation - Series 1992 A 6.050 05/15/99 1,129,032
5,000 Philadelphia, PA Water and Wastewater Revenue - Series 1993 5.150 06/15/04 5,103,100
3,490 Philadelphia, PA Hospitals and Higher Education Facilities Authority
- Hospital Revenue - Pennsylvania Hospital - Series 1996 5.850 07/01/02 3,580,775
2,020 Philadelphia, PA Hospitals and Higher Education Facilities Authority
- Hospital Revenue - Pennsylvania Hospital - Series 1996 6.050 07/01/04 2,084,256
2,000 Philadelphia, PA Hospitals and Higher Education Facilities Authority
- Hospital Revenue - Pennsylvania Hospital - Series 1996 6.150 07/01/05 2,070,760
</TABLE>
Limited Term 13
SAR-137
<PAGE>
<TABLE>
<CAPTION>
November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
================================================================================================================================
Municipal Bonds (continued)
Face
Amount Face
(000) Description Rate Maturity** Market
Value
<S> <C> <C> <C> <C>
PUERTO RICO
$ 2,225 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1996 A 4.600% 07/01/04 $2,243,356
2,295 Commonwealth of Puerto Rico Public Improvement - General Obligation -
Series 1993 5.375 07/01/05 2,370,574
1,575 Commonwealth of Puerto Rico Urban Renewal and Housing - Series 1989 0.000 10/01/98 1,442,401
325 Commonwealth of Puerto Rico Electric Power Authority - Series P 7.000 07/01/11 368,709
RHODE ISLAND
4,035 Rhode Island Housing and Mortgage Finance Corporation Revenue -
Multifamily - Series 1995 A 5.350 07/01/03 4,122,560
TENNESSEE
1,250 Jackson, TN Hospital Revenue - Jackson-Madison County General Hospital
- Series 1995 4.900 04/01/03 1,251,675
3,250 Metropolitan Nashville and Davidson County - Tennessee Industrial
Development Board Revenue - OSCO Treatment - Series 1993 6.000 05/01/03 3,327,935
1,000 Tennessee Housing Development Agency - Mortgage Finance Program -
Series 1993 A 5.100 07/01/01 1,022,510
605 Tennessee Housing Development Agency - Mortgage Finance Program -
Series 1994 B 5.300 01/01/00 615,787
260 Tennessee Housing Development Agency - Mortgage Finance Program -
Series 1994 B 5.300 07/01/00 265,327
TEXAS
1,575 Anderson County, TX Department of Criminal Justice - Coffield Prison
Farm - Series 1992 5.300 03/15/00 1,623,778
1,730 Brazos, TX Higher Education Authority - Student Loan Revenue -
Series 1993-A 5.900 12/01/00 1,808,836
1,235 Brazos, TX Higher Education Authority - Student Loan Revenue -
Series 1993-A 6.050 12/01/01 1,308,594
5,000 Dallas-Fort Worth, TX International Regional Airport Joint Revenue -
Series 1992 B 5.500 11/01/98 5,135,400
1,325 North Central Texas Health Facilities Development Corporation -
Health Facilities Development Revenue - C.C. Young Memorial Home Project -
Series 1996 5.700 02/15/03 1,342,132
1,000 Pasadena, TX Industrial Development Corporation Revenue - Lunar and
Planetary Institute Project 7.050 10/01/01 1,005,660
720 Texas State Higher Education - College Student Loan Revenue 6.900 04/01/99 753,984
705 Texas State Higher Education - College Student Loan Revenue 7.000 04/01/00 751,368
1,460 Texas State Higher Education - College Student Loan Revenue 7.100 04/01/01 1,561,704
UTAH
300 Carbon County, UT Solid Waste Disposal Revenue - East Carbon Development
Project - Series 1992 A 8.000 07/01/97 306,315
VERMONT
2,000 Vermont State Student Assistance Corporation - Educational Loan
Finance Revenue - Series 1992A-3 5.800 12/15/99 2,071,420
1,000 Vermont State Student Assistance Corporation - Educational Loan
Finance Revenue - Series 1992A-3 5.900 12/15/00 1,043,710
1,000 Vermont State Student Assistance Corporation - Educational Loan
Finance Revenue - Series 1992A-3 6.050 12/15/01 1,055,850
VIRGINIA
3,000 Virginia State Public Building Authority Revenue - Series 1994 A 6.250 08/01/15 3,333,780
</TABLE>
14 Limited Term
SAR-138
<PAGE>
<TABLE>
<CAPTION> November 30, 1996
Statement of Investments in Securities and Net Assets (Unaudited)
==========================================================================================================================
<S> <C> <C> <C> <C>
Municipal Bonds (continued)
Face
Amount Face Market
(000) Description Rate Maturity** Value
Washington
$ 1,860 Washington State Health Care Facilities Authority Revenue - Franciscan Health
System\St. Joseph Hospital and Health Care Center, Tacoma - Series 1993 4.875% 01/01/01 $ 1,893,350
1,670 Washington State Health Care Facilities Authority Revenue -
Children's Hospital and Medical Center 6.000 10/01/02 1,793,881
Wisconsin
1,100 Wisconsin State Health and Educational Facilities Authority Revenue -
Lutheran Hospital-La Crosse, Inc. - Series 1993A 5.200 02/15/00 1,126,675
1,155 Wisconsin State Health and Educational Facilities Authority Revenue -
Lutheran Hospital-La Crosse, Inc. - Series 1993A 5.300 02/15/01 1,192,688
Total Investments in Securities - Municipal Bonds (cost $474,465,494) - 100.9% 491,545,395
Excess of Liabilities over Other Assets - (0.9)% (4,232,216)
Total Net Assets - 100.0% $487,313,179
</TABLE>
*Securities purchased on a "when-issued" basis.
**Maturity date represents actual maturity or earlier put date.
See notes to financial statements.
Limited Term 15
SAR-139
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art] Statement of Assets and Liabilities November 30, 1996 (Unaudited)
============================================================================================================================
<S> <C>
ASSETS:
Investments, at market value (cost $474,465,494) $491,545,395
Receivable for investments sold 4,435,385
Receivable for Fund shares sold 836,808
Interest receivable 8,047,687
Other 25,681
Total assets 504,890,956
LIABILITIES:
Bank borrowings (Note G) 4,167,593
Payable for investments purchased 9,618,432
Payable for Fund shares reacquired 1,582,099
Distributions payable 1,836,801
Accrued expenses 372,852
Total liabilities 17,577,777
NET ASSETS: 487,313,179
Class A:
Applicable to 43,354,225 shares of beneficial interest issued and outstanding $467,121,555
Net asset value per share $ 10.77
Class C:
Applicable to 1,875,033 shares of beneficial interest issued and outstanding $ 20,191,624
Net asset value per share $ 10.77
For the six months ended November 30, 1996
[Logo of Ship Art] Statement of Operations (Unaudited)
============================================================================================================================
INVESTMENT INCOME - INTEREST $ 13,733,437
EXPENSES:
Distribution fees - Class A (Note E) 954,738
Distribution fees - Class C (Note E) 62,676
Investment advisory fees (Note E) 742,744
Custody and accounting fees 101,108
Transfer agent's fees 159,375
Registration fees 23,789
Legal fees 3,660
Audit fees 10,685
Trustees' fees 7,320
Shareholder services fees (Note E) 27,470
Other 8,510
Advisory fees waived (Note E) (62,743)
Total expenses before credits 2,039,332
Custodian fee credit (Note B) (7,388)
Net expenses 2,031,944
Net investment income 11,701,493
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions 907,696
Change in unrealized appreciation (depreciation) of investments 8,396,176
Net gain on investments 9,303,872
Net increase in net assets resulting from operations $ 21,005,365
</TABLE>
See notes to financial statements.
16 Limited Term
SAR-140
<PAGE>
<TABLE>
<CAPTION>
[Logo of Ship Art] Statements of Changes in Net Assets
===========================================================================================================================
<S> <C> <C>
Six Months Ended Year Ended
INCREASE (DECREASE) IN NET ASSETS November 30, 1996 May 31, 1996
Operations: (Unaudited)
Net investment income $ 11,701,493 $ 25,355,276
Net realized gain (loss) on security transactions 907,696 1,123,864
Change in unrealized appreciation (depreciation) of investments 8,396,176 (5,083,239)
Net increase in net assets resulting from operations 21,005,365 21,395,901
Distributions to Class A shareholders:
From net investment income (11,157,384) (24,835,168)
Distributions to Class C shareholders:
From net investment income (390,716) (175,819)
Net decrease in net assets from distributions to shareholders (11,548,100) (25,010,987)
Fund share transactions (Note C):
Proceeds from shares sold 29,487,902 90,170,813
Net asset value of shares issued in reinvestment of distributions 7,608,480 16,369,864
Cost of shares reacquired (63,811,916) (167,550,003)
Net decrease in net assets from Fund share transactions (26,715,534) (61,009,326)
Total decrease in net assets (17,258,269) (64,624,412)
NET ASSETS:
Beginning of period 504,571,448 569,195,860
End of period $ 487,313,179 $ 504,571,448
NET ASSETS CONSIST OF:
Paid-in surplus $ 475,279,572 $ 501,995,106
Undistributed net investment income 897,939 744,546
Accumulated net realized gain (loss) on security transactions (5,944,233) (6,851,929)
Unrealized appreciation (depreciation) of investments 17,079,901 8,683,725
$ 487,313,179 $ 504,571,448
</TABLE>
See notes to financial statements.
Limited Term 17
SAR-141
<PAGE>
[Logo of Ship Art] Notes to Financial Statements
===============================================================================
A. DESCRIPTION OF BUSINESS
The Flagship Limited Term Tax Exempt Fund is a sub-trust of the Flagship
Tax Exempt Funds Trust (Trust), a Massachusetts business trust organized on
March 8, 1985. The Fund is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended.
The Fund commenced investment operations on October 19, 1987. On December
1, 1995, the Fund began to offer Class C shares to the investing public.
Class A shares are sold with a front-end sales charge. Class C shares are
sold with no front-end sales charge but are assessed a contingent deferred
sales charge if redeemed within one year from the time of purchase. Both
classes of shares have identical rights and privileges except with respect
to the effect of sales charges, the distribution and/or service fees borne
by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privilege of each class. Shares
of beneficial interest in the Fund, which are registered under the
Securities Act of 1933, as amended, are offered to the public on a
continuous basis. Shares of beneficial interest in the Fund, which are
registered under the Securities Act of 1933, as amended, are offered to the
public on a continuous basis.
B. SIGNIFICANT
The following is a summary of significant accounting policies consistently
followed by the Fund.
Estimates: The preparation of financial statements and daily calculation of
net asset value in conformity with generally accepted accounting principles
requires management to fairly value, at market, investment securities and
make estimates and assumptions regarding the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. The financial
statements reflect these inherent valuations, estimates and assumptions,
and actual results could differ.
Security Valuations: Portfolio securities for which market quotations are
readily available are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining the values. If
market quotations are not readily available from such pricing service,
securities are valued at fair value as determined under procedures
established by the Trustees. Short-term securities are stated at amortized
cost, which is equivalent to fair value.
Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute to its shareholders all of its tax
exempt net investment income and net realized gains on security
transactions. Therefore, no federal income tax provision is required.
Distributions from net realized capital gains may differ for financial
statement and tax purposes primarily due to the treatment of wash sales and
post-October capital losses. The effect on dividend distributions of
certain book-to-tax timing differences is presented as excess distributions
in the statement of changes in net assets.
Security Transactions: Security transactions are accounted for on the date
the securities are purchased or sold (trade date). Realized gains and
losses on security transactions are determined on the identified cost
basis. Interest income is recorded on the accrual basis. The Fund amortizes
original issue discounts and premiums paid on purchases of portfolio
securities on the same basis for both financial reporting and tax purposes.
Market discounts, if applicable, are recognized as ordinary income upon
disposition or maturity.
Investment Income, Expenses and Distributions: Interest income and
estimated expenses are accrued daily. Daily dividends are declared from net
investment income and paid monthly. Net realized gains from security
transactions, to the extent they exceed available capital loss
carryforwards, are distributed to shareholders at least annually.
18 Limited Term
SAR-142
<PAGE>
Notes to Financial Statements
===============================================================================
Expense Allocation: Shared expenses incurred by the Trust are allocated
among the sub-trusts based on each sub-trust's ratio of net assets to the
combined net assets. Specifically identified direct expenses are charged to
each sub-trust as incurred. Fund expenses not specific to any class of
shares are prorated among the classes based upon the eligible net assets of
each class. Specifically identified direct expenses of each class are
charged to that class as incurred.
The Fund has entered into an agreement with the custodian, whereby it
earns custodian fee credits for temporary cash balances. These credits,
which offset custodian fees that may be charged to the Fund, are based on
80% of the daily effective federal funds rate.
Securities Purchased on a "When-issued" Basis: The Fund may, upon adequate
segregation of securities as collateral, purchase and sell portfolio
securities on a "when-issued" basis. These securities are registered by a
municipality or government agency, but have not been issued to the public.
Delivery and payment take place after the date of the transaction and such
securities are subject to market fluctuations during this period. The
current market value of these securities is determined in the same manner
as other portfolio securities. There were $9,306,598 "when-issued" purchase
commitments included in the statement of investments at November 30, 1996.
C. FUND SHARES
At November 30, 1996, there were an indefinite number of shares of
beneficial interest with no par value authorized for each class.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1996 May 31, 1996
(Unaudited)
---------------------------- ------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 2,313,630 $ 24,612,195 6,914,835 $ 74,019,115
Shares issued on reinvestment 692,217 7,349,432 1,522,705 16,288,950
Shares reacquired (5,939,087) (63,094,174) (15,607,722) (166,978,057)
Net decrease (2,933,240) $(31,132,547) (7,170,182) $ (76,669,992)
Six Months Ended Period From
November 30, 1996 December 1, 1995 to May 31, 1996
(Unaudited)
---------------------------- ------------------------------
Shares Amount Shares Amount
CLASS C:
Shares sold 458,826 $ 4,875,707 1,505,009 $ 16,151,698
Shares issued on reinvestment 24,399 259,048 7,584 80,914
Shares reacquired (67,608) (717,742) (53,177) (571,946)
Net increase 415,617 $ 4,417,013 1,459,416 $ 15,660,666
</TABLE>
D. PURCHASES AND SALES OF MUNICIPAL BONDS
Purchases and sales of municipal bonds for the six months ended November
30, 1996, aggregated $71,299,502 and $96,603,238, respectively. At November
30, 1996, cost for federal income tax purposes is $474,416,830 and net
unrealized appreciation aggregated $17,128,565, of which $17,134,075
related to appreciated securities and $5,510 related to depreciated
securities.
At November 30, 1996, the Fund has available a capital loss carryforward
of approximately $5,940,100 to offset future net capital gains through May
31, 2003.
Limited Term 19
SAR-143
<PAGE>
Notes to Financial Statements
================================================================================
E. TRANSACTIONS WITH INVESTMENT ADVISOR AND DISTRIBUTOR
Flagship Financial Inc. (Advisor), under the terms of an agreement which
provides for furnishing of investment advice, office space and facilities to
the Fund, receives fees computed monthly on the average daily net assets of
the Fund at an annualized rate of .30% of the average daily net assets of
$500 million or less plus .25% of the average daily net assets in excess of
$500 million. During the six months ended November 30, 1996, the Advisor, at
its discretion, permanently waived $62,743 of its advisory fees. Included in
accrued expenses at November 30, 1996 are accrued advisory fees of $119,998.
Also, under an agreement with the Fund, the Advisor may subsidize certain
expenses excluding advisory and distribution fees.
The Fund has a Distribution Agreement with Flagship Funds Inc.
(Distributor). The Distributor serves as the exclusive selling agent and
distributor of the Fund's Class A and Class C shares and in that capacity is
responsible for all sales and promotional efforts including printing of
prospectuses and reports used for sales purposes. Pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund has adopted a plan to
reimburse the Distributor for its actual expenses incurred in the
distribution and promotion of all classes of the Fund's shares. The maximum
amount payable for these expenses on an annual basis is .40% and .95% of the
Fund's average daily net assets for Class A and Class C shares, respectively.
Included in accrued expenses at November 30, 1996 are accrued distribution
fees of $153,530 and $11,318 for Class A and Class C shares, respectively.
Certain non-promotional expenses directly attributable to current
shareholders are aggregated by the Distributor and passed through to the Fund
as shareholder services fees.
In its capacity as national wholesale underwriter for the shares of the
Fund, the Distributor received commissions on sales of the Fund's Class A
shares of approximately $193,400 for the six months ended November 30, 1996,
of which approximately $155,100 was paid to other dealers. For the six months
ended November 30, 1996, the Distributor received approximately $6,000 of
contingent deferred sales charges on redemptions of shares. Certain officers
and trustees of the Trust are also officers and/or directors of the
Distributor and/or Advisor.
F. LINE OF CREDIT
The Trust participates in a line of credit in which a maximum amount of $30
million is provided by State Street Bank & Trust Co. The Fund may temporarily
borrow up to $30 million under the line of credit. Borrowings are
collateralized with pledged securities and are due on demand with interest at
1% above the federal funds rate. The average daily amount of borrowings under
the line of credit during the six months ended November 30, 1996 was
approximately $890,700, at a weighted average annualized interest rate of
6.40%. At November 30, 1996, the Fund had $4,167,593 outstanding under the
line of credit.
G. SUBSEQUENT EVENT
On December 12, 1996, the shareholders of the Fund approved new Advisory and
Distribution agreements with The John Nuveen Company ("Nuveen") pursuant to
an Agreement and Plan of Merger. Any consolidation or reorganization of the
Nuveen and Flagship mutual fund families is expected to be effective
January 31, 1997.
20 Limited Term
SAR-144
<PAGE>
[Logo of Ship art] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended Year Ended Year Ended Year Ended
November 30, 1996 May 31, 1996 May 31, 1995 May 31, 1994 May 31, 1993
CLASS A (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.57 $ 10.65 $ 10.60 $ 10.74 $ 10.29
Income from investment operations:
Net investment income 0.25 0.51 0.51 0.52 0.55
Net realized and unrealized gain
(loss) on securities 0.20 (0.09) 0.04 (0.13) 0.45
Total from investment operations 0.45 0.42 0.55 0.39 1.00
Less distributions:
From net investment income (0.25) (0.50) (0.50) (0.52) (0.55)
From net realized capital gains (0.01)
Total distributions (0.25) (0.50) (0.50) (0.53) (0.55)
Net asset value, end of period $ 10.77 $ 10.57 $ 10.65 $ 10.60 $ 10.74
Total return(a) 8.59% 4.03% 5.41% 3.58% 10.02%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements:
Expenses(b) 0.81% 0.79% 0.74% 0.70% 0.70%
Net investment income 4.74% 4.77% 4.88% 4.76% 5.10%
Assuming credits and no waivers
or reimbursements:
Expenses 0.84% 0.84% 0.82% 0.79% 0.82%
Net investment income 4.71% 4.72% 4.80% 4.67% 4.98%
Net assets at end of period (000's) $467,122 $489,157 $569,196 $704,627 $570,518
Portfolio turnover rate 14.34% 38.55% 19.74% 22.16% 19.84%
</TABLE>
(a) The total returns shown do not include the effect of applicable front-end
sales charge and are annualized where appropriate.
(b) During the six months ended November 30, 1996 and the year ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 0.80% and 0.78%, respectively; prior period numbers have not been
restated to reflect these credits.
Limited Term 21
SAR-145
<PAGE>
[LOGO OF SHIP ART] Selected data for each share of beneficial
Financial Highlights interest outstanding throughout the period.
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Period From
November 30, 1996 December 1, 1995 to
CLASS C (Unaudited) May 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.56 $ 10.76
Income from investment operations:
Net investment income 0.24 0.22
Net realized and unrealized gain
(loss) on securities 0.20 (0.19)
Total from investment operations 0.44 0.03
Less distributions:
From net investment income (0.23) (0.23)
From net realized capital gains
Total distributions (0.23) (0.23)
Net asset value, end of period $ 10.77 $ 10.56
Total return(a) 8.48% 0.46%
Ratios to average net assets
(annualized where appropriate):
Actual net of waivers and
reimbursements(b)
Expenses 1.11% 1.19%
Net investment income 4.41% 4.17%
Assuming credits and no waivers
or reimbursements:
Expenses 1.13% 1.43%
Net investment income 4.39% 3.93%
Net assets at end of period (000's) $20,192 $15,415
Portfolio turnover rate 14.34% 38.55%
</TABLE>
(a) The total returns shown do not include the effect of applicable contingent
deferred sales charge and are annualized.
(b) During the six months ended November 30, 1996 and the period ended May 31,
1996, the Fund has earned credits from the custodian which reduce service
fees incurred. If included, the ratio of expenses to average net assets
would be 1.10% and 1.18%, respectively; prior period numbers have not been
restated to reflect these credits.
22 Limited Term
SAR-146
<PAGE>
PART C--OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements:
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information through incorporation
by reference to each Fund's most recent Annual and Semi-Annual Reports:
<TABLE>
<C> <S> <C>
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Report of Independent Public Accountants
(b) Exhibits:
1(a). Declaration of Trust of Registrant.
1(b). Amended and Restated Establishment and Designation of Series
of Shares of Beneficial Interest dated October 11, 1996.
1(c). Certificate for the Establishment and Designation of Classes
dated July 10, 1996.
2. By-Laws of Registrant.
3. Not applicable.
4. Specimen certificates of Shares of each Fund.
5. Form of Management Agreement between Registrant and Nuveen Ad-
visory Corp.
6. Form of Distribution Agreement between Registrant and John
Nuveen & Co. Incorporated.
7. Not applicable.
8. Form of Custodian Agreement between Registrant and Chase Man-
hattan Bank.
9(a). Form of Transfer Agency and Service Agreement between Regis-
trant and State Street Bank and Trust Company.
9(b). Form of Transfer Agency Agreement between Registrant and
Shareholder Services, Inc.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11(a). Consent of Arthur Andersen LLP, Independent Public Accoun-
tants.
11(b). Consent of Deloitte & Touche LLP, Independent Public Accoun-
tants.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule 12b-1 for
the Class A Shares, Class B Shares and Class C Shares of each
Fund.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3.
99(a). Original Powers of Attorney for the Trustees authorizing,
among others, James J. Wesolowski and Gifford R. Zimmerman to
execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees authorizing
the signing of the names of trustees and officers on the Reg-
istrant's Registration Statement pursuant to power of attor-
ney.
</TABLE>
C-1
<PAGE>
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES
At January 3, 1997:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
--------------- --------------
Nuveen Municipal Bond Fund
<S> <C>
Class A Shares............................................ 5,545
Class B Shares............................................ 0
Class C Shares............................................ 229
Class R Shares............................................ 87,407
Nuveen Insured Municipal Bond Fund
Class A Shares............................................ 4,083
Class B Shares............................................ 0
Class C Shares............................................ 229
Class R Shares............................................ 23,957
Nuveen Flagship All-American Municipal Bond Fund
Class A Shares............................................ 3,883
Class B Shares............................................ 0
Class C Shares............................................ 818
Class R Shares............................................ 0
Nuveen Flagship Intermediate Municipal Bond Fund
Class A Shares............................................ 1,077
Class C Shares............................................ 33
Class R Shares............................................ 0
Nuveen Flagship Limited Term Municipal Bond Fund
Class A Shares............................................ 10,594
Class C Shares............................................ 169
Class R Shares............................................ 0
</TABLE>
ITEM 27: INDEMNIFICATION
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
C-2
<PAGE>
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she shall have had reasonable cause to believe this conduct was
unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Flagship
Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free
Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. It also serves as investment adviser to the following
closed-end management type investment companies: Nuveen Municipal Value Fund,
Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal
Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen
California Performance Plus Municipal Fund, Inc.,
C-3
<PAGE>
Nuveen New York Performance Plus Municipal Fund, Inc., Nuveen Municipal
Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund, Inc., Nuveen
California Municipal Market Opportunity Fund, Inc., Nuveen Investment Quality
Municipal Fund, Inc., Nuveen California Investment Quality Municipal Fund,
Inc., Nuveen New York Investment Quality Municipal Fund, Inc., Nuveen Insured
Quality Municipal Fund, Inc., Nuveen Florida Investment Quality Municipal Fund,
Nuveen New Jersey Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania
Investment Quality Municipal Fund, Nuveen Select Quality Municipal Fund, Inc.,
Nuveen California Select Quality Municipal Fund, Inc., Nuveen New York Select
Quality Municipal Fund, Inc., Nuveen Quality Income Municipal Fund, Inc.,
Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income
Municipal Fund, Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen
Ohio Quality Income Municipal Fund, Inc., Nuveen Texas Quality Income Municipal
Fund, Nuveen California Quality Income Municipal Fund, Inc., Nuveen New York
Quality Income Municipal Fund, Inc., Nuveen Premier Municipal Income Fund,
Inc., Nuveen Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income
Municipal Fund 2, Inc., Nuveen Insured California Premium Income Municipal
Fund, Inc., Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen
Select Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund,
Inc., Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan
Premium Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal
Fund, Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured
California Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium
Income Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, and Nuveen Insured Premium Income Municipal Fund 2. Nuveen
Advisory Corp. has no other clients or business at the present time. The
principal business address for all of these investment companies is 333 West
Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Schwertfeger has, during the last two years, been
Chairman and formerly Executive Vice President and Director of the John Nuveen
Company, John Nuveen & Co. Incorporated, and Nuveen Institutional Advisory
Corp. Anthony T. Dean is President and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Dean has, during the last two years, been Executive
Vice President and Director of The John Nuveen Company and John Nuveen & Co.
Incorporated; and Director of Nuveen Institutional Advisory Corp.
ITEM 29: PRINCIPAL UNDERWRITERS
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies: Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship
Municipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., Nuveen Tax-Free
Reserves, Inc., Flagship Admiral Funds Inc., and Nuveen Investment Trust.
Nuveen also acts as depositor and principal underwriter of the Nuveen Tax-
Exempt Unit Trust, a registered unit investment trust. Nuveen has also served
or is serving as co-managing underwriter to the following closed-end management
type investment companies: Nuveen Municipal Value Fund, Inc., Nuveen California
Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen
Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen
Performance Plus Municipal Fund, Inc., Nuveen California Performance Plus
Municipal Fund, Inc., Nuveen New York Performance Plus Municipal Fund, Inc.,
Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal Market Opportunity
Fund, Inc., Nuveen California Municipal Market Opportunity Fund, Inc., Nuveen
Investment Quality Municipal Fund, Inc., Nuveen California Investment Quality
Municipal Fund, Inc., Nuveen New York Investment Quality Municipal Fund, Inc.,
Nuveen Insured Quality Municipal Fund, Inc., Nuveen Florida Investment Quality
Municipal Fund, Nuveen New Jersey Investment Quality Municipal Fund, Inc.,
Nuveen Pennsylvania Investment Quality Municipal Fund, Nuveen Select Quality
Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund, Inc.,
Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income
Municipal Fund, Inc., Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen
Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income Municipal
Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen Texas
Quality Income Municipal Fund, Nuveen California Quality Income Municipal Fund,
Inc., Nuveen New York Quality Income Municipal Fund, Inc., Nuveen Premier
C-4
<PAGE>
Municipal Income Fund, Inc., Nuveen Premier Insured Municipal Income Fund,
Inc., Nuveen Select Tax-Free Income Portfolio, Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2, Nuveen Select
Tax-Free Income Portfolio, Nuveen Select Tax-Free Income Portfolio 2, Nuveen
Insured California Select Tax-Free Income Portfolio, Nuveen Insured New York
Select Tax-Free Income Portfolio and Nuveen Select Tax-Free Income Portfolio 3.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- --------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger Chairman of the Board, Chairman of the Board
333 West Wacker Drive Chief Executive Officer and Trustee
Chicago, IL 60606
Anthony T. Dean President President and Trustee
333 West Wacker Drive
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West Wacker Drive
Chicago, IL 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
Richard P. Davis Vice President None
One South Main Street
Dayton, OH 45402
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Stephen D. Foy Vice President None
333 West Wacker Drive
Chicago, IL 60606
Robert D. Freeland Vice President None
333 West Wacker Drive
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Robert B. Kuppenheimer Vice President None
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------------------------------------------------------------------------
<S> <C> <C>
Larry W. Martin Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Assistant Secretary
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, IL 60606
O. Walter Renfftlen Vice President Vice President and
333 West Wacker Drive and Controller Controller
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Assistant Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 770 Broadway, New York, New York 10003 maintains all
general and subsidiary ledgers, journals, trial balances, records of all
portfolio purchases and sales, and all other required records not maintained by
Nuveen Advisory Corp., Shareholder Services, Inc. or Boston Financial.
Shareholder Services, Inc., P.O. Box 5330, Denver, Colorado 80217-5330 and
Boston Financial Data Services, 225 Franklin Street, Boston, Massachusetts
02106 maintain all the required records in their capacity as transfer, dividend
paying, and shareholder service agents for the Funds.
ITEM 31: MANAGEMENT SERVICES
Not applicable.
ITEM 32: UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest Annual Report to Sharehold-
ers upon request and without charge.
(d) The Registrant agrees to call a meeting of shareholders for the purpose of
voting upon the question of the removal of any trustee or trustees when re-
quested to do so in writing by the record holders of at least 10% of the Reg-
istrant's outstanding shares and to assist the shareholders in communications
with other shareholders as required by section 16(c) of the Act.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (B) OF RULE 485
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 29TH DAY OF
JANUARY, 1997.
NUVEEN FLAGSHIP MUNICIPAL TRUST
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ O. Walter Renfftlen
-------------------------------
O. Walter Renfftlen Vice President and January 29, 1997
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board )
and Trustee (Principal )
Executive Officer) )
)
Anthony T. Dean President and Trustee )
} /s/ Gifford R. Zimmerman
Lawrence H. Brown Trustee ) By____________________________
) Gifford R. Zimmerman
Anne E. Impellizzeri Trustee ) Attorney-in-Fact
)
Margaret K. Rosenheim Trustee ) January 29, 1997
)
Peter R. Sawers Trustee )
Robert P. Bremner Trustee
William J. Schneider Trustee
</TABLE>
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, JAMES J. WESOLOWSKI
AND GIFFORD R. ZIMMERMAN TO EXECUTE THIS REGISTRATION STATEMENT, AND
AMENDMENTS THERETO, FOR EACH OF THE OFFICERS AND TRUSTEES OF REGISTRANT ON
WHOSE BEHALF THIS REGISTRATION STATEMENT IS FILED, HAS BEEN EXECUTED AND IS
INCORPORATED BY REFERENCE TO THIS REGISTRATION STATEMENT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1(a). Declaration of Trust of Registrant.
1(b). Amended and Restated Establishment and Designation of
Series of Shares of Beneficial Interest dated October
11, 1996.
1(c). Certificate for the Establishment and Designation of
Classes dated July 10, 1996.
2. By-Laws of Registrant.
3. Not applicable.
4. Specimen certificates of Shares of each Fund.
5. Form of Management Agreement between Registrant and
Nuveen Advisory Corp.
6. Form of Distribution Agreement between Registrant and
John Nuveen & Co. Incorporated.
7. Not applicable.
8. Form of Custodian Agreement between Registrant and
Chase Manhattan Bank.
9(a). Form of Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company.
9(b). Form of Transfer Agency Agreement between Registrant
and Shareholder Services, Inc.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11(a). Consent of Arthur Andersen LLP, Independent Public
Accountants.
11(b). Consent of Deloitte & Touche LLP, Independent Public
Accountants.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule
12b-1 for the Class A Shares, Class B Shares and
Class C Shares of each Fund.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3.
99(a). Original Powers of Attorney for the Trustees autho-
rizing, among others, James J. Wesolowski and Gifford
R. Zimmerman to execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
</TABLE>
<PAGE>
Exhibit 10
January 28, 1997
Nuveen Flagship Municipal Trust (202) 639-7065
333 West Wacker Drive
Chicago, Illinois 60606
RE: Registration Statements on Form N-1A under the Securities
Act of 1933 for Nuveen Flagship Municipal Trust (File No.
333-14725)
Ladies and Gentlemen:
We have acted as counsel for Nuveen Flagship Municipal Trust, a
Massachusetts voluntary association (commonly known as a business trust) (the
"Trust"), in connection with the above-referenced Registration Statement on Form
N-1A as proposed to be filed with the Securities and Exchange Commission on
January 28, 1997 (as amended, the "Registration Statement"), which relates to
the Class A Shares, Class B Shares, Class C Shares and Class R Shares
(collectively, the "Shares") of each of the following series of the Trust:
Nuveen Municipal Bond Fund, Nuveen Insured Municipal Bond Fund, Nuveen Flagship
All-American Fund Municipal Bond Fund, Nuveen Flagship Intermediate Municipal
Bond Fund and Nuveen Flagship Limited Term Municipal Bond Fund (collectively,
the "Series"). This opinion is being delivered to you in connection with the
Trust's filing of Pre-Effective Amendment No. 3 to the Registration Statement
(the "Amendment") with the Securities and Exchange Commission. With your
permission, all assumptions and statements of reliance herein have been made
without any independent investigation or verification on our part except to the
extent otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;
(b) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and the Amended
and Restated Establishment and Designation of Series of Shares of
Beneficial Interest on file in the office of the Secretary of State;
(c) a certificate executed by Morrison C. Warren, an Assistant Secretary
of the Trust, certifying as to, and attaching copies of, the Trust's
Declaration of Trust and Designation of Series, the Trust's
Establishment and Designation of Classes, the By-Laws, as amended, and
a certain resolution of the Trustees of the Trust; and
(d) a printer's proof, dated January 28, 1997, of the Amendment.
-1-
<PAGE>
Nuveen Flagship Municipal Trust
January 28, 1997
In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinions hereinafter expressed. In all such examinations, we have
assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinions, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representatives of the Trust. We have assumed that the Registration Statement,
as filed with the Securities and Exchange Commission, will be in substantially
the form of the printer's proof referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Trust's
Declaration of Trust and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and non-assessable,
except that, as set forth in the Registration Statement, shareholders of the
Trust may, under certain circumstances, be held personally liable for its
obligations.
The opinion expressed herein is limited to the laws of the Commonwealth of
Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Thomas S. Harman
-------------------------------------
Thomas S. Harman
-2-
<PAGE>
EXHIBIT 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 8, 1996, for the Nuveen Insured Tax-Free Bond Fund, Inc., comprising
the Nuveen Insured Municipal Bond Fund, and to all references to our firm
included in or made a part of this registration statement on Form N-1A of Nuveen
Flagship Municipal Trust.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 8, 1996, for the Nuveen Municipal Bond Fund and to all references to
our firm included in or made a part of this registration statement on Form N-1A
of Nuveen Flagship Municipal Trust.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 3 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 333-14725, of our reports dated July 3, 1996, relating to the Flagship
All-American Tax Exempt Fund, Flagship Intermediate Tax Exempt Fund and Flagship
Limited Term Tax Exempt Fund, included by reference in the Statement of
Additional Information and to the reference to us under the caption "Independent
Public Accountants and Custodians", in such Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, OH
January 24, 1997
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE FIGURES*
I. YIELD
A. Yield Formula
Yield is computed according the following formula:
6
YIELD = 2 [ ( A - B + 1) - 1]
-----
CD
Where:
A = dividends and interest(degrees) earned during the period.
B = expenses accrued for the period (net of reimbursements).
C = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
D = the maximum offering price per share on the last day of the period.
- --------
*The maximum sales charge in effect during the periods shown was 4.20%.
(degrees)Interest earned on tax-exempt obligations is determined as follows:
A. In the case of a tax-exempt obligation (1) with a current market premium
or (2) issued at a discount where the current market discount is less
than the then-remaining portion of the original issue discount, it is
necessary to first compute the yield to maturity (YTM). The YTM is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (plus accrued interest).
B. In the case of a tax-exempt obligation issued at a discount where the
current market discount is in excess of the then-remaining portion of the
original issue discount, the adjusted original issue discount basis of
the obligation (plus accrued interest) is used in lieu of the market
value of the obligation (plus accrued interest) in computing the yield to
maturity (YTM). The YTM is then divided by 360 and the quotient is multi-
plied by the adjusted original issue basis of the obligation (plus ac-
crued interest).
C. In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of inter-
est is used in lieu of the yield to maturity. The coupon rate is then di-
vided by 360 and the quotient is multiplied by the par value of the obli-
gation.
1
<PAGE>
B. Yield Calculations
1. Municipal Bond Fund
The following is the 30-day yield as of August 31, 1996, for the Class A
Shares of the Fund:
[$ 246,835.19 - $35,748.98] 6
Yield = 2[ ( ---------------------------- + 1 ) - 1 ]
[ 5,781,891.44 X $ 9.48]
= 4.67%
The following is a 30-day yield as of August 31, 1996, for the Class C
Shares of the Fund:
[$ 15,084.40 - $4,186.12] 6
Yield = 2[ ( ------------------------- + 1 ) - 1 ]
[ 353,368.24 X $ 9.08]
= 4.11%
The following is a 30-day yield as of August 31, 1996, for the Class R
Shares of the Fund:
[$ 13,200,893.74 - $1,328,046.69] 6
Yield = 2[ ( --------------------------------- + 1 ) - 1 ]
[ 309,104,915.57 X $ 9.08]
= 5.13%
2. Insured Municipal Bond Fund
The following is a 30-day yield as of August 31, 1996, for the Class A
Shares of the Fund:
[$ 261,029.43 - $42,169.35] 6
Yield = 2[ ( ---------------------------- + 1 ) - 1 ]
[ 5,291,604.01 X $ 11.12]
= 4.51%
The following is a 30-day yield as of August 31, 1996, for the Class C
Shares of the Fund:
[$ 23,866.12 - $7,081.64] 6
Yield = 2[ ( ------------------------- + 1 ) - 1 ]
[ 489,184.33 X $ 10.54]
= 3.94%
The following is a 30-day yield as of August 31, 1996, for the Class R
Shares of the Fund:
[$ 3,381,247.45 - $394,164.56] 6
Yield = 2[ ( ------------------------------ + 1 ) - 1 ]
[ 68,823,973.31 - $ 10.60]
= 4.96%
3. All-American Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,108,974.14 - $161,418.84] 6
Yield = 2[ ( ------------------------------ + 1 ) - 1 ]
[ 19,964,565.18 X $ 11.60]
= 4.96%
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 264,474.19 - $62,181.23] 6
Yield = 2[ ( ---------------------------- + 1 ) - 1 ]
[ 4,761,258.27 X $ 11.10]
= 4.64%
2
<PAGE>
4. Intermediate Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 225,271.06 - $31,231.68] 6
Yield = 2[ ( ---------------------------- + 1 ) - 1 ]
[ 4,421,747.06 X $ 10.98]
= 4.84%
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 10,671.96 - $ 2,496.24] 6
Yield = 2[ ( -------------------------- + 1 ) - 1 ]
[ 209,475.24 X $ 10.65]
= 4.44%
5. Limited Term Municipal Bond Fund
The following is a 30-day yield as of November 30, 1996, for the Class A
Shares of the Fund:
[$ 1,913,987.23 - $317,958.50] 6
Yield = 2[ ( ------------------------------ + 1 ) - 1 ]
[ 43,522,651.78 X $ 11.05]
= 4.02%
The following is a 30-day yield as of November 30, 1996, for the Class C
Shares of the Fund:
[$ 80,524.58 - $18,232.56] 6
Yield = 2[ ( ---------------------------- + 1 ) - 1 ]
[ 1,831,069.34 X $ 10.77]
= 3.82%
II. TAXABLE EQUIVALENT YIELD
A. Taxable Equivalent Yield Formula
The Taxable Equivalent Yield Formula is as follows:
Tax Exempt Yield
Taxable Equivalent Yield = ------------------------------------------------
(1 - combined federal and state income tax rate)
3
<PAGE>
Municipal Trust
B. Taxable Equivalent Yield Calculation
Based on combined federal and state income tax rates of 39.6% for Municipal
Bond, Insured Municipal Bond, All-American Municipal Bond, Intermediate Munici-
pal Bond, and Limited Term Municipal Bond, the Taxable Equivalent Yields for
the Class A Shares, Class C Shares and Class R Shares, where applicable, for
the 30-day period ended August 31, 1996 or November 30, 1996, where applicable,
are as follows:
Class A Shares Class C Shares Class R Shares
--------------- --------------- ---------------
Municipal Bond 4.67% 4.11% 5.13%
Fund: ------- = 7.73% ------- = 6.80% ------- = 8.49%
1 - 1 - 1 -
.396 .396 .396
Insured Munic- 4.51% 3.94% 4.96%
ipal ------- = 7.47% ------- = 6.52% ------- = 8.21%
Bond Fund: 1 - 1 - 1 -
.396 .396 .396
All-American 4.96% 4.64% N/A
Municipal ------- = 8.21% ------- = 7.68% ------- = N/A
Bond Fund: 1 - 1 - N/A
.396 .396
4.84% 4.44% N/A
Intermediate ------- = 8.01% ------- = 7.35% ------- = N/A
Municipal 1 - 1 - N/A
Bond Fund: .396 .396
Limited Term 4.02% 3.82% N/A
Municipal ------- = 6.66% ------- = 6.32% ------- = N/A
Bond Fund: 1 - 1 - N/A
.396 .396
III. DISTRIBUTION RATE
A. Distribution Rate Formula
The formula for calculation of distribution rate is as follows:
Distribution Rate = 12 X most recent tax-exempt income dividend per share
-----------------------------------------------------
share price
4
<PAGE>
B. Distribution Rate Calculations
1. Municipal Bond Fund:
The following is the distribution rate as of August 31, 1996, based on the
maximum public offering price for the Municipal Bond Fund:
Class A Distribution Rate = 12 X $.0385
-----------
$9.48
= 4.87%
Class C Distribution Rate = 12 X $.0330
-----------
$9.08
= 4.36%
Class R Distribution Rate = 12 X $.0405
-----------
$9.08
= 5.35%
2. Insured Municipal Bond Fund:
The following is the distribution rate as of August 31, 1996, based on the
maximum public offering price for the Insured Municipal Bond Fund:
Class A Distribution Rate = 12 X $.0445
-----------
$11.12
= 4.80%
Class C Distribution Rate = 12 X $.0375
-----------
$10.54
= 4.27%
Class R Distribution Rate = 12 X $.0465
-----------
$10.60
= 5.26%
3. All-American Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the All-American Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04909
------------
$11.60
= 5.08%
Class C Distribution Rate = 12 X $.04418
------------
$11.10
= 4.78%
5
<PAGE>
4. Intermediate Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Intermediate Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04213
------------
$10.98
= 4.60%
Class C Distribution Rate = 12 X $.03737
------------
$10.65
= 4.21%
5. Limited Term Municipal Bond Fund:
The following is the distribution rate as of November 30, 1996, based on the
maximum public offering price for the Limited Term Municipal Bond Fund:
Class A Distribution Rate = 12 X $.04082
------------
$11.05
= 4.43%
Class C Distribution Rate = 12 X $.03819
------------
$10.77
= 4.26%
IV. AVERAGE ANNUAL TOTAL RETURN
A. Average Annual Total Return Formula
Average Annual Total Return is computed according to the following formula:
ERV /1/N/
T = --- -1
P
Where: T = average annual total return.
P = a hypothetical initial payment of $1,000.
N = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10-year (or fractional portion thereof)
periods at the end of such 1, 5 or 10-year (or fractional portion
thereof) periods.
B. Average Annual Total Return Calculations
The following are the average annual total returns for Class A Shares of the
Funds for the period from inception and the 1, 5 and 10-year periods ended Au-
gust 31, 1996 or November 30, 1996, whichever applicable, including the current
maximum sales charge. Class A total returns reflect actual performance for pe-
riods since class inception and Class R performance for periods prior to class
inception, adjusted for the differences in sales charges and fees between the
classes.
6
<PAGE>
ANNUALIZED CLASS A TOTAL RETURNS including current maximum sales charges of
4.20%:
1. Municipal Bond Fund:
$1,998 /1///1/
A. 1 year ended August 31, 1996 = ------- -1 = 0.84%
( $1,000 ) ----
----
$1,312 /1///5/
B. 5 years ended August 31, 1996 = ------- -1 = 5.58%
( $1,000 ) ----
----
/1///1//0/
C. 10 years ended August 31, 1996= $1,910 -1 = 6.69%
( ------- ) ----
$1,000 ----
D. Inception through August 31, 1996 $3,602 /1///1//9/./7//5//4/
=
------- -1 = 6.70%
( $1,000 ) ----
----
2. Insured Municipal Bond Fund:
$1,011 /1///1/
A. 1 year ended August 31, 1996 = ------- -1 = 1.05%
( $1,000 ) ----
----
/1///5/
B. 5 years ended August 31, 1996 = $1,370 -1 = 6.49%
( ------- ) ----
$1,000 ----
C. Inception through August 31, 1996 $1,933 /1///9/./6//9//2/
=
------- -1 = 7.04%
( $1,000 ) ----
----
3. All-American Municipal Bond Fund:
$1,019 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 1.88%
( $1,000 ) ----
----
$1,440 /1///5/
B. 5 years ended November 30, 1996 -------
= -1 = 7.57%
( $1,000 ) ----
----
C. Inception through November 30, 1996$1,924 /1///8/./1//5//8//8/
=
( ------- ) -1 = 8.35%
$1,000 ----
----
4. Intermediate Municipal Bond Fund:
$1,027 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 2.65%
( $1,000 ) -----
-----
$1,315 /1///4/./2//0//8//1/
B. Inception through November 30, 1996-------
= -1 = 6.72%
( $1,000 ) -----
-----
5. Limited Term Municipal Bond Fund:
/1///1/
A. 1 year ended November 30, 1996= $1,023 -1 = 2.27%
( ------- ) ----
$1,000 ----
B. 5 years ended November 30, 1996 $1,322 /1///5/
=
------- -1 = 5.75%
( $1,000 ) ----
----
$1,787 /1///9/./1//1//7/
C. Inception through November 30, 1996-------
= -1 = 6.57%
( $1,000 ) ----
----
7
<PAGE>
ANNUALIZED CLASS B TOTAL RETURNS:
1. Municipal Bond Fund:
$1,004 /1/1/
A. 1 year ended August 31, 1996 = ( ------- ) -1 = 0.43%
$1,000 ====
$1,313 /1/5/
B. 5 years ended August 31, 1996 = ( ------- ) -1 = 5.59%
$1,000 ====
$1,889 /1/10/
C. 10 years ended August 31, 1996 = ( ------- ) -1 = 6.57%
$1,000 ====
$3,562 /1/19.754/
D. Inception through August 31, 1996 = ( ------- ) -1 = 6.64%
$1,000 ====
2. Insured Municipal Bond Fund:
$1,006 /1/1/
A. 1 year ended August 31, 1996 = ( ------- ) -1 = 0.64%
$1,000 ====
$1,366 /1/5/
B. 5 years ended August 31, 1996 = ( ------- ) -1 = 6.43%
$1,000 ====
$1,907 /1/9.692/
D. Inception through August 31, 1996 = ( ------- ) -1 = 6.89%
$1,000 ====
3. All-American Municipal Bond Fund:
$1,018 /1/1/
A. 1 year ended November 30, 1996 = ( ------- ) -1 = 1.77%
$1,000 ====
$1,453 /1/5/
B. 5 years ended November 30, 1996 = ( ------- ) -1 = 7.76%
$1,000 ====
$1,923 /1/8.1588/
C. Inception through November 30, 1996 = ( ------- ) -1 = 8.34%
$1,000 ====
ANNUALIZED CLASS C TOTAL RETURNS:
1. Municipal Bond Fund:
$1,045 /1/1/
A. 1 year ended August 31, 1996 = ( ------- ) -1 = 4.52%
$1,000 ====
B. 5 years ended August 31, 1996 = $1,320 /1/5/
( ------- ) -1 = 5.70%
$1,000 ====
$1,856 /1/10/
C. 10 years ended August 31, 1996 = ( ------- ) -1 = 6.38%
$1,000 ====
$3,251 /1/19.754/
D. Inception through August 31, 1996 = ( ------- ) -1 = 6.15%
$1,000 ====
8
<PAGE>
2. Insured Municipal Bond Fund:
$1,047 /1///1/
A. 1 year ended August 31, 1996 = ------- -1 = 4.72%
( $1,000 ) ----
----
$1,368 /1///5/
B. 5 years ended August 31, 1996 = ------- -1 = 6.47%
( $1,000 ) ----
----
/1///9/./6//9//2/
C. Inception through August 31, 1996 $1,866
= -1 = 6.65%
( ------- ) ----
$1,000 ----
3. All-American Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,058 /1///1/
------- -1 = 5.77%
( $1,000 ) -----
-----
$1,459 /1///5/
B. 5 years ended November 30, 1996 -------
= -1 = 7.85%
( $1,000 ) -----
-----
/1///8/./1//5//8//8/
C. Inception through November 30, 1996$1,916
= -1 = 8.30%
( ------- ) -----
$1,000 -----
4. Intermediate Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,049 /1///1/
------- -1 = 4.93%
( $1,000 ) -----
-----
$1,320 /1///4/./2//0//8//1/
B. Inception through November 30, 1996-------
= -1 = 6.82%
( $1,000 ) -----
-----
5. Limited Term Municipal Bond Fund:
$1,046 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 4.55%
( $1,000 ) -----
-----
B. 5 years ended November 30, 1996 $1,336 /1///5/
=
( ------- ) -1 = 5.96%
$1,000 -----
-----
$1,783 /1///9/./1//1//7/
C. Inception through November 30, 1996-------
= -1 = 6.55%
( $1,000 ) -----
-----
ANNUALIZED CLASS R TOTAL RETURNS:
1. Municipal Bond Fund:
$1,054 /1///1/
A. 1 year ended August 31, 1996 = ------- -1 = 5.42%
( $1,000 ) ----
----
/1///5/
B. 5 years ended August 31, 1996 = $1,387 -1 = 6.76%
( ------- ) ----
$1,000 ----
C. 10 years ended August 31, 1996= $2,044 /1///1//0/
------- -1 = 7.41%
( $1,000 ) ----
----
$3,948 /1///1//9/./7//5//4/
D. Inception through August 31, 1996 -------
= -1 = 7.20%
( $1,000 ) ----
----
9
<PAGE>
2. Insured Municipal Bond Fund:
$1,056 /1///1/
A. 1 year ended August 31, 1996 = ------- -1 = 5.64%
( $1,000 ) ----
----
$1,442 /1///5/
B. 5 years ended August 31, 1996 = ------- -1 = 7.60%
( $1,000 ) ----
----
/1///9/./6//9//2/
C. Inception through August 31, 1996 $2,060
= -1 = 7.74%
( ------- ) ----
$1,000 ----
3. All-American Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,064 /1///1/
------- -1 = 6.35%
( $1,000 ) -----
-----
$1,503 /1///5/
B. 5 years ended November 30, 1996 -------
= -1 = 8.50%
( $1,000 ) -----
-----
/1///8/./1//5//8//8/
C. Inception through November 30, 1996$2,009
= -1 = 8.93%
( ------- ) -----
$1,000 -----
4. Intermediate Municipal Bond Fund:
A. 1 year ended November 30, 1996= $1,058 /1///1/
------- -1 = 5.83%
( $1,000 ) -----
-----
$1,355 /1///4/./2//0//8//1/
B. Inception through November 30, 1996-------
= -1 = 7.49%
( $1,000 ) -----
-----
5. Limited Term Municipal Bond Fund:
$1,049 /1///1/
A. 1 year ended November 30, 1996= ------- -1 = 4.89%
( $1,000 ) -----
-----
B. 5 years ended November 30, 1996 $1,356 /1///5/
=
( ------- ) -1 = 6.28%
$1,000 -----
-----
$1,833 /1///9/./1//1//7/
C. Inception through November 30, 1996-------
= -1 = 6.87%
( $1,000 ) -----
-----
V. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
ERV - P
T -------
= P
Where: T = cumulative total return.
P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
inception of the Fund or at the first day of a specified 1-year, 5-
year or 10-year period.
B. Cumulative Total Return Calculation
The following are the cumulative total returns for the Class Shares of the
Funds for the periods from inception and for the one, five and 10-year period
ended August 31, 1996 or November 30, 1996 whichever applicable, assuming no
imposition of sales charges. Class total returns reflect actual performance
for the periods since class inception and Class R performance for periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes.
10
<PAGE>
CUMULATIVE CLASS A TOTAL RETURNS including current maximum sales charge of
4.20%:
1. Municipal Bond Fund:
$1,008 - $1,000
A. 1 year ended August 31, 1996 = ---------------- = 0.84%
( $1,000 ) ----
----
$1,312 - $1,000
B. 5 years ended August 31, 1996 = ---------------- = 31.18%
( $1,000 ) ------
------
C. 10 years ended August 31, 1996 = $1,910 - $1,000 = 91.02%
---------------- ------
( $1,000 ) ------
$3,602 - $1,000
D. Inception through August 31, 1996 = ----------------
( $1,000 ) = 260.15%
------
------
2. Insured Municipal Bond Fund:
A. 1 year ended August 31, 1996 = $1,011 - $1,000 = 1.05%
---------------- ----
( $1,000 ) ----
$1,370 - $1,000
B. 5 years ended August 31, 1996 = ---------------- = 36.99%
( $1,000 ) ------
------
$1,933 - $1,000
C. Inception through August 31, 1996 = ----------------
( $1,000 ) = 93.31%
------
------
3. All-American Municipal Bond Fund:
A. 1 year ended November 30, 1996 = $1,019 - $1,000 = 1.88%
---------------- ----
( $1,000 ) ----
$1,440 - $1,000
B. 5 years ended November 30, 1996 = ----------------
( $1,000 ) = 44.03%
------
------
C. Inception through November 30, 1996 = $1,924 - $1,000
---------------- = 92.44%
( $1,000 ) ------
------
4. Intermediate Municipal Bond Fund:
$1,027 - $1,000
A. 1 year ended November 30, 1996 = ----------------
( $1,000 ) = 2.65%
-----
-----
B. Inception through November 30, 1996 = $1,315 - $1,000
----------------
( $1,000 ) = 31.46%
------
------
5. Limited Term Municipal Bond Fund:
$1,023 - $1,000
A. 1 year ended November 30, 1996 = ----------------
( $1,000 ) = 2.27%
----
----
$1,322 - $1,000
B. 5 years ended November 30, 1996 = ----------------
( $1,000 ) = 32.24%
------
<PAGE>
------
C. Inception through November 30, 1996
= $1,787 - $1,000
----------------
( $1,000 ) = 78.69%
------
------
11
<PAGE>
CUMULATIVE CLASS B TOTAL RETURNS:
1. Municipal Bond Fund:
$1,004 - $1,000
A. 1 year ended August 31, 1996 = ( --------------- ) = 4.43%
$1,000 =====
$1,313 - $1,000
B. 5 years ended August 31, 1996 = ( --------------- ) = 31.26%
$1,000 ======
$1,889 - $1,000
C. 10 years ended August 31, 1996 = ( --------------- ) = 88.90%
$1,000 ======
$3,562 - $1,000
D. Inception through August 31, 1996 = ( --------------- ) = 256.16%
$1,000 =======
2. Insured Municipal Bond Fund:
$1,006 - $1,000
A. 1 year ended August 31, 1996 = ( --------------- ) = 0.64%
$1,000 =====
$1,366 - $1,000
B. 5 years ended August 31, 1996 = ( --------------- ) = 36.57%
$1,000 ======
$1,907 - $1,000
D. Inception through August 31, 1996 = ( --------------- ) = 90.70%
$1,000 ======
3. All-American Municipal Bond Fund:
$1,018 - $1,000
A. 1 year ended November 30, 1996 = ( --------------- ) = 1.77%
$1,000 =====
$1,453 - $1,000
B. 5 years ended November 30, 1996 = ( --------------- ) = 45.30%
$1,000 ======
$1,923 - $1,000
C. Inception through November 30, 1996 = ( --------------- ) = 92.28%
$1,000 ======
CUMULATIVE CLASS C TOTAL RETURNS:
1. Municipal Bond Fund:
$1,045 - $1,000
A. 1 year ended August 31, 1996 = ( --------------- ) = 4.52%
$1,000 =====
$1,320 - $1,000
B. 5 years ended August 31, 1996 = ( --------------- ) = 31.97%
$1,000 ======
$1,856 - $1,000
C. 10 years ended August 31, 1996 = ( --------------- ) = 85.57%
$1,000 ======
$3,251 - $1,000
D. Inception through August 31, 1996 = ( --------------- ) = 225.25%
$1,000 =======
2. Insured Municipal Bond Fund:
$1,047 - $1,000
A. 1 year ended August 31, 1996 = ( --------------- ) = 4.72%
$1,000 =====
$1,368 - $1,000
B. 5 years ended August 31, 1996 = ( --------------- ) = 36.84%
$1,000 ======
$1,866 - $1,000
C. Inception through August 31, 1996 = ( --------------- ) = 86.56%
$1,000 ======
12
<PAGE>
3. All-American Municipal Bond Fund:
$1,058 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 5.77%
$1,000 =====
$1,459 - $1,000
B. 5 years ended November 30, 1996 = (-----------------) = 45.91%
$1,000 ======
$1,916 - $1,000
C. Inception through November 30, 1996 = (-----------------) = 91.60%
$1,000 ======
4. Intermediate Municipal Bond Fund:
$1,049 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 4.93%
$1,000 =====
$1,320 - $1,000
B. Inception through November 30, 1996 = (-----------------) = 32.01%
$1,000 ======
5. Limited Term Municipal Bond Fund:
$1,046 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 4.55%
$1,000 =====
$1,336 - $1,000
B. 5 years ended November 30, 1996 = (-----------------) = 33.58%
$1,000 ======
$1,783 - $1,000
C. Inception through November 30, 1996 = (-----------------) = 78.28%
$1,000 ======
CUMULATIVE CLASS R TOTAL RETURNS:
1. Municipal Bond Fund:
$1,054 - $1,000
A. 1 year ended August 31, 1996 = (-----------------) = 5.42%
$1,000 =====
B. 5 years ended August 31, 1996 = $1,387 - $1,000
(-----------------) = 38.69%
$1,000 ======
$2,044 - $1,000
C. 10 years ended August 31, 1996 = (-----------------) = 104.42%
$1,000 =======
D. Inception through August 31, 1996 = $3,948 - $1,000
(----------------) = 294.78%
$1,000 =======
2. Insured Municipal Bond Fund:
$1,056 - $1,000
A. 1 year ended August 31, 1996 = (-----------------) = 5.64%
$1,000 =====
$1,442 - $1,000
B. 5 years ended August 31, 1996 = (-----------------) = 44.24%
$1,000 ======
C. Inception through August 31, 1996 = $2,060 - $1,000
(-----------------) = 105.97%
$1,000 =======
3. All-American Municipal Bond Fund:
$1,064 - $1,000
A. 1 year ended November 30, 1996 = (-----------------) = 6.35%
$1,000 =====
B. 5 years ended November 30, 1996 = $1,503 - $1,000
(-----------------) = 50.35%
$1,000 ======
$2,009 - $1,000
C. Inception through November 30, 1996 = (-----------------) = 100.88%
$1,000 =======
13
<PAGE>
4. Intermediate Municipal Bond Fund:
$1,058 - $1,000
A. 1 year ended November 30, 1996 = (---------------) = 5.83%
$1,000 =====
$1,355 - $1,000
B. Inception through November 30, 1996 = (---------------) = 35.52%
$1,000 ======
5. Limited Term Municipal Bond Fund:
$1,050 - $1,000
A. 1 year ended November 30, 1996 = (---------------) = 4.98%
$1,000 =====
$1,356 - $1,000
B. 5 years ended November 30, 1996 = (---------------) = 35.63%
$1,000 ======
$1,833 - $1,000
C. Inception through November 30, 1996 = (---------------) = 83.27%
$1,000 ======
VI. TAXABLE EQUIVALENT TOTAL RETURN
A. Taxable Equivalent Total Return Formula
Each Fund's ratable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in the Fund's
shares on the first day of the period, computing the Fund's total return for
each fiscal year in the period according to the above formula, and increasing
the total return for each such fiscal year by the amount of additional income
that a taxable fund would need to have generated to equal the income of the Fund
on an after-tax basis, at a specified tax rate (usually the highest marginal
federal or combined federal and state tax rate), calculated pursuant to the
formula presented above under "taxable equivalent yield." The resulting amount
for the fiscal year is then divided by the initial investment amount to arrive
at a "taxable equivalent total return factor" for the fiscal year. The taxable
equivalent total return factors for all the fiscal years in the period are then
multiplied together and the result is then annualized by taking its Nth root (N
representing the number of years in the period) and subtracting 1, which
provides a taxable equivalent total return expressed as a percentage.
B. Taxable Equivalent Total Return Calculations
The taxable equivalent total return calculations for the Class R Shares of
the Municipal Bond Fund for the 10-year period ended August 31, 1996 are set
forth on the following pages assuming a combined federal and state income tax
rate of 39.6% based on 1997 rates.
14
<PAGE>
Fund Name: Nuveen Muni Bond Fund Class R
Since 08/31/86
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/86 9.06 .05215 1,104 $ 10,000
9/30/86 8.78 .05184 .2120 $57.219 $233.996 $291.214 $ 57.219 1,137 $ 9,982
10/31/86 8.90 .05043 $57.335 $ 57.335 $ 114.553 1,143 $ 10,176
11/30/86 9.03 .05032 $57.534 $ 57.534 $ 172.087 1,150 $ 10,382
12/31/86 8.96 .05003 $57.521 $ 57.521 $ 229.609 1,156 $ 10,359
1/31/87 9.08 .05027 $58.120 $ 58.120 $ 287.729 1,163 $ 10,556
2/28/87 9.11 .05066 $58.895 $ 58.895 $ 346.624 1,169 $ 10,650
3/31/87 9.01 .04934 $57.679 $ 57.679 $ 404.303 1,175 $ 10,591
4/30/87 8.55 .04985 $58.595 $ 58.595 $ 462.898 1,182 $ 10,108
5/31/87 8.36 .04950 $58.523 $ 58.523 $ 521.420 1,189 $ 9,942
6/30/87 8.51 .04968 $59,083 $ 59.083 $ 580.504 1,196 $ 10,180
7/31/87 8.52 .04963 $59.368 $ 59.368 $ 639.872 1,203 $ 10,251
8/31/87 8.53 .04913 $59.113 $ 59.113 $ 698.984 $458.2 1,264 $ 10,781
9/30/87 8.02 .04985 .1465 $63.002 $185.153 $248.115 $ 63.002 1,295 $ 10,384
10/31/87 8.00 .04951 $64.105 $ 64.105 $ 127.107 1,303 $ 10,422
11/30/87 8.20 .04960 $64.619 $ 64.619 $ 191.726 1,311 $ 10,748
12/31/87 8.38 .04900 $64.223 $ 64.223 $ 255.949 1,318 $ 11,048
1/31/88 8.57 .04949 $65.245 $ 65.245 $ 321.194 1,326 $ 11,363
2/28/88 8.62 .04972 $65.926 $ 65.926 $ 387.120 1,334 $ 11,496
3/31/88 8.42 .04969 $66.267 $ 66.267 $ 453.387 1,341 $ 11,295
4/30/88 8.40 .04953 $66.443 $ 66.443 $ 519.830 1,349 $ 11,335
5/31/88 8.39 .04979 $67.186 $ 67.186 $ 587.015 1,357 $ 11,388
6/30/88 8.47 .04989 $67.720 $ 67.720 $ 654.736 1,365 $ 11,565
7/31/88 8.48 .04977 $67.955 $ 67.955 $ 722.691 1,373 $ 11,646
8/31/88 8.45 .05000 $68.670 $ 68.670 $ 791.361 $518.8 1,443 $ 12,193
9/30/88 8.52 .05036 .0360 $72.666 $ 51.945 $124.611 $ 72.666 1,458 $ 12,418
10/31/88 8.65 .04966 $72.382 $ 72.382 $ 145.048 1,466 $ 12,680
11/30/88 8.54 .04997 $73.252 $ 73.252 $ 218.300 1,474 $ 12,592
12/31/88 8.59 .04949 $72.973 $ 72.973 $ 291.273 1,483 $ 12,739
1/31/89 8.75 .04982 $73.883 $ 73.883 $ 365.155 1,491 $ 13,050
2/28/89 8.60 .05035 $75.094 $ 75.094 $ 440.249 1,500 $ 12,901
3/31/89 8.53 .04987 $74.813 $ 74.813 $ 515.062 1,509 $ 12,871
4/30/89 8.74 .04975 $75.070 $ 75.070 $ 590.132 1,518 $ 13,263
5/31/89 8.86 .04919 $74.647 $ 74.647 $ 664.779 1,526 $ 13,520
6/30/89 8.89 .04932 $75.260 $ 75.260 $ 740.039 1,534 $ 13,641
7/31/89 8.94 .05008 $76.844 $ 76.844 $ 816.883 1,543 $ 13,795
8/31/89 8.83 .05007 $77.259 $ 77.259 $ 894.142 $586.2 1,618 $ 14,288
9/30/89 8.73 .04950 .0290 $80.099 $ 46.926 $127.025 $ 80.099 1,633 $ 14,254
10/31/89 8.78 .04972 $81.178 $ 81.178 $ 161.277 1,642 $ 14,416
11/30/89 8.84 .04969 $81.588 $ 81.588 $ 242.865 1,651 $ 14,596
12/31/89 8.87 .04953 $81.783 $ 81.783 $ 324.648 1,660 $ 14,728
1/31/90 8.76 .04970 $82.522 $ 82.522 $ 407.170 1,670 $ 14,628 8.76
2/28/90 8.77 .04970 $82.990 $ 82.990 $ 490.160 1,679 $ 14,727 8.77
3/31/90 8.74 .04970 $83.460 $ 83.460 $ 573.620 1,689 $ 14,760 8.74
4/30/90 8.63 .04970 $83.935 $ 83.935 $ 657.555 1,699 $ 14,659 8.63
5/31/90 8.76 .04970 $84.418 $ 84.418 $ 741.974 1,708 $ 14,964 8.78
6/30/90 8.79 .04970 $84.896 $ 84.896 $ 826.870 1,718 $ 15,100 8.80
7/31/90 8.84 .04970 $85.376 $ 85.376 $ 912.245 1,727 $ 15,271 8.85
8/31/90 8.68 .04970 $85.855 $ 85.855 $ 998.100 $654.3 1,813 $ 15,735 8.69
9/30/90 8.65 .04970 $90.093 $ 90.093 $ 90.093 1,823 $ 15,770 8.67
10/31/90 8.70 .04970 $90.609 $ 90.609 $ 180.702 1,834 $ 15,952 8.72
11/30/90 8.80 .04970 $91.126 $ 91.126 $ 271.828 1,844 $ 16,226 8.82
12/31/90 8.77 .04970 .0384 $91.639 $ 70.804 $162.443 $ 363.468 1,862 $ 16,333 8.77
1/31/91 8.84 .04970 $92.560 $ 92.560 $ 456.028 1,873 $ 16,556 8.87
2/28/91 8.85 .04970 $93.079 $ 93.079 $ 549.106 1,883 $ 16,667 8.85
3/31/91 8.83 .04870 $91.718 $ 91.718 $ 640.824 1,894 $ 16,721 8.83
4/30/91 8.90 .04870 $92.224 $ 92.224 $ 733.048 1,904 $ 16,946 8.91
5/31/91 8.94 .04870 $92.728 $ 92.728 $ 825.776 1,914 $ 17,115 8.93
6/30/91 8.89 .04870 $93.234 $ 93.234 $ 919.009 1,925 $ 17,113 8.89
7/31/91 8.95 .04870 $93.744 $ 93.744 $1,012.754 1,935 $ 17,322 8.95
8/31/91 8.99 .04870 $94.254 $ 94.254 $1,107.008 $725.7 2,027 $ 18,219 8.99
9/30/91 9.04 .04870 $98.697 $ 98.697 $ 98.697 2,038 $ 18,419 9.04
10/31/91 9.07 .04770 $97.191 $ 97.191 $ 195.888 2,048 $ 18,578 9.08
11/30/91 9.04 .04770 $97.701 $ 97.701 $ 293.589 2,059 $ 18,614 9.04
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/91 9.11 .04770 .0398 $ 98.217 $ 81.950 $180.167 $ 391.806 2,079 $18,938 9.11
1/31/92 9.09 .04770 $ 99.160 $ 99.160 $ 490.966 2,090 $18,996 9.09
2/29/92 9.08 .04700 $ 99.681 $ 99.681 $ 590.647 2,101 $19,075 9.08
3/31/92 9.05 .04770 $100.204 $100.204 $ 690.851 2,112 $19,112 9.06
4/30/92 9.09 .04700 $ 99.254 $ 99.254 $ 790.105 2,123 $19,295 9.10
5/31/92 9.13 .04700 $ 99.766 $ 99.766 $ 889.871 2,134 $19,480 9.13
6/30/92 9.22 .04700 $100.280 $100.280 $ 990.151 2,144 $19,772 9.23
7/31/92 9.39 .04700 $100.790 $100.790 $1,090.941 2,155 $20,238 9.37
8/31/92 9.27 .04400 $ 94.830 $ 94.830 $1,185,772 $ 777.4 2,249 $20,851 9.28
9/30/92 9.28 .04400 $ 98.970 $ 98.970 $ 98.970 2,260 $20,973 9.29
10/31/92 9.10 .04400 .0519 $ 99.439 $117.293 $216.731 $ 198.409 2,284 $20,782 9.10
11/30/92 9.22 .04400 $100.487 $100.487 $ 298.895 2,295 $21,157 9.22
12/31/92 9.25 .04400 .0030 $100.966 $ 6.884 $107.850 $ 399.862 2,306 $21,334 9.25
1/31/93 9.29 .04400 $101.479 $101.479 $ 501.341 2,317 $21,527 9.29
2/28/93 9.45 .04400 $101.960 $101.960 $ 603.301 2,328 $22,000 9.46
3/31/93 9.37 .04400 $102.434 $102.434 $ 705.735 2,339 $21,916 9.37
4/30/93 9.41 .04300 $100.576 $100.576 $ 806.311 2,350 $22,110 9.42
5/31/93 9.40 .04300 $101.035 $101.035 $ 907.346 2,360 $22,188 9.41
6/30/93 9.46 .04300 $101.497 $101.497 $1,008.843 2,371 $22,431 9.47
7/31/93 9.43 .04300 $101.958 $101.958 $1,110.801 2,382 $22,461 9.44
8/31/93 9.52 .04300 $102.422 $102.422 $1,213.223 $ 795.4 2,476 $23,574 9.52
9/30/93 9.53 .04300 $106.478 $106.478 $ 106.478 2,487 $23,705 9.53
10/31/93 9.43 .04300 .0812 $106.958 $201.977 $308.935 $ 213.436 2,520 $23,765 9.43
11/30/93 9.36 .04300 $108.367 $108.367 $ 321.802 2,532 $23,697 9.37
12/31/93 9.41 .04300 .0166 $108.864 $ 42.027 $150.891 $ 430.667 2,548 $23,974 9.41
1/31/94 9.45 .04300 $109.554 $109.554 $ 540.220 2,559 $24,186 9.45
2/28/94 9.28 .04200 $107.493 $107.493 $ 647.713 2,571 $23,858 9.27
3/31/94 8.99 .04200 $107.980 $107.980 $ 755.693 2,583 $23,222 8.90
4/30/94 9.00 .04200 $108.489 $108.489 $ 864.182 2,595 $23,356 8.98
5/31/94 9.03 .04200 $108.997 $108.997 $ 973.179 2,607 $23,543 9.02
6/30/94 8.96 .04200 $109.504 $109.504 $1,082.683 2,619 $23,470 8.97
7/31/94 9.03 .04200 $110.017 $110.017 $1,192.700 2,632 $23,764 9.04
8/31/94 9.01 .04300 $113.160 $113.160 $1,305.860 $ 556.1 2,739 $24,680 9.02
9/30/94 8.89 .04300 $117.785 $117.785 $ 117.785 2,752 $24,469 8.89
10/31/94 8.70 .04300 .0492 $118.355 $135.420 $253.775 $ 236.140 2,782 $24,201 8.67
11/30/94 8.53 .04300 $119.614 $119.614 $ 355.754 2,796 $23,847 8.56
12/31/94 8.65 .04300 .0259 $120.214 $ 72.408 $192.623 $ 475.968 2,818 $24,375 8.65
1/31/95 8.81 .04300 $121.172 $121.172 $ 597.140 2,832 $24,947 8.85
2/28/95 9.00 .04300 $121.761 $121.761 $ 718.901 2,845 $25,606 9.03
3/31/95 9.01 .04300 $122.341 $122.341 $ 841.241 2,859 $25,757 9.03
4/30/95 8.99 .04300 $122.923 $122.923 $ 964.164 2,872 $25,822 8.99
5/31/95 9.21 .04300 $123.511 $123.511 $1,087.675 2,886 $26,578 9.21
6/30/95 9.08 .04300 $124.088 $124.088 $1,211.763 2,899 $26,327 9.08
7/31/95 9.08 .04300 $124.675 $124.675 $1,336.438 2,913 $26,452 9.06
8/31/95 9.12 .04300 $125.267 $125.267 $1,461.706 $ 958.3 3,032 $27,651 9.16
9/30/95 9.13 .04300 $130.374 $130.374 $ 130.374 3,046 $27,811 9.17
10/31/95 9.23 .04300 $130.985 $130.985 $ 261.359 3,060 $28,247 9.26
11/30/95 9.33 .04300 .0272 $131.593 $ 83.240 $214.834 $ 392.952 3,083 $28,767 9.36
12/31/95 9.40 .04150 $127.955 $127.955 $ 520.907 3,097 $29,111 9.40
1/31/96 9.38 .04150 $128.520 $128.520 $ 649.427 3,111 $29,177 9.38
2/29/96 9.28 .04150 $129.089 $129.089 $ 778.516 3,124 $28,995 9.33
3/31/96 9.12 .04150 $129.663 $129.663 $ 908.179 3,139 $28,624 9.13
4/30/96 9.04 .04150 $130.252 $130.252 $1,038.431 3,153 $28,503 9.05
5/31/96 9.02 .04150 $130.850 $130.850 $1,169.281 3,168 $28,571 9.01
6/30/96 9.07 .04150 $131.452 $131.452 $1,300.733 3,182 $28,861 9.07
7/31/96 9.13 .04050 $128.872 $128.872 $1,429.605 3,196 $29,180 9.17
8/31/96 9.08 .04050 $129.441 $129.441 $1,559.046 $1,022.1 3,323 $30,172 9.07
Tax Rate 39.60%
Load 0.00%
Past Year: Total Return 9.12%
10.0014 Years: Total Re-
turn 201.72%
Annualized 11.67%
</TABLE>
16
