<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OR ABOUT MAY 27, 1998
REGISTRATION NOS. 333-
811-07873
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment
No. [ ]
Post-Effective Amendment
No. [ ]
NUVEEN FLAGSHIP MUNICIPAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
333 West Wacker Drive
Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 917-7700
Copy to:
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GIFFORD R. ZIMMERMAN DAVID A. STURMS
JOHN NUVEEN & CO. INCORPORATED VEDDER, PRICE, KAUFMAN & KAMMHOLZ
333 WEST WACKER DRIVE 222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60601
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
this Registration Statement becomes effective.
----------------
It is proposed that this filing will become effective on June 26, 1998
pursuant to Rule 488.
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<PAGE> 2
NUVEEN FLAGSHIP MUNICIPAL TRUST
CROSS-REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
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FORM N-14
ITEM NO. PROSPECTUS/PROXY
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Item 1. Beginning of Registration Statement and
Outside Front Cover Page of
Prospectus/Proxy Statement.............. Outside front cover page of Prospectus/Proxy
Statement
Item 2. Beginning and Outside Back Cover Page of
Prospectus/Proxy Statement.............. Outside back cover page of Prospectus/Proxy Statement
Item 3. Fee Table, Synopsis Information and Risk
Factors................................. Summary; Risk Factors
Item 4. Information about the Transaction....... Summary; The Proposed Reorganization
Item 5. Information about the Registrant........ Outside front cover page of Prospectus/Proxy
Statement; Summary; The Proposed Reorganization;
Other Information; Exhibit A; Prospectus and
Statement of Additional Information of the
Intermediate Fund (incorporated by reference)
Item 6. Information about the Company Being
Acquired................................ Outside front cover page of Prospectus/Proxy
Statement; Summary; Exhibit A; Prospectus and
Statement of Additional Information of the Florida
Intermediate Fund (incorporated by reference)
Item 7. Voting Information...................... Other Information; Voting Information and
Requirements
Item 8. Interest of Certain Persons and
Experts................................. Summary; The Proposed Reorganization
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters............................ Not applicable
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PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Table of Contents
Item 12. Additional Information about the
Registrant.............................. Additional Information about the Intermediate Fund;
Incorporation of Documents by Reference
Item 13. Additional Information about the Company
Being Acquired.......................... Additional Information about the Florida Intermediate
Fund; Incorporation of Documents by Reference
Item 14. Financial Statements.................... Financial Statements; Incorporation of Documents by
Reference
</TABLE>
PART C OTHER INFORMATION
Items 15-17. Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
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* References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE> 3
IMPORTANT INFORMATION FOR
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
Your Nuveen Flagship Fund will host a Joint Special Meeting of Shareholders on
Thursday, August 13, 1998, at our headquarters in Chicago, Illinois. The purpose
is to vote on an important proposal affecting your fund.
The first few pages of this booklet summarize Nuveen's proposal and explain the
proxy process -- including how to cast your votes. Before you vote, please read
the full text of the proxy statement for a complete understanding of the
proposal.
Q. WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL
SHAREHOLDER MEETING ON AUGUST 13?
A. The Board of Trustees for the Nuveen Flagship Florida Intermediate Municipal
Bond Fund (the "Florida Intermediate Fund") has called a Special Shareholder
Meeting for August 13, 1998 at which you will be asked to vote on a
reorganization (the "Reorganization") of your fund into the Nuveen Flagship
Intermediate Municipal Bond Fund (the "Intermediate Fund").
Q. ARE THERE ANY DIFFERENCES BETWEEN THE FUNDS?
A. The Intermediate Fund is substantially the same as the Florida Intermediate
Fund in its philosophy, investment objectives and policies and day-to-day
portfolio management except that the Intermediate Fund invests in municipal
bonds issued nationwide and so does not invest substantially all of its
assets in municipal bonds exempt from both regular federal as well as the
Florida state intangibles tax. In evaluating the Reorganization, Florida
Intermediate Fund shareholders should consider the impact of losing the
exemption from the Florida state intangibles tax.
Q. WHAT ADVANTAGES WILL THIS PRODUCE FOR FUND SHAREHOLDERS?
A. We expect the proposed Reorganization to (i) lower gross operating expenses
as a percentage of net assets due to the Intermediate Fund's larger net
assets and greater economies of scale; (ii) improve portfolio
diversification; (iii) lower portfolio transaction costs; and (iv) retain an
intermediate term investment focus. The Board believes that these potential
benefits, together with the potentially higher distributions from the
Intermediate Fund, should offset the loss of the exemption from the Florida
state intangibles tax.
Q. HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSAL?
A. The Board of Trustees of the Florida Intermediate Fund has unanimously agreed
that this Reorganization is in your best interests and recommends that you
vote in favor of it.
Q. WHAT IS THE TIMETABLE FOR THE REORGANIZATION?
A. Effective May 8, 1998, the Florida Intermediate Fund was closed to new
investors; existing investors, however, may continue to make additional
purchases and reinvest dividends. If approved by shareholders on August 13,
1998, the Reorganization is expected to take effect on August 21, 1998.
Q. WILL I RECEIVE NEW SHARES IN EXCHANGE FOR MY CURRENT SHARES?
A. Yes. Upon approval and completion of the Reorganization, shareholders of the
Florida Intermediate Fund will exchange their shares for shares of the
Intermediate Fund based upon a specified exchange ratio determined by the
ratio of the respective net asset values of the funds. You will receive
Intermediate Fund shares whose aggregate value at the time of issuance will
equal the aggregate value of your Florida Intermediate Fund shares on that
date.
<PAGE> 4
Q. IF I OWN SHARES IN CERTIFICATE FORM, WILL I NEED TO EXCHANGE THEM FOR
CERTIFICATES OF MY NEW FUND?
A. Certificates for Intermediate Fund shares will not be issued automatically as
part of the Reorganization, although we will send you certificates upon
request. If you currently own Florida Intermediate Fund shares in certificate
form, you will need to return these certificates to Nuveen in order to
receive new certificates for your Intermediate Fund shares.
If you prefer, however, you may exchange your certificates for book entry
shares. These shares are held in a convenient computerized system that
enables shareholders to receive a complete and accurate record of their
holdings without having to worry about the safekeeping of certificates or the
expense involved with replacing a lost or stolen certificate. Just complete
the appropriate section of the Letter of Transmittal requesting book entry
shares. Regardless of the way you choose to hold your shares after the
Reorganization, certificates should be returned to the fund's transfer agent
by certified mail as soon as possible.
Q. WILL I HAVE TO PAY ANY FEES OR EXPENSES IN CONNECTION WITH THE
REORGANIZATION?
A. No. All of the fund's expenses associated with the Reorganization will be
borne by the Florida Intermediate Fund. However, since Nuveen currently
reimburses any additional operating expenses for the Florida Intermediate
Fund, Nuveen will effectively bear the full costs of the Reorganization.
Q. HOW DO MANAGEMENT FEES AND OTHER FUND OPERATING EXPENSES COMPARE BETWEEN THE
TWO FUNDS?
A. Upon approval and completion of the proposed Reorganization, Florida
Intermediate Fund shareholders will pay lower management fees as a percentage
of net assets and will also benefit from lower gross fund operating expenses
(before expense waivers/reimbursements) as a percentage of net assets,
reflecting the larger net assets and greater economies of scale of the
Intermediate Fund. Currently, net fund operating expenses (after expense
waivers/reimbursements) of the Florida Intermediate Fund are lower than those
of the Intermediate Fund as a percentage of net assets, but only because of
voluntary expense waivers/reimbursements by Nuveen. For both the Intermediate
Fund and the Florida Intermediate Fund, Nuveen has agreed to voluntarily
waive some or all of its fees or reimburse certain expenses. The
waivers/reimbursements for the Intermediate Fund are subject to change in the
future and there can be no assurance that Nuveen will continue the
waivers/reimbursements for the Florida Intermediate Fund if the
Reorganization is not approved.
Q. WILL THIS REORGANIZATION CREATE A TAXABLE EVENT FOR ME?
A. The Reorganization is intended to be done on a tax-free basis for federal
income tax purposes. Therefore, you will recognize no gain or loss for
federal income tax purposes as a result of the Reorganization. In addition,
the tax basis and holding period of the Intermediate Fund shares you receive
will be the same as the tax basis and holding period of your Florida
Intermediate Fund shares.
Q. CAN I EXCHANGE OR REDEEM MY FLORIDA INTERMEDIATE FUND SHARES BEFORE THE
REORGANIZATION TAKES PLACE?
A. Upon approval of the Reorganization, you may exchange your Florida
Intermediate Fund shares for shares of any other Nuveen Mutual Fund, or
redeem your shares, at any time. If you choose to do so, your request will be
treated as a normal exchange or redemption of shares (subject to any
applicable deferred sales charge) and will be a taxable transaction for
federal income tax purposes.
Q. HOW DO I VOTE MY SHARES?
A. You can vote your shares by completing and signing the enclosed proxy
card(s), and mailing them in the enclosed postage-paid envelope. If you need
any assistance, or have any questions regarding the proposals or how to vote
your shares, please call your financial adviser or Nuveen at (800) 414-7447
weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Q. WILL NUVEEN CONTACT ME?
A. You may receive a call to verify that you received your proxy materials and
to answer any questions you may have about the Reorganization.
<PAGE> 5
NUVEEN LOGO
June 29, 1998
DEAR NUVEEN FUND SHAREHOLDER:
Enclosed is a proxy asking you to vote on the reorganization of your Fund into
the Nuveen Flagship Intermediate Municipal Bond Fund, a mutual fund that pursues
a similar investment objective. Subject to shareholder approval, you would
become a shareholder of the Intermediate Fund.
The enclosed Prospectus/Proxy Statement contains information you will need to
make an informed decision. For your convenience, we also have provided a brief
question and answer section, which we hope you will find useful as you review
your materials before voting. For more detailed information about the
reorganization, please refer to the Prospectus/Proxy Statement.
The proposal has been approved by the Trustees for your Fund, who recommend you
vote "FOR" the proposal. Please give this matter your prompt attention. We will
need to receive your proxy card before the shareholder meeting scheduled for
August 13, 1998. YOUR IMMEDIATE RESPONSE WILL HELP SAVE ON THE COSTS OF
ADDITIONAL SOLICITATIONS. We look forward to your participation, and we thank
you for your continued confidence in Nuveen.
PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Sincerely,
Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
<PAGE> 6
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NOTICE OF SPECIAL MEETING 333 West Wacker Drive
OF SHAREHOLDERS Chicago, Illinois
AUGUST 13, 1998 60606
(800) 414-7447
</TABLE>
JUNE 29, 1998
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
Notice is hereby given that a Joint Special Meeting of shareholders of the
Nuveen Flagship Florida Intermediate Municipal Bond Fund (the "Florida
Intermediate Fund" or a "Fund"), a series of the Nuveen Flagship Multistate
Trust I (the "Multistate Trust" or a "Trust"), a Massachusetts business trust,
will be held in the 31st floor conference room of John Nuveen & Co.
Incorporated, 333 West Wacker Drive, in Chicago on Thursday, August 13, 1998 at
10:00 a.m., Central Time (the "Special Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Reorganization pursuant to which
the Florida Intermediate Fund would (i) transfer all of its assets to
the Nuveen Flagship Intermediate Municipal Bond Fund (the
"Intermediate Fund") in exchange solely for Class A, C and R shares
of beneficial interest of the Intermediate Fund and the Intermediate
Fund's assumption of the liabilities of the Florida Intermediate
Fund, (ii) distribute such shares of the Intermediate Fund to the
holders of shares of the Florida Intermediate Fund and (iii) be
liquidated, dissolved and terminated as a series of the Multistate
Trust in accordance with the Trust's Declaration of Trust.
2. To ratify the selection of Arthur Andersen LLP as independent
auditors for the fiscal year ending May 31, 1999.
3. To transact such other business as may properly come before the
Special Meeting.
Shareholders of record as of the close of business on June 16, 1998 are entitled
to notice of and to vote at the Special Meeting or any adjournment thereof.
IN ORDER TO AVOID DELAY AND ADDITIONAL EXPENSE, AND TO ASSURE THAT YOUR SHARES
ARE REPRESENTED, IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON AT THE SPECIAL
MEETING, YOU ARE REQUESTED TO FILL IN, SIGN AND MAIL THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Gifford R. Zimmerman
Vice President and Secretary
<PAGE> 7
PROSPECTUS/PROXY STATEMENT
NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
This Prospectus/Proxy Statement is being furnished to shareholders of the Nuveen
Flagship Florida Intermediate Municipal Bond Fund (the "Florida Intermediate
Fund" or a "Fund"), a series of the Nuveen Flagship Multistate Trust I (the
"Multistate Trust" or a "Trust"), a Massachusetts business trust, and relates to
the special meeting of shareholders of the Florida Intermediate Fund to be held
in the 31st floor conference room of John Nuveen & Co., Incorporated, 333 West
Wacker Drive, in Chicago on Thursday, August 13, 1998 at 10:00 a.m., Central
Time and at any and all adjournments thereof (the "Special Meeting").
Shareholders of record as of the close of business on June 16, 1998 are entitled
to vote at the Special Meeting or any adjournment thereof. The primary purpose
of the Special Meeting is to approve or disapprove the proposed reorganization
of the Florida Intermediate Fund into the Nuveen Flagship Intermediate Municipal
Bond Fund (the "Intermediate Fund," which may also sometimes be referred to as a
"Fund") (the "Reorganization"). The Reorganization would result in shareholders
of the Florida Intermediate Fund in effect exchanging their Class A, C and R
shares of the Florida Intermediate Fund for corresponding Class A, C and R
shares of the Intermediate Fund. The purpose of the Reorganization is to permit
the shareholders of the Florida Intermediate Fund to (i) achieve certain
economies of scale from the Intermediate Fund's larger net asset size and the
potentially lower operating expenses associated therewith, and (ii) obtain
greater portfolio diversity and potentially lower portfolio transaction costs.
The Intermediate Fund is a series of the Nuveen Flagship Municipal Trust, an
open-end management investment company organized as a Massachusetts business
trust (the "Municipal Trust" or a "Trust"). The investment objective of the
Intermediate Fund is to provide as high a level of current interest income
exempt from regular federal income taxes as is consistent with preservation of
capital. There can be no assurance that the Intermediate Fund will achieve its
investment objective. The address, principal executive office and telephone
number of the Funds is 333 West Wacker Drive, Chicago, Illinois 60606, (312)
917-7700 or (800) 414-7447. The enclosed proxy and this Prospectus/Proxy
Statement are first being sent to shareholders of the Florida Intermediate Fund
on or about June 29, 1998.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
This Prospectus/Proxy Statement sets forth concisely the information
shareholders of the Florida Intermediate Fund should know before voting on the
Reorganization (in effect, investing in Class A, C or R shares of the
Intermediate Fund) and constitutes an offering of Class A, C or R shares of
beneficial interest, par value $.01 per share, of the Intermediate Fund only.
Please read it carefully and retain it for future reference. A Statement of
Additional Information dated , 1998, relating to this
Prospectus/Proxy Statement (the "Reorganization SAI") has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated herein by
reference. A Prospectus (the "Intermediate Fund Prospectus") and Statement of
Additional Information containing additional information about the Intermediate
Fund, each dated August 27, 1997, have been filed with the SEC and are
incorporated herein by reference. A copy of the Intermediate Fund Prospectus
accompanies this Prospectus/Proxy Statement. A Prospectus (the "Florida
Intermediate Fund Prospectus") and Statement of Additional Information
containing additional information about the Florida Intermediate Fund, each
dated September 12, 1997, have been filed with the SEC and are incorporated
herein by reference. Copies of the foregoing may be obtained without charge by
calling or writing the Funds at the telephone number or address shown above. If
you wish to request the Reorganization SAI, please ask for the "Reorganization
SAI." IN ADDITION, THE FUNDS WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST
RECENT ANNUAL REPORT AND SUBSEQUENT SEMI-ANNUAL REPORT TO A SHAREHOLDER UPON
REQUEST. ANY SUCH REQUEST SHOULD BE DIRECTED TO THE RESPECTIVE FUND BY CALLING
(800) 414-7447 OR BY WRITING THE RESPECTIVE FUND AT 333 WEST WACKER DRIVE,
CHICAGO, ILLINOIS 60606.
------------------------
No person has been authorized to give any information or make any representation
not contained in this Prospectus/Proxy Statement and, if so given or made, such
information or representation must not be relied upon as having been authorized.
This Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which, or
to any person to whom, it is unlawful to make such offer or solicitation.
<PAGE> 8
------------------------
Both Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as
amended (the "1940 Act"), and in accordance therewith file reports and other
information with the SEC. Such reports, other information and proxy statements
filed by the Trusts can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its Regional Office at 500 West Madison Street, Chicago, Illinois.
Copies of such material can also be obtained from the SEC's Public Reference
Branch, Office of Consumer Affairs and Information Services, Washington, D.C.
20549, at prescribed rates. In addition, the SEC maintains a Web site
(http://www.sec.gov) that contains reports, other information and proxy
statements filed by the Trusts, such information is filed electronically with
the SEC through the SEC's Electronic Data Gathering, Analysis and Retrieval
system (EDGAR).
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS , 1998.
<PAGE> 9
PROSPECTUS/PROXY STATEMENT
NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND
RELATING TO THE ACQUISITION OF ASSETS AND LIABILITIES OF
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
TABLE OF CONTENTS
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PAGE
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PROPOSAL 1: THE PROPOSED REORGANIZATION...... 1
A. SUMMARY................................... 1
The Reorganization....................... 1
Reasons for the Proposed
Reorganization......................... 1
Comparison of the Intermediate Fund with
the Florida Intermediate Fund.......... 2
B. RISK FACTORS.............................. 9
Similarity of Risks...................... 9
Differences in Risks..................... 9
C. THE PROPOSED REORGANIZATION............... 10
Terms of the Agreement................... 10
Description of Securities to be Issued... 11
Continuation of Shareholder Accounts and
Plans; Share Certificates.............. 11
Certain Federal Income Tax
Consequences........................... 11
Expenses................................. 12
</TABLE>
<TABLE>
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PAGE
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Legal Matters............................ 12
Financial Statements..................... 12
D. RECOMMENDATION OF THE BOARD............... 13
PROPOSAL 2. SELECTION OF INDEPENDENT
AUDITORS................................... 13
OTHER INFORMATION............................ 13
A. SHAREHOLDERS OF THE INTERMEDIATE FUND
AND THE FLORIDA INTERMEDIATE FUND... 13
B. SHAREHOLDER PROPOSALS................. 14
VOTING INFORMATION AND REQUIREMENTS.......... 14
EXHIBITS
MANAGEMENT'S DISCUSSION OF INTERMEDIATE
FUND PERFORMANCE.................... Exhibit A
MANAGEMENT'S DISCUSSION OF FLORIDA
INTERMEDIATE FUND PERFORMANCE....... Exhibit B
FINANCIAL HIGHLIGHTS..................... Exhibit C
</TABLE>
<PAGE> 10
PROPOSAL 1. THE PROPOSED REORGANIZATION
A. SUMMARY
The following is a summary of, and is qualified by reference to, the more
complete information contained in this Prospectus/ Proxy Statement and the
information attached hereto or incorporated herein by reference (including the
Agreement and Plan of Reorganization). As discussed more fully below and
elsewhere in this Prospectus/Proxy Statement, the Board of Trustees of the
Multistate Trust (the "Board") believes the proposed Reorganization (as defined
herein) is in the best interests of shareholders of the Florida Intermediate
Fund and would not result in dilution of shareholders' interest. As a result of
the Reorganization, shareholders of the Florida Intermediate Fund would acquire
an interest in the Intermediate Fund.
Shareholders should read the entire Prospectus/Proxy Statement carefully
together with the Intermediate Fund Prospectus incorporated herein by reference
and accompanying this Prospectus/Proxy Statement. This Prospectus/Proxy
Statement constitutes an offering of Class A, C and R shares of the Intermediate
Fund only.
THE REORGANIZATION
This Prospectus/Proxy Statement is being furnished to shareholders of the
Florida Intermediate Fund in connection with the proposed combination of the
Fund with and into the Intermediate Fund pursuant to the terms and conditions of
the Agreement and Plan of Reorganization dated April 25, 1998 between the
Florida Intermediate Fund and the Intermediate Fund (the "Agreement"). The
Agreement provides that the Florida Intermediate Fund would (i) transfer all of
its assets to the Intermediate Fund in exchange solely for Class A, C and R
shares of the Intermediate Fund and the Intermediate Fund's assumption of the
liabilities of the Florida Intermediate Fund, (ii) distribute to each
shareholder of the Florida Intermediate Fund shares of the respective class of
shares of the Intermediate Fund equal in value to their existing shares of the
Fund as a distribution in liquidation of the Fund and (iii) be liquidated,
dissolved and terminated as a series of the Multistate Trust in accordance with
the Trust's Declaration of Trust promptly following the Closing (as defined
herein) (the "Reorganization").
The Board of Trustees of the Multistate Trust has determined that the
Reorganization is in the best interests of the Florida Intermediate Fund and
that the interests of existing shareholders of the Florida Intermediate Fund
will not be diluted as a result of the Reorganization. The Board of the
Multistate Trust unanimously approved the Reorganization and the Agreement on
April 25, 1998.
The Florida Intermediate Fund will pay all of the Funds' costs associated with
the Reorganization. However, since the investment adviser currently waives
and/or reimburses certain operating expenses for the Florida Intermediate Fund,
Nuveen Advisory Corp. (the "Adviser") will effectively bear the full cost of the
Reorganization.
The Board is asking shareholders of the Florida Intermediate Fund to approve the
Reorganization at the Special Meeting to be held on August 13, 1998. If
shareholders of the Florida Intermediate Fund approve the Reorganization, it is
expected that the Closing of the Reorganization will be after the close of
business on August 21, 1998, but it may be at a different time as described
herein.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE REORGANIZATION. FOR THE FLORIDA
INTERMEDIATE FUND, APPROVAL OF THE REORGANIZATION REQUIRES THE FAVORABLE VOTE OF
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE. SEE
"VOTING INFORMATION AND REQUIREMENTS" BELOW.
REASONS FOR THE PROPOSED REORGANIZATION
The Board believes that the proposed Reorganization would be in the best
interests of the Florida Intermediate Fund because it would permit the
shareholders of the Fund to (i) achieve certain economies of scale from the
Intermediate Fund's larger net asset size and the potentially lower operating
expenses associated therewith, and (ii) obtain greater portfolio diversity and
potentially lower portfolio transaction costs.
In determining whether to recommend approval of the Reorganization to
shareholders of the Florida Intermediate Fund, the Board considered a number of
factors, including, but not limited to: (i) the expenses and advisory fees
applicable to the Florida Intermediate Fund and the Intermediate Fund before the
Reorganization and the estimated expense ratios of the Intermediate Fund after
the Reorganization; (ii) the investment performance of the Florida Intermediate
Fund compared to the Intermediate Fund; (iii) the terms and conditions of the
Agreement and whether the Reorganization would result in dilution of the Florida
Intermediate Fund's shareholder interests; (iv) the economies of scale
potentially realized through the combination of the Funds; (v) the compatibility
of the Funds' investment objectives; (vi) the compatibility of the Funds'
service features available to shareholders, including the retention of
applicable holding periods and exchange privileges; (vii) the costs estimated to
be incurred by the respective Funds as a result of the Reorganization; (viii)
the future growth prospects of the Florida Intermediate Fund; and (ix) the
anticipated federal income tax consequences of the Reorganization.
1
<PAGE> 11
In this regard, the Board reviewed information provided by the Adviser relating
to the anticipated impact on the shareholders of the Florida Intermediate Fund
as a result of the Reorganization. The Board considered the probability that the
increase in asset levels of the combined fund after the Reorganization would
result in the following potential benefits for shareholders of the Florida
Intermediate Fund, although there can, of course, be no assurances in this
regard:
A. Achievement of Economies of Scale and Reduced Per Share Expenses. Combining
the net assets of the Florida Intermediate Fund with the assets of the
Intermediate Fund should lead to reduced total operating expenses for
shareholders of the Florida Intermediate Fund, respectively, on a per share
basis, by allowing fixed and relatively fixed costs, such as accounting,
legal and printing expenses, to be spread over a larger asset base. The
Intermediate Fund also pays lower investment advisory fees than the Florida
Intermediate Fund when no expense waivers or reimbursements are in effect.
Any reductions in expenses on a per share basis should, in turn, increase
portfolio net income available for distributions to shareholders of the
Florida Intermediate Fund. The advisory fees and other operating expenses of
the Florida Intermediate Fund are currently less than those of the
Intermediate Fund but only because of voluntary fee and expense waivers or
reimbursements from the Adviser. For both the Intermediate Fund and the
Florida Intermediate Fund, the Adviser has agreed to voluntarily waive some
or all of its fees or reimburse certain expenses. The waivers/reimbursements
for the Intermediate Fund are subject to change in the future and there can
be no assurance that the Adviser will continue the waivers/reimbursements for
the Florida Intermediate Fund if the Reorganization is not approved.
B. Benefits to the Portfolio Management Process. The larger net asset size of
the Intermediate Fund generally permits it to purchase larger individual
portfolio investments that may result in reduced transaction costs or more
favorable pricing and provide the opportunity for greater portfolio
diversity. A larger, more diverse fund may also be able to produce a more
stable and consistent dividend rate than a smaller, less diverse fund.
Based upon these and other factors, the Board unanimously determined that the
Reorganization is in the best interests of the Florida Intermediate Fund.
COMPARISON OF THE INTERMEDIATE FUND WITH THE FLORIDA INTERMEDIATE FUND
INVESTMENT OBJECTIVES. The Intermediate Fund and the Florida Intermediate Fund
have similar investment objectives. The investment objective of the Intermediate
Fund is to provide as high a level of current interest income exempt from
regular federal income taxes as is consistent with preservation of capital. The
investment objective of the Florida Intermediate Fund is to provide as high a
level of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital. The
primary difference between the Funds is that shares of the Florida Intermediate
Fund are exempt from the Florida intangible personal property tax but the
Intermediate Fund shares are not. The Board, however, believes that the benefits
to the Florida Intermediate Fund's shareholders from the Reorganization,
including the potentially lower operating costs and potentially higher
distributions from the Intermediate Fund relative to the Florida Intermediate
Fund, should offset the loss of the exemption from the Florida intangible
personal property tax. In evaluating the Reorganization, the Florida
Intermediate Fund's shareholders should consider the impact of losing the
exemption from the Florida intangible personal property tax. Shareholders should
consult their own tax advisers to determine the specific tax consequences of all
transactions relating to the Reorganization.
INVESTMENT POLICIES. The Intermediate Fund and the Florida Intermediate Fund
have similar investment policies. The Intermediate Fund invests primarily in
municipal bonds that pay interest that is exempt from regular federal income
taxes. The Florida Intermediate Fund invests substantially all of its assets (at
least 80%) in municipal bonds that pay interest that is exempt for regular
federal, state, and in some cases, local income taxes. Both Funds purchase only
quality municipal bonds that either are 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 Adviser, except that the
Funds may not invest more than 20% of their net assets in unrated bonds. Bond
ratings are furnished by Standard & Poor's Corporation ("S&P") and Moody's
Investor Services ("Moody's"). According to published guidelines, securities
rated BBB by S&P are regarded by S&P as having an adequate capacity to pay
interest and repay principal. Whereas such securities normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely, in the opinion of S&P, to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. According to published guidelines, securities rated Baa by Moody's
are considered by Moody's as medium grade obligations. Such securities are, in
the opinion of Moody's, neither highly protected nor poorly secured. Interest
payments and principal security appear to Moody's to be adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. In the opinion of Moody's they lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
The Florida Intermediate Fund and the Intermediate Fund have substantially the
same investment policies except that the Florida Intermediate Fund generally
invests at least 80% of its total assets in Florida municipal securities and the
Intermediate Fund generally does not invest more than 25% of its total assets in
securities of issuers located in any one state. Also the Florida Intermediate
Fund and the Intermediate Fund have different policies with respect to
diversification.
2
<PAGE> 12
The Florida Intermediate Fund is a non-diversified fund. The Intermediate Fund
is a diversified fund and may not invest more than 5% of its net assets in
securities of any one issuer (except U.S. government securities or for 25% of
its net assets). A non-diversified fund such as the Florida Intermediate Fund
may invest a higher percentage of its assets in relatively fewer issuers than a
diversified fund such as the Intermediate Fund. Funds that are diversified among
issuers and across geographic regions generally susceptible to less risks than
funds not so diversified.
Credit Quality. A comparison of the credit qualities of the respective
portfolios of the Intermediate Fund and the Florida Intermediate Fund, as of
April 30, 1998, is set forth in the table below.
<TABLE>
<CAPTION>
PORTFOLIO CREDIT QUALITY
- ----------------------------------------------------------------------------------------------------------------------
CREDIT RATING INTERMEDIATE FUND FLORIDA INTERMEDIATE FUND PRO FORMA(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa/AAA 30.63% 72.28% 39.72%
Aa/AA 11.19% 7.92% 10.48%
A/A 22.75% 9.33% 19.82%
Baa/BBB 21.78% 6.75% 18.50%
Unrated 13.65% 3.72% 11.48%
------- ------- -------
TOTAL 100.00% 100.00% 100.00%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the effect of the Florida Intermediate Fund Reorganization.
As of April 30, 1998, the Florida Intermediate Fund was invested in more
higher-rated securities than the Intermediate Fund. Generally, on April 30,
1998, the average portfolio credit quality was AA/Aa for the Florida
Intermediate Fund and A/A for the Intermediate Fund. As discussed above,
higher-rated securities generally have less credit risk than lower rated
securities.
Maturity and Duration. A comparison of the maturity and duration of the
respective portfolios of the Intermediate Fund and the Florida Intermediate Fund
as of April 30, 1998, is set forth in the table below.
<TABLE>
<CAPTION>
PORTFOLIO MATURITY INFORMATION
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
FUND MATURITY EFFECTIVE MATURITY MODIFIED DURATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate 8.69 8.75 6.79
Florida Intermediate 9.87 8.96 6.90
Pro-Forma(1) 8.95 8.79 6.82
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the effect of the Florida Intermediate Reorganization.
Funds with longer average maturities and durations will generally be subject to
greater interest rate risks.
Performance Information. A comparison of the total returns for the Intermediate
Fund and the Florida Intermediate Fund for the periods ending April 30, 1998 is
set forth in the table below.
<TABLE>
<CAPTION>
TOTAL RETURNS(1)
- ---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED TOTAL RETURNS
CUMULATIVE ------------------------------------------------
FUND CLASS INCEPTION DATE YTD RETURN 1 YEAR 3 YEAR 5 YEAR INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Intermediate A 9/15/92 (2.81)% 5.74% 6.68% 5.59% 6.67%
C 12/1/95 (.90) 8.47 7.21 5.67 6.67
R 2/1/97 .24 9.17 7.78 6.25 7.26
Florida Intermediate A 2/1/94 3.01 5.42 5.86 N/A 5.48
C 2/2/94 (1.20)% 8.03 6.33 N/A 5.65
R 2/1/97 .03 8.82 7.09 N/A 6.35
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A share returns are actual. Class C and R share returns are actual for
the period since class inception; returns prior to class inception are Class
A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees, Class A
shares have a 3.0% maximum up-front sales charge which is reflected in the
return figures. Class C shares have a 1% contingent deferred sales charge
for redemptions within one year which is reflected in the year-to-date
return figures. Total returns assume reinvestment of all dividends and
distributions.
3
<PAGE> 13
The following table is a comparison of the yields of the respective portfolios
of the Intermediate Fund and the Florida Intermediate Fund as of April 30, 1998.
<TABLE>
<CAPTION>
SEC AND DISTRIBUTION YIELD INFORMATION(1)
(AS OF APRIL 30, 1998)
- --------------------------------------------------------------------------------------------------------------------------
SEC 30-DAY YIELD
---------------------------------
DISTRIBUTION AFTER-TAX BEFORE WAIVERS/ AFTER WAIVERS/
FUND CLASS YIELD DISTRIBUTION YIELD REIMBURSEMENTS REIMBURSEMENTS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate A 4.49% 4.49% 3.77% 3.90%
C 4.08 4.08 3.33 3.47
R 4.81 4.81 4.09 4.23
Florida Intermediate A 4.40 4.40 3.23 3.81
C 4.02 4.02 2.78 3.37
R 4.76 4.76 3.53 4.13
Pro-Forma A 4.49 4.49 3.73 3.88
C 4.08 4.08 3.28 3.44
R 4.81 4.81 4.05 4.22
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares have a 3.00% maximum up-front sales charge which is reflected
in the yield and distribution figures. Class C and R shares yield and
distribution figures are calculated on net asset value.
The total returns, yields and distribution rates are not necessarily indicative
of future results. The performance of an investment company is the result of
conditions in the securities markets, portfolio management and operating
expenses. Although information such as that shown above is useful in reviewing a
fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. In the
absence of expense reimbursements for the Intermediate Fund and the Florida
Intermediate Fund, the Funds' total returns and yields would have been reduced.
Management's discussion of the Intermediate Fund's performance as of October 31
and May 31, 1998 is attached hereto as Exhibit A. Management's discussion of the
Florida Intermediate Fund's performance as of November 31 and May 31, 1998 is
attached hereto as Exhibit B.
Investment Adviser. The Intermediate Fund and the Florida Intermediate Fund are
managed by the Adviser. The Adviser is a wholly owned subsidiary of John Nuveen
& Co. Incorporated ("Nuveen"), the Funds' principal underwriter. In 1961, Nuveen
began sponsoring the Nuveen Tax-Exempt Unit Trust and since that time has issued
more than $37 billion in taxable and 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 $36 billion in securities under management
as of the date of the Prospectus/Proxy Statement. Over 1,000,000 individuals
have invested to date in Nuveen's funds and trusts. Founded in 1898, Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul,
Minnesota and is principally engaged in providing property liability insurance
through subsidiaries. The Adviser's principal office is located at 333 West
Wacker Drive, Chicago, Illinois 60606.
Advisory and Other Fees. The contractual advisory fees and total operating
expenses of the Intermediate Fund are lower than those of the Florida
Intermediate Fund. Pursuant to an investment management agreement between the
Adviser and the Municipal Trust, the Intermediate Fund pays the Adviser an
annual management fee at the rates set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- ---------------------------------------------------
<S> <C>
For the first $125 million .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>
For the fiscal year ended April 30, 1997 the Intermediate Fund paid the Adviser
$781 (after expense reimbursement) and would have paid $217,495 (assuming no
expense reimbursement). For a complete description of the Intermediate Fund's
advisory services, see the Intermediate Fund Summary in the Intermediate Fund
Prospectus and the sections of the Intermediate Fund Prospectus and Statement of
Additional Information entitled "Fund Service Providers -- Investment Adviser"
and "Investment Adviser and Investment Management Agreement," respectively.
4
<PAGE> 14
Pursuant to an investment management agreement between the Adviser and the
Multistate Trust, the Florida Intermediate Fund pays the Adviser an annual
management fee at the rates set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------
AVERAGE DAILY NET ASSET MANAGEMENT FEE
- ---------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1%
For the next $250 million .5250 of 1%
For the next $500 million .5125 of 1%
For the next $1 billion .5000 of 1%
For assets over $2 billion .4750 of 1%
- ---------------------------------------------------
</TABLE>
For the fiscal year ended May 31, 1997 the Florida Intermediate Fund paid the
Adviser $0 (after expense reimbursement) and would have paid $50,874 (assuming
no expense reimbursement). For a complete description of the advisory services
provided to the Florida Intermediate Fund, see the Florida Intermediate Fund
Summary in the Florida Intermediate Fund Prospectus and the sections of the
Florida Intermediate Fund Prospectus and Statement of Additional Information
entitled "Fund Service Providers -- Investment Adviser" and "Investment Adviser
and Investment Management Agreement," respectively.
The advisory fees and other operating expenses of the Florida Intermediate Fund
are currently less than those of the Intermediate Fund but only because of
voluntary expense waivers or reimbursements from the Adviser. There can be no
assurance that such waivers or reimbursements will continue for the Florida
Intermediate Fund if the Reorganization is not completed. There can also be no
assurance that the waivers or reimbursement will continue for the Intermediate
Fund if the Reorganization is completed.
The Intermediate Fund and the Florida Intermediate Fund have adopted
substantially the same distribution and service plans (the "Distribution and
Service Plans") pursuant to Rule 12b-1 under the 1940 Act. The Distribution and
Service Plans authorize each fund to pay Nuveen an annual 0.20% service fee on
the average daily net assets of Class A and C shares outstanding. The plans also
authorize each Fund to pay Nuveen an annual 0.75% distribution fee on the
average daily net assets of Class B shares outstanding. The plans also authorize
each Fund to pay Nuveen an annual 0.55% distribution fee on the average daily
net assets of Class C shares outstanding. In order to help compensate Nuveen for
the sales commissions 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 Class C shares, Nuveen
retains the first year's service and distribution fees on sales of Class C
shares. Otherwise, Nuveen pays these fees to the broker of the record. The
distributor of the Florida Intermediate Fund's shares and the Intermediate
Fund's shares is Nuveen. For a complete description of these arrangements with
respect to the Intermediate Fund, see the sections of the Intermediate Fund and
the Florida Intermediate Fund Prospectuses and Statements of Additional
Information entitled "Fund Service Providers--The Distributor" and "Distribution
and Service Plan," respectively.
The tables below set forth (i) the fees and expenses paid by the Intermediate
Fund and the Florida Intermediate Fund for their last fiscal year, which was
April 30, 1998 for the Intermediate Fund and May 31, 1998 for the Florida
Intermediate Fund and (ii) pro forma expenses for the combined fund for Class A,
C and R shares.
5
<PAGE> 15
EXPENSE COMPARISON TABLE
CLASS A SHARES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FLORIDA
INTERMEDIATE INTERMEDIATE
FUND FUND PRO FORMA (1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchase of a Share (as a
percentage of Offering Price) 3.00%(3) 3.00%(3) 3.00%(3)
Contingent Deferred Sales Charge (CDSC) (as a percentage of
the lower of the original purchase price or redemption
proceeds) --(3) --(3) --(3)
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees .50% .55% .50%
Rule 12b-1 Fees .20% .20% .20%
Other Expenses .33% .66% .28%
------------ ------------ -------------
Total Fund Operating Expenses (before waivers and
reimbursements) 1.03% 1.41% .98%
Total Fund Operating Expenses (after waivers and
reimbursements) .79% .78% .72%
EXPENSE EXAMPLE OF TOTAL OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE PERIOD (2)
One Year $38 $38 $37
Three Years $54 $54 $52
Five Years $73 $72 $69
Ten Years $125 $124 $117
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Expense Comparison Table
(1) The Pro Forma column reflects expenses estimated to be paid on new shares
purchased from the combined fund subsequent to the Reorganization and
reflects the effect of the Florida Intermediate Fund Reorganization.
(2) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends, based on
total fund operating expenses after waivers and reimbursements.
(3) 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.
EXPENSE COMPARISON TABLE
CLASS C SHARES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FLORIDA
INTERMEDIATE INTERMEDIATE
FUND FUND PRO FORMA (1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchase of a Share (as a
percentage of Offering Price) -- -- --
Contingent Deferred Sales Charge (CDSC) (as a percentage of
the lower of the original purchase price or redemption
proceeds) 1%(3) 1%(3) 1%(3)
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees .50% .55% .50%
Rule 12b-1 Fees .75% .75% .75%
Other Expenses .33% .66% .28%
------------ ------------ -------------
Total Fund Operating Expenses (before waivers and
reimbursements) 1.58% 1.96% 1.53%
Total Fund Operating Expenses (after waivers and
reimbursements) 1.34% 1.33% 1.27%
EXPENSE EXAMPLE OF TOTAL OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE PERIOD (2)
One Year $14 $14 $13
Three Years $42 $42 $40
Five Years $73 $73 $70
Ten Years $161 $160 $153
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Expense Comparison Table
(1) The Pro Forma column reflects expenses estimated to be paid on new shares
purchased from the combined fund subsequent to the Reorganization and
reflects the effect of the Florida Intermediate Fund Reorganization.
(2) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends, based on
total fund operating expenses after waivers and reimbursements.
(3) Imposed only on redemptions within 12 months of purchase.
6
<PAGE> 16
EXPENSE COMPARISON TABLE
CLASS R SHARES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FLORIDA
INTERMEDIATE INTERMEDIATE
FUND FUND PRO FORMA (1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchase of a Share (as a
percentage of Offering Price) -- -- --
Contingent Deferred Sales Charge (CDSC) (as a percentage of
the lower of the original purchase price or redemption
proceeds) -- -- --
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets) (after waivers and reimbursements)
Management Fees .50% .55% .50%
Rule 12b-1 Fees -- -- --
Other Expenses .33% .66% .28%
------------ ------------ -------------
Total Fund Operating Expenses (before waivers and
reimbursements) .83% 1.21% .78%
Total Fund Operating Expenses (after waivers and
reimbursements) .59% .58% .52%
EXPENSE EXAMPLE OF TOTAL OPERATING EXPENSES ASSUMING
REDEMPTION AT THE END OF THE PERIOD (2)
One Year $ 6 $ 6 $ 5
Three Years $19 $19 $17
Five Years $33 $32 $29
Ten Years $74 $73 $65
- --------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Expense Comparison Table
(1) The Pro Forma column reflects expenses estimated to be paid on new shares
purchased from the combined fund subsequent to the Reorganization and
reflects the effect of the Florida Intermediate Fund Reorganization.
(2) Expense examples reflect what an investor would pay on a $1,000 investment,
assuming a 5% annual return and the reinvestment of all dividends, based on
total fund operating expenses after waivers and reimbursements.
Distribution, Purchase, Valuation, Redemption and Exchange of Shares. The
Intermediate Fund and the Florida Intermediate Fund offer three classes of
shares. The Class A shares of the Intermediate Fund and the Florida Intermediate
Fund are subject to an initial sales charge and a 0.20% annual service fee. The
following Class A sales charges and commissions apply to the Intermediate Fund
and the Florida Intermediate Fund.
CLASS A SALES CHARGES AND COMMISSIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
---------------------------------- --------------
AS % OF PUBLIC AS % OF YOUR AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT OFFERING PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 3.00% 3.09% 2.50%
$50,000 -- 100,000 2.50 2.56 2.00
$100,000 -- 250,000 2.00 2.04 1.50
$250,000 -- 500,000 1.50 1.52 1.25
$500,000 -- 1,000,000 1.25 1.27 1.00
$1,000,000 and over --(1) -- --(1)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commission,
you may be assessed a contingent deferred sales charge (CDSC) of 1% if you
redeem any of your shares within 18 months of purchase. The CDSC is
calculated on the lower of your purchase price or redemption proceeds.
The initial sales charge applicable to Class A shares of the Intermediate Fund
will be waived for Class A shares acquired in the Reorganization. Any subsequent
purchases of Class A shares of the Intermediate Fund after the Reorganization
will be subject to the initial sales charge, excluding Class A shares purchased
through the dividend reinvestment plan.
The Class C shares of the Intermediate Fund and the Florida Intermediate Fund do
not incur a sales charge when purchased, but are subject to a .20% annual
service fee and a .55% annual distribution fee. Class C shares are also subject
to a CDSC of 1.00% if redeemed within the first year after purchase.
Class R shares of the Intermediate Fund and the Florida Intermediate Fund have
no sales charges or ongoing fees. For a complete description of the Class A, C
and R shares, see the sections of the Intermediate Fund and the Florida
Intermediate Fund Prospectuses and Statements of Additional Information entitled
"Investing in the Funds -- How to Select a Purchase Option" and "Additional
Information on the Purchase and Redemption of Fund Shares," respectively.
No contingent deferred sales charge will be imposed on Class C shares of the
Florida Intermediate Fund in connection with the Reorganization. The holding
period and conversion period for Class C shares of the Intermediate Fund
received in
7
<PAGE> 17
connection with the Reorganization will be measured from the earlier of the time
(i) the holder purchased such shares from the Florida Intermediate Fund or (ii)
the holder purchased such shares from any other Nuveen national or state fund
and subsequently exchanged them for shares of the Florida Intermediate Fund.
Shares of the Intermediate Fund and the Florida Intermediate Fund may be
purchased through a financial adviser, by check, by electronic transfer, and by
exchange from certain other open-end mutual funds distributed by Nuveen. For a
complete description regarding purchase of shares and exchange of shares of the
Intermediate Fund and the Florida Intermediate Fund, see the sections of the
Intermediate Fund and the Florida Intermediate Fund Prospectuses and Statements
of Additional Information entitled "Investing in the Funds" and "Additional
Information on the Purchase and Redemption of Fund Shares," respectively.
Shares of the Intermediate Fund and the Florida Intermediate Fund properly
presented for redemption may be redeemed or exchanged at the next determined net
asset value per share (subject to any applicable deferred sales charge). Shares
of either the Intermediate Fund or the Florida Intermediate Fund may be redeemed
or exchanged through a financial adviser by mail or by special redemption
privileges (telephone exchange, telephone redemption, by check or by electronic
transfer). If any shares of the Intermediate Fund or the Florida Intermediate
Fund were purchased less than 15 days prior to your request, the Funds do not
mail the redemption proceeds until the check for the purchase has cleared, which
can take up to 15 days. In addition, the Intermediate Fund and the Florida
Intermediate 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 Intermediate Fund and the
Florida Intermediate Fund Statement of Additional Information. In order to limit
excessive exchange activity and in other circumstances where the Adviser
believes doing so would be in the best interests of a Fund, the Intermediate
Fund and the Florida Intermediate Fund reserve the right to revise or terminate
the exchange privilege, limit the amount or number of exchanges, or reject any
exchange. Shareholders are notified in the event this happens to the extent
required by law.
No further purchases of the shares of the Florida Intermediate Fund may be made
after the date on which the shareholders of the Florida Intermediate Fund
approve the Reorganization, and the stock transfer books of the Florida
Intermediate Fund will be permanently closed as of the date of Closing. Only
redemption requests and transfer instructions received in proper form by the
close of business on the day prior to the date of Closing will be fulfilled by
the Florida Intermediate Fund. Redemption requests or transfer instructions
received by the Florida Intermediate Fund after that date will be treated by the
Fund as requests for the redemption or instructions for transfer of the shares
of the Intermediate Fund credited to the accounts of the shareholders of the
Florida Intermediate Fund. Redemption requests or transfer instructions received
by the Florida Intermediate Fund after the close of business on the day prior to
the date of Closing will be forwarded to the Intermediate Fund. For a complete
description of the redemption arrangements for the Funds, see the sections of
the Intermediate Fund and Florida Intermediate Fund Prospectuses entitled
"Investing in the Funds -- How to Sell Fund Shares."
Capitalization. The following table sets forth the capitalization of the
Intermediate Fund and the Florida Intermediate Fund as of April 30, 1998, and
the pro forma capitalization of the combined fund as if the Reorganization had
occurred on that date. These numbers may differ at the time of Closing.
CAPITALIZATION TABLE AS OF APRIL 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INTERMEDIATE FLORIDA INTERMEDIATE
FUND FUND PRO FORMA (1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSETS
Class A shares $42,338,910 $ 8,322,077 $50,607,575
Class C shares 3,533,134 4,783,854 8,286,285
Class R shares 602,377 121,036 722,636
----------- ----------- -----------
Total $46,474,421 $13,226,967 $59,616,496
=========== =========== ===========
NET ASSET VALUE PER SHARE
Class A shares $ 10.88 $ 10.32 $ 10.88
Class C shares 10.89 10.31 10.89
Class R shares 10.86 10.34 10.86
SHARES OUTSTANDING
Class A shares 3,891,691 806,093 4,651,679
Class C shares 324,552 463,818 761,021
Class R shares 55,451 11,705 66,525
----------- ----------- -----------
Total $ 4,271,694 $ 1,281,616 $ 5,479,225
=========== =========== ===========
SHARES AUTHORIZED
Class A shares Unlimited Unlimited Unlimited
Class C shares Unlimited Unlimited Unlimited
Class R shares Unlimited Unlimited Unlimited
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The pro forma figures reflect the effect of the Florida Intermediate Fund
Reorganization.
8
<PAGE> 18
B. RISK FACTORS
SIMILARITY OF RISKS
The investment objectives of the Intermediate Fund and the Florida Intermediate
Fund are substantially the same. The investment policies of the Funds are
substantially the same insofar as they may purchase only quality municipal bonds
that are either rated investment grade (AAA/Aaa to BBB/Baa) by independent
rating agencies at the time of purchase or are non-rated but judged to be
investment grade by the Adviser. If suitable municipal bonds from a specific
state are not available at attractive prices and yields, the Funds may invest in
municipal bonds of U.S. territories (such as Puerto Rico and Guam) which are
exempt from regular federal, state, and local income taxes. The Funds may also
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 may only purchase leases where the issuer has a strong incentive to
continue making appropriations until maturity. The Intermediate Fund and the
Florida Intermediate Fund also engage in certain common investment practices
such as the purchase and sale of securities on a "when-issued" and "delayed
delivery" basis. In addition, the Funds may periodically engage in hedging
transactions as described in the sections of the Intermediate Fund and Florida
Intermediate Fund Statements of Additional Information entitled "Investment
Policies and Investment Portfolio -- Hedging and Other Defensive Actions." To
the extent that the investment objectives and investment policies and practices
are substantially the same, the risks associated with an investment in the Funds
are substantially the same.
The Intermediate Fund and the Florida Intermediate Fund may invest a substantial
portion of their assets in securities that are subject to the alternative
minimum tax. As with the Florida Intermediate Fund, the Intermediate Fund may
not be a suitable investment for shareholders subject to the alternative minimum
tax.
Investment in either the Intermediate Fund or the Florida Intermediate Fund may
not be appropriate for all investors. The Funds are not intended to be a
complete investment program, and investors should consider their long-term
investment goals and financial needs when making an investment decision with
respect to the Funds. An investment in either Fund is intended to be a long-term
investment and should not be used as a trading vehicle.
DIFFERENCES IN RISKS
The Intermediate Fund and the Florida Intermediate Fund engage in some
dissimilar investment practices. To the extent that the investment practices of
the Funds differ, the risks associated with an investment in the Intermediate
Fund are different from the risks associated with an investment in the Florida
Intermediate Fund. An investment in the Intermediate Fund may not be appropriate
for all Florida Intermediate Fund's shareholders. For a complete description of
the risks of an investment in the Intermediate Fund or the Florida Intermediate
Fund, see the sections in the Intermediate Fund Prospectus or the Florida
Intermediate Fund Prospectus entitled "Fund Strategies."
Diversification. The Florida Intermediate Fund is a non-diversified fund. The
Intermediate Fund is a diversified fund. Non-diversified funds, such as the
Florida Intermediate Fund, generally are more susceptible to economic, political
or regulatory events that adversely affect an issuer in which such fund invests
than a diversified fund such as the Intermediate Fund. A diversified fund such
as the Intermediate Fund, however, is less likely to benefit from economic,
political or regulatory events that beneficially affect issuers in which it
invests because it generally invests a smaller percentage of its assets in each
issuer in which it invests.
Concentration. The Florida Intermediate Fund invests at least 80% of its total
assets in Florida municipal securities. The Intermediate Fund does not
concentrate its investments in the securities of issuers located in any one
state. A fund, such as the Florida Intermediate Fund, that concentrates its
investments in issuers located in any one state generally is more susceptible to
economic, political or regulatory events that adversely affect the state in
which such company has concentrated its investments than an investment company
that does not concentrate its investments in any one state. The Intermediate
Fund, however, is less likely to benefit from economic, political or regulatory
events that beneficially affect issuers located in Florida because it does not
concentrate its investments in issuers of Florida municipal securities or
issuers located in any one state. In addition, the Florida Intermediate Fund
concentrates its assets in Florida municipal securities because of its
investment objective of seeking income exempt from the Florida intangible
personal property tax. In evaluating the Reorganization, Florida Intermediate
Fund's shareholders should consider the impact of losing the exemption from the
Florida intangible personal property tax.
Maturity and Duration. The Florida Intermediate Fund and the Intermediate Fund
are intermediate-term funds and normally maintain a weighted average portfolio
maturity of 5 to 10 years. The Funds' portfolios have different maturity and
duration characteristics. Both dollar-weighted average maturity and duration
reflect the sensitivity of a Fund to interest rate fluctuations, whereby a Fund
with a longer maturity and duration reacts more strongly to interest rate
changes than a Fund with a shorter maturity and duration. The average
dollar-weighted maturity of a Fund is the dollar-weighted average of the stated
maturities of all debt instruments held by the Fund. Duration is the weighted
present value of principal and interest payments expressed in years and may more
accurately measure a Fund's sensitivity to incremental changes in interest rates
than average maturity. For example, a Fund with a duration of 5.0 years should
have half the interest rate sensitivity of a
9
<PAGE> 19
Fund with a duration of 10.0 years, because the Fund with the shorter duration
will receive payments (and can reinvest at prevailing interest rates) twice as
quickly. For a comparison of the Funds' average portfolio maturity and duration,
including pro-forma figures, see "Comparison of the New Jersey Fund with the New
Jersey Intermediate Fund -- Maturity and Duration" above.
C. THE PROPOSED REORGANIZATION
The material features of the Agreement are summarized below. This summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement attached as
Appendix A to the Reorganization SAI, a copy of which may be obtained without
charge by calling the Funds at (800) 414-7477 and asking for the "Reorganization
SAI."
TERMS OF THE AGREEMENT
Pursuant to the Agreement, the Intermediate Fund series of the Municipal Trust
would acquire all of the assets and the liabilities of the Florida Intermediate
Fund series of the Multistate Trust on the date of the Closing in consideration
for Class A, C and R shares of the Intermediate Fund.
Subject to the Florida Intermediate Fund's shareholders approving the
Reorganization, the closing (the "Closing") will occur within 15 business days
after the later of the receipt of all necessary regulatory approvals and the
final adjournment of the Special Meeting or such later date as soon as
practicable thereafter as the Intermediate Fund and the Florida Intermediate
Fund may mutually agree.
On the date of the Closing, the Florida Intermediate Fund will transfer to the
Intermediate Fund all of its assets and liabilities. The Intermediate Fund will
in turn transfer to the Florida Intermediate Fund a number of its Class A, C and
R shares equal in value to the value of the net assets of the Fund, transferred
to the Intermediate Fund as of the date of the Closing, as determined in
accordance with the valuation method described in the Intermediate Fund's then
current prospectus. In order to minimize any potential for undesirable federal
income and excise tax consequences in connection with the Reorganization, the
Intermediate Fund and the Florida Intermediate Fund may individually distribute
on or before the Closing all or substantially all of their respective
undistributed net investment income (including net capital gains) as of such
date.
The Florida Intermediate Fund expects to distribute in complete liquidation the
Class A, C and R shares of the Intermediate Fund to the shareholders of the
respective class of the Fund promptly after the Closing and then will be
liquidated, dissolved and terminated as a series of the Multistate Trust in
accordance with the Trust's Declaration of Trust.
The Florida Intermediate Fund has made certain standard representations and
warranties to the Intermediate Fund regarding its capitalization, status and
conduct of business.
Unless waived in accordance with the Agreement, the obligations of the parties
to the Agreement are conditioned upon, among other things:
A. the approval of the Reorganization by shareholders of the Florida
Intermediate Fund;
B. the absence of any rule, regulation, order, injunction or proceeding
preventing or seeking to prevent the consummation of the transactions
contemplated by the Agreement;
C. the receipt of all necessary approvals, registrations and exemptions
under federal and state laws;
D. the truth in all material respects as of the Closing of the
representations and warranties of the parties and performance and
compliance in all material respects with the parties' agreements,
obligations and covenants required by the Agreement;
E. the effectiveness under applicable law of the registration statement
of the Intermediate Fund of which this Prospectus/Proxy Statement
forms a part and the absence of any stop orders under the Securities
Act of 1933, as amended, pertaining thereto; and
F. the receipt of opinions of counsel relating to, among other things,
the tax-free nature of the Reorganization for federal income tax
purposes.
The Agreement may be terminated or amended with respect to a Reorganization by
the mutual consent of the parties either before or after approval thereof by the
shareholders of the Florida Intermediate Fund, provided that no such amendment
after such approval shall be made if it would have a material adverse affect on
the interests of the Fund's shareholders. The Agreement also may be terminated
by the non-breaching party if there has been a material misrepresentation,
material breach of any representation or warranty, material breach of contract
or failure of any condition to Closing.
10
<PAGE> 20
The Board recommends that you vote to approve the Reorganization, as it believes
the Reorganization is in the best interests of the Florida Intermediate Fund and
that the interests of existing shareholders will not be diluted as a result of
consummation of the proposed Reorganization.
DESCRIPTION OF SECURITIES TO BE ISSUED
Shares of Beneficial Interest. Beneficial interests in the Intermediate Fund
being offered hereby are represented by transferable Class A, C and R shares,
par value $0.01 per share. The Declaration of Trust of the Municipal Trust
permits the trustees, as they deem necessary or desirable, to create one or more
separate investment portfolios and to issue a separate series of shares for each
portfolio and, subject to compliance with the 1940 Act, to further subdivide the
shares of a series into one or more classes of shares for such portfolio.
Voting Rights of Shareholders. Holders of shares of the Intermediate Fund are
entitled to one vote per share on matters as to which they are entitled to vote;
however, separate votes generally are taken by each series on matters affecting
an individual series.
The Intermediate Fund operates as a series of the Municipal Trust, an open-end
management investment company registered with the SEC under the 1940 Act. In
addition to the specific voting rights described above, shareholders of the
Intermediate Fund are entitled, under current law, to vote with respect to
certain other matters, including changes in fundamental investment policies and
restrictions and the ratification of the selection of independent auditors.
Moreover, under the 1940 Act, shareholders owning not less than 10% of the
outstanding shares of the Municipal Trust may request that the respective board
of trustees call a shareholders' meeting for the purpose of voting upon the
removal of trustee(s).
CONTINUATION OF SHAREHOLDER ACCOUNTS AND PLANS; SHARE CERTIFICATES
If the Reorganization is approved, the Intermediate Fund will establish an
account for each Florida Intermediate Fund's shareholder containing the
appropriate number of shares of the Intermediate Fund. The shareholder services
and shareholder programs of the Intermediate Fund and the Florida Intermediate
Fund are substantially identical. Shareholders of the Florida Intermediate Fund
who are accumulating shares of the Florida Intermediate Fund under the dividend
reinvestment plan, or who are receiving payment under the systematic withdrawal
plan with respect to shares of the Florida Intermediate Fund, will retain the
same rights and privileges after the Reorganization in connection with the
Intermediate Fund Class A, C or R shares received in the Reorganization through
substantially identical plans maintained by the Intermediate Fund. Chase
Manhattan Bank, custodian for the Florida Intermediate Fund, serves as the
custodian for the assets of the Intermediate Fund.
Upon approval of the Reorganization shareholders of the Florida Intermediate
Fund who currently own shares in certificate form are asked to surrender these
shares to the Florida Intermediate Fund's transfer agent, Chase Global Fund
Services, P.O. Box 5186, Bowling Green Station, NY, NY 10275. Florida
Intermediate Fund shareholders must submit a written request to Chase in order
to receive certificates for their Intermediate Fund shares. No certificates for
Intermediate Fund shares will be issued as part of the Reorganization except
upon request.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences of the Reorganization to shareholders of the Florida Intermediate
Fund and shareholders of the Intermediate Fund. The discussion set forth below
is for general information only and may not apply to a holder subject to special
treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such
as a holder that is a bank, an insurance company, a dealer in securities, a
tax-exempt organization, a foreign person or that acquired its Class A, C and R
shares of the Florida Intermediate Fund pursuant to the exercise of employee
stock options or otherwise as compensation. It is based upon the Code,
legislative history, Treasury regulations, judicial authorities, published
positions of the Internal Revenue Service (the "Service") and other relevant
authorities, all as in effect on the date hereof and all of which are subject to
change or different interpretations (possibly on a retroactive basis). This
summary is limited to shareholders who hold their Florida Intermediate Fund
shares as capital assets. No advance rulings have been or will be sought from
the Service regarding any matter discussed in this Prospectus/Proxy Statement.
Accordingly, no assurances can be given that the Service could not successfully
challenge the intended federal income tax treatment described below.
Shareholders should consult their own tax advisers to determine the specific
federal income tax consequences of all transactions relating to the
Reorganization, as well as the effects of state, local and foreign tax laws and
possible changes to the tax laws.
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Code. It is a condition to the Closing of
the Reorganization that the Municipal Trust and the Fund receive an opinion from
Vedder, Price, Kaufman & Kammholz ("Vedder Price") substantially to the effect
that for federal income tax purposes:
A. The acquisition by the Intermediate Fund of the assets of the Florida
Intermediate Fund in exchange solely for Class A, C and R shares of
the Intermediate Fund and the assumption by the Intermediate Fund of
the
11
<PAGE> 21
liabilities of the Florida Intermediate Fund will qualify as tax-free
reorganization within the meaning of Section 368(a)(1) (C) of the Code.
B. No gain or loss will be recognized by the Florida Intermediate Fund
or the Intermediate Fund upon the transfer to the Intermediate Fund
of the assets of the Florida Intermediate Fund in exchange solely for
the Class A, C and R shares of the Intermediate Fund and the
assumption by the Intermediate Fund of the liabilities of the Florida
Intermediate Fund.
C. The Intermediate Fund's basis in the Florida Intermediate Fund's
assets received in the Reorganization will equal the basis of such
assets in the hands of the Florida Intermediate Fund immediately
prior to the transfer, and the Intermediate Fund's holding period of
such assets will, in each instance, include the period during which
the assets were held by the Florida Intermediate Fund.
D. No gain or loss will be recognized by the shareholders of the Florida
Intermediate Fund upon the exchange of their shares of the Florida
Intermediate Fund for the Class A, C and R shares of the Intermediate
Fund.
E. The aggregate tax basis in the Class A, C and R shares of the
Intermediate Fund received by the shareholders of the Florida
Intermediate Fund will be the same as the aggregate tax basis of the
shares of the Florida Intermediate Fund surrendered in exchange
therefor.
F. The holding period of the Class A, C and R shares of the Intermediate
Fund received by the shareholders of the Florida Intermediate Fund
will include the holding period of the shares of the Florida
Intermediate Fund surrendered in exchange therefor provided such
surrendered shares of the Florida Intermediate Fund are held as
capital assets by such shareholder.
In rendering its opinions, Vedder Price will rely upon certain representations
of the management of the Intermediate Fund and the Florida Intermediate Fund and
assume that the Reorganization will be consummated as described in the Agreement
and that redemptions of shares of the Florida Intermediate Fund occurring prior
to the Closing and post-Closing redemptions of shares of the Florida
Intermediate Fund that are received in the Reorganization will consist solely of
redemptions in the ordinary course of business.
The Intermediate Fund intends to be taxed under the rules applicable to
regulated investment companies as defined in Section 851 of the Code, which are
the same rules currently applicable to the Florida Intermediate Fund and its
shareholders.
EXPENSES
Because the benefits of the Reorganization is anticipated to accrue primarily to
shareholders of the Florida Intermediate Fund, the Florida Intermediate Fund
will pay all of the costs associated with the Reorganization. However, since the
Adviser currently waives and/or reimburses certain operating expenses for the
Florida Intermediate Fund (which the Adviser intends to do at least through the
date of the Closing), the Adviser will effectively bear the full costs of the
Reorganization. Management of the Florida Intermediate Fund estimates that
expenses for the Reorganization will equal approximately $50,000. In addition,
separate from the Reorganization, the Florida Intermediate Fund will write-off
the remaining unamortized organizational expenses of approximately $9,200 which
will be reimbursed by the Adviser, in its capacity as the investment adviser of
the Florida Intermediate Fund.
The Board of the Multistate Trust has determined that the foregoing arrangement
with respect to expenses is fair and reasonable.
As noted above, shareholders of the Florida Intermediate Fund may redeem their
shares or exchange their shares for shares of certain other open-end mutual
funds distributed by Nuveen at any time prior to the closing of the
Reorganization. See "Distribution, Purchase, Valuation, Redemption and Exchange
of Shares" above. Redemptions and exchanges of shares generally are taxable
transactions for federal income tax purposes, unless your account is not subject
to taxation, such as an individual retirement account or other tax-qualified
retirement plan. Shareholders should consult with their own tax advisers
regarding potential transactions.
LEGAL MATTERS
Certain legal matters concerning the federal income tax consequences of the
Reorganization and issuance of Class A, C and R shares of the Intermediate Fund
will be passed on by Vedder, Price, Kaufman & Kammholz, 222 North LaSalle
Street, Chicago, Illinois 60601.
FINANCIAL STATEMENTS
The unaudited updated Financial Highlights for the Intermediate Fund and the
Florida Intermediate Fund are attached hereto as Exhibit C.
12
<PAGE> 22
In addition, incorporated by reference in their respective entireties are (i)
for the Intermediate Fund, the unaudited financial statements for the six months
ended October 31, 1997 and the audited financial statements for the fiscal year
ended April 30, 1997, attached as Exhibit D to the Reorganization SAI; (ii) for
the Florida Intermediate Fund, the unaudited financial statements for the six
months ended November 30, 1997 and the audited financial statements for the
fiscal year ended May 31, 1997, attached as Exhibit E to the Reorganization SAI;
and (iii) the proforma financial statements as of April 30, 1998 attached as
Exhibit F to the Reorganization SAI.
D. RECOMMENDATION OF THE BOARD
The Board of the Multistate Trust has unanimously approved the Agreement and has
determined that participation in the Reorganization is in the best interests of
the Florida Intermediate Fund. THE BOARD RECOMMENDS VOTING "FOR" THE PROPOSED
REORGANIZATION.
PROPOSAL 2. SELECTION OF INDEPENDENT AUDITORS
The members of the Board who are not "interested persons" of the Multistate
Trust have unanimously selected Arthur Andersen LLP, independent public
accountants, as independent auditors, to audit the books and records of the
Florida Intermediate Fund for the fiscal year ending May 31, 1999. On June 26,
1997, the members of the Board who are not "interested persons" determined that
it would be in the Trust's best interests to have the same independent auditors
as the other Nuveen open-end funds and unanimously appointed Arthur Andersen as
independent auditors for the Trust for the current fiscal year ended May 31,
1998 to replace the former independent auditors. During the two most recent
fiscal years ended May 31, 1997, there have been no disagreements with the
former independent auditors on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure or any reportable
events. The former independent auditors' report on the financial statements for
the past two years contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. The selection of Arthur Andersen LLP as independent auditors of the
Florida Intermediate Fund is being submitted to the shareholders for
ratification, which requires the affirmative vote of a majority of the shares of
the Fund present and entitled to vote on the matter. A representative of Arthur
Andersen LLP is expected to be present at the Special Meeting and will be
available to respond to any appropriate questions raised at the Special Meeting
and to a make a statement if he or she wishes.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS.
OTHER INFORMATION
A. SHAREHOLDERS OF THE INTERMEDIATE FUND AND THE FLORIDA INTERMEDIATE FUND
At the close of business on June 16, 1998, there were Class A shares, Class C
shares and Class R shares, respectively, of the Intermediate Fund. As of such
date, the trustees and officers of the Intermediate Fund as a group own less
than 1% of the shares of the Intermediate Fund. The following table sets forth
the percentage of each person who, as of June 16, 1998, owns of record, or is
known by the Municipal Trust to own of record or beneficially own 5% or more of
any class of shares of the Intermediate Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CLASS NAME AND ADDRESS OF OWNER PERCENTAGE OF OWNERSHIP
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
A
C
R
</TABLE>
At the close of business on June 16, 1998, the record date with respect to the
Special Meeting, there were Class A shares, Class C shares
and Class R shares, respectively, of the Florida Intermediate Fund. As
of such date, the trustees and officers of the Florida Intermediate Fund as a
group own less than 1% of the outstanding shares of the Florida Intermediate
Fund. The following table sets forth the percentage of each person who, as of
June 16, 1998, owns of record, or is known by the Multistate Trust to own of
record or beneficially own 5% or more of any class of shares of the Florida
Intermediate Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
CLASS NAME AND ADDRESS OF OWNER PERCENTAGE OF OWNERSHIP
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
A
C
R
</TABLE>
13
<PAGE> 23
B. SHAREHOLDER PROPOSALS
As a general matter, the Intermediate Fund does not intend to hold future
regular annual or special meetings of its shareholders unless required by the
1940 Act. In the event the Reorganization is not consummated, the Florida
Intermediate Fund does not intend to hold future regular annual or special
meetings of its shareholders unless required by the 1940 Act. Any shareholder
who wishes to submit proposals for consideration at a meeting of shareholders of
the Intermediate Fund or the Florida Intermediate Fund should send such proposal
to the respective Fund at 333 West Wacker Drive, Chicago, Illinois 60606. To be
considered for presentation at a shareholders' meeting rules promulgated by the
SEC require that, among other things, a shareholder's proposal must be received
at the offices of the Fund a reasonable time before a solicitation is made.
Timely submission of a proposal does not necessarily mean that such proposal
will be included.
VOTING INFORMATION AND REQUIREMENTS
Holders of shares of the Florida Intermediate Fund are entitled to one vote per
share on matters as to which they are entitled to vote. The Florida Intermediate
Fund does not utilize cumulative voting.
Each valid proxy given by a shareholder of the Florida Intermediate Fund will be
voted by the persons named in the proxy in accordance with the instructions
marked thereon and as the persons named in the proxy may determine on such other
business as may come before the Special Meeting on which shareholders are
entitled to vote. If no designation is made, the proxy will be voted by the
persons named in the proxy as recommended by the Board "FOR" approval of the
Reorganization and "FOR" the selection of independent auditors. Abstentions and
broker non-votes (i.e., shares held by brokers or nominees, typically in "street
name," as to which (i) instructions have not been received from beneficial
owners or persons entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on a particular matter) do not count as votes "FOR"
the proposals and are treated as votes "AGAINST." Thirty percent of the
outstanding shares of the Fund entitled to vote on the proposals must be present
in person or by proxy to have a quorum to conduct business at the Special
Meeting. Abstentions and broker non-votes will be deemed present for quorum
purposes.
Shareholders who execute proxies may revoke them at any time before they are
voted by filing with the Florida Intermediate Fund a written notice of
revocation, by delivering a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. The giving of a proxy will
not affect your right to vote in person if you attend the Special Meeting and
wish to do so.
It is not anticipated that any action will be asked of the shareholders of the
Florida Intermediate Fund other than as indicated above, but if other matters
are properly brought before the Special Meeting, it is intended that the persons
named in the proxy will vote in accordance with their judgment.
APPROVAL OF THE REORGANIZATION WILL REQUIRE THE FAVORABLE VOTE OF THE HOLDERS OF
A MAJORITY OF THE OUTSTANDING SHARES OF THE FLORIDA INTERMEDIATE FUND ENTITLED
TO VOTE.
In the event that sufficient votes in favor of a proposal are not received by
the scheduled time of the Special Meeting, the persons named in the proxy may
propose and vote in favor of one or more adjournments of the Special Meeting to
permit further solicitation of proxies. If sufficient shares were present to
constitute a quorum, but insufficient votes had been cast in favor of a proposal
to approve it, proxies would be voted in favor of adjournment only if the Board
determined that adjournment and additional solicitation was reasonable and in
the best interest of the shareholders of the Florida Intermediate Fund, taking
into account the nature of the proposal, the percentage of the votes actually
cast, the percentage of negative votes, the nature of any further solicitation
that might be made and the information provided to shareholders about the
reasons for additional solicitation. Any such adjournment will require the
affirmative vote of the holders of a majority of the outstanding shares voted at
the session of the Special Meeting to be adjourned.
Proxies of shareholders of the Florida Intermediate Fund are solicited by the
Board. In order to obtain the necessary quorum at the Special Meeting,
additional solicitation may be made by mail, telephone, telegraph or personal
interview by representatives of the Adviser or Nuveen, or by dealers or their
representatives. In addition, such solicitation servicing may also be provided
by D.F. King, at a cost estimated to be approximately $2,000, plus reasonable
expenses.
June 29, 1998
PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY.
YOUR VOTE IS IMPORTANT AND YOUR PARTICIPATION
IN THE AFFAIRS OF YOUR FUND DOES MAKE A DIFFERENCE.
14
<PAGE> 24
EXHIBIT A
OCTOBER 31, 1997
MANAGEMENT'S DISCUSSION OF INTERMEDIATE FUND PERFORMANCE
- --------------------------------------------------------------------------------
Dear Shareholder
It's a pleasure to report to you on the
performance of your Nuveen municipal bond
fund. Over the past 12 months, the fund has
performed exceptionally well, rewarding
investors with dependable tax-free income and
attractive returns.
The fund generated superior total returns and
its Class A shares were ranked in the top ten
percent of funds among their peer categories
for the period by Lipper Analytical Services.
For the 12 months ended October 31, 1997,
Class A shares of the Intermediate Fund
generated 9.04%. Investors also continued to
enjoy strong dividends generated by the
fund's portfolio of quality bonds. You will
find additional details on the individual
performance of the fund on pages A6 and A7.
As 1997 draws to a close, it seems
appropriate to take a moment to look back
over what has been an exceptional time for
the American economy, the financial
markets -- and the investors in those
markets. The year has been distinguished by
continued economic strength, the lowest
unemployment rates in more than two decades,
and progress on fiscal issues, including a
reduction in the federal deficit. While much
of investors' attention has remained focused
on the stock market, the achievements of the
bond market should not be overlooked.
During 1997, the environment for bond
performance was enhanced by a substantial
decline in interest rates,
- ------A-1
<PAGE> 25
OCTOBER 31, 1997
reflecting investors' confidence that
inflation can remain near its current annual
rate of 2.2%, one of the lowest levels for
the Consumer Price Index in 30 years.
The events of 1997 have also focused renewed
attention on the need for diversification and
asset allocation. Stock market volatility,
especially in late October, provided a vivid
illustration of the steadying effect that
fixed-income investments can provide in a
well-constructed investment portfolio. Nuveen
mutual funds provide an excellent balance to
other stock and bond investments, and their
current yields make them very attractive.
You already know you can rely on Nuveen to
provide the tax-advantaged investments you
need to pursue your investment goals. Your
financial adviser can introduce you to a
variety of other Nuveen products and services
to round out your investment portfolio,
including the Nuveen Growth and Income Stock
Fund and two new balanced stock and bond
funds. We have also expanded our private
asset management capabilities through the
acquisition of Rittenhouse Financial
Services, a well-respected growth investment
manager. We encourage you to talk with your
financial adviser about ways to complement
your current Nuveen investment by taking
advantage of these additional products and
services.
We at Nuveen remain committed to providing
you with quality investment solutions that
withstand the test of time. We thank you for
your confidence in us and our family of
investments, and we look forward to our next
report to you.
Sincerely,
Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
December 15, 1997
- ------A-2
<PAGE> 26
OCTOBER 31, 1997
Answering Your Questions
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED
THE PERFORMANCE OF MUNICIPAL BONDS OVER THE
PAST YEAR?
Over the past 12 months, the performance of
the municipal bond market was influenced by
three major factors: the continued strength
of the U.S. economy, minimal inflation (both
of which are reflected in the
steady-to-declining interest rates evident
during the year), and volatility in the
equity markets. During 1997, these factors
contributed to a positive environment for
fixed-income investments, including municipal
issues.
Between November 1996 and October 1997, the
yield on the 30-year Treasury bond dropped
from 6.68% to 6.15%, and the municipal market
followed suit, as the yield on the Bond Buyer
40 declined from 5.80% to 5.40%. The spread
between tax-free municipal bonds and taxable
Treasury bonds remained tight, making
municipal bonds very attractive. The strong
total returns produced in this environment
were somewhat muted by a heavy supply of
newly issued bonds that temporarily impacted
bond prices. The increased supply worked to
our advantage, however, as it expanded
opportunities to find value in the
marketplace.
HOW HAS THE FUND PERFORMED DURING THIS
PERIOD?
As Tim mentioned in his letter to
shareholders, the fund performed
exceptionally well, achieving excellent total
returns and superior performance in
comparison with its peers. The Intermediate
Fund generated impressive results, with a
total return of 9.04% on Class A shares
compared with a peer group average of
6.62% -- a 242 basis point
TED NEILD, MANAGING DIRECTOR OF NUVEEN'S PORTFOLIO MANAGEMENT TEAM, TALKS ABOUT
THE MUNICIPAL BOND MARKET AND OFFERS INSIGHTS
INTO FACTORS THAT AFFECTED THE PERFORMANCE OF THE FUNDS OVER THE PAST YEAR.
- ------A-3
<PAGE> 27
OCTOBER 31, 1997
difference. It was the top-performing fund in
its category, boasting a number one ranking
among 138 intermediate-term municipal bond
funds. The fund was also rated well on a
risk-adjusted basis, as evidenced by the
Class A share's four-star ratings by
Morningstar.
WHAT ARE YOUR KEY STRATEGIES FOR THE COMING
YEAR?
To sustain such outstanding performance, we
take a holistic approach to portfolio
management -- assessing all of the factors
that determine a fund's performance and
taking advantage of all of them to contribute
to total return and dividend stability. One
focus in the coming year will be to maintain
good call protection, which helps sustain the
dividend and reduce the volatility of the
funds.
Although the fund has historically held
lower-rated (but still investment-grade
quality) bonds to increase yield to
shareholders, we have seen the yield
differentials between AAA and BBB bonds
narrow significantly over the past year. As
long as credit spreads are tight, we will
plan to take advantage of opportunities to
purchase bonds with high credit quality at
yields that are similar to bonds with lower
ratings.
As part of our value investing approach, we
will also continue to look for bonds that
offer good long-term value with the potential
for appreciating returns. At Nuveen, our
Research Department provides the in-depth
expertise and practical knowledge--backed by
a century of experience--that make the
difference in uncovering bonds that perform
well throughout market cycles. Our thorough
research helps us find investment-grade
quality bonds that offer the best
values--such as bonds from specific regions
and sectors that have the best potential for
performance and appreciation. Recently,
research helped us uncover a number of bonds
that were eventually pre-refunded by their
issuers, which adds tremendous value to the
portfolios. We plan to continue to search for
bonds with advance refunding potential, as
well as those with lower
- ------A-4
<PAGE> 28
OCTOBER 31, 1997
(but still investment-grade quality) credit
ratings that we feel are undervalued by the
market as a whole.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL
MARKET?
Looking at the year ahead, we believe the
overall market will continue to strike a good
balance between supply and demand. We expect
supply to increase as new issuers continue to
enter the market. A continued decline in
yields could also cause new supply to come to
market through refunding of current debt. On
the demand side, volatility in the equity
markets, plus the potential for a weakening
of the economy, could spark increased
interest in bonds of all types.
Overall, we expect the funds to continue to
benefit from tight credit spreads, as we take
advantage of opportunities to enhance the
credit quality and structure of the
portfolios.
- ------A-5
<PAGE> 29
OCTOBER 31, 1997
NUVEEN FLAGSHIP INTERMEDIATE
MUNICIPAL BOND FUND
PERFORMANCE OVERVIEW
As Of October 31, 1997
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------------------
SHARE CLASS A C R
<S> <C> <C> <C>
Inception Date 9/92 12/95 2/97
..................................................................
Net Asset Value (NAV) $10.91 $10.91 $10.89
..................................................................
CUSIP 67065Q814 67065Q798 67065Q780
------------------------------------------------------------------
------------------------------------------------------------------
Total Net Assets ($000) $ 43,757
..................................................................
Average Weighted Maturity (Years) 9.20
..................................................................
Average Weighted Duration (Years) 7.08
------------------------------------------------------------------
</TABLE>
ANNUALIZED TOTAL RETURN(2)
<TABLE>
<CAPTION>
---------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) C R
<S> <C> <C> <C> <C>
1-Year 9.04% 5.77% 8.44% 9.00%
..............................................................
5-Year 7.89% 7.23% 7.30% 7.88%
..............................................................
Since Inception 7.54% 6.90% 6.94% 7.53%
--------------------------------------------------------------
</TABLE>
TAX-FREE YIELDS
<TABLE>
<CAPTION>
---------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) C R
<S> <C> <C> <C> <C>
Dist Rate 4.73% 4.59% 4.18% 4.90%
..............................................................
SEC 30-Day Yld 4.73% 4.59% 3.72% 4.47%
..............................................................
Taxable Equiv Yld(3) 6.19% 6.00% 5.39% 6.48%
--------------------------------------------------------------
1 Overall rating for Class A shares within 2 Class A share returns are actual. Class C and R share returns are
the municipal bond category for the period actual for the period since class inception; returns prior to class
ended October 31, 1997. Morningstar inception are Class A share returns adjusted for differences in
proprietary ratings reflect historical sales charges and expenses, which are primarily differences in
risk-adjusted performance and are subject distribution and service fees. Class A shares have a 3.0% maximum
to change every month. Ratings are up-front sales charge. Class C shares have a 1% contingent
calculated from a fund's three-, five-and deferred sales charge for redemptions within one year which is
10-year average annual returns in excess of not reflected in the one-year total return.
90-day Treasury bill returns, with
appropriate fee adjustments and a risk 3 Based on SEC yield and a federal income tax rate of 31%.
factor that reflects fund performance below Represents the yield on a taxable investment necessary to equal the
90-day Treasury bill returns. The fund yield of the Nuveen fund on an after-tax basis.
earned four stars for each of the three-
and five-year periods ended October 31,
1997. In an investment category, 10% of
funds receive five stars and 22.5% receive
four stars. For the period ending October
31, 1997, 1,448 municipal bond funds were
rated for the three-year period, 676 for
the five-year period, and 329 for the
10-year period.
</TABLE>
MORNINGSTAR RATING(1)
- ------A-6
<PAGE> 30
OCTOBER 31, 1997
Credit Quality
[PIE CHART]
-------------------------------------------------
A 18%
AA 12%
AAA 36%
BBB/NR 34%
-------------------------------------------------
Diversification
[PIE CHART]
-------------------------------------------------
Health Care 26%
Industrial Revenue 4%
Long-Term Care 4%
Tax Obligation (G.O.) 8%
Tax Obligation (Limited) 17%
Transportation 13%
Utilities 10%
Water & Sewer 9%
Other 4%
Education/Civic Organizations 5%
-------------------------------------------------
Dividend History (A Shares)
[WE HAVE NO PLOT POINTS FOR THIS CHART]
[BAR GRAPH]
-------------------------------------------------
November 1996 October 1997
-------------------------------------------------
- ------
A-7
<PAGE> 31
APRIL 30, 1997
Dear Shareholder
It is my pleasure to report to you on the
performance of the Nuveen Flagship
Intermediate Municipal Bond Fund, and to
welcome new investors to our family of
investments. Shareholders were rewarded
during the fiscal year with the attractive
tax-free income and consistent performance
that are hallmarks of Nuveen's disciplined
investment approach -- qualities that make
this fund a good choice for those seeking a
stable addition to their core investment
portfolio.
The fund's outstanding performance came
during a volatile year in the municipal bond
market, including a mid-1996 decline and a
post-election rally. Our focus on
high-quality bonds helped to control price
swings, while the market's volatility created
opportunities for portfolio managers to add
value and enhance fund yields. By continuing
to seek out undervalued bonds in sectors and
regions we believe are fundamentally strong,
Nuveen was able to generate very attractive
current yields for shareholders while also
preserving capital.
As of April 30, 1997, Class A shareholders in
the Intermediate Municipal Bond Fund were
receiving a yield on net asset value of
5.03%. To match this yield, Intermediate
investors in the 31% federal income tax
bracket would have had to earn 7.29% from
taxable counterparts.
During the same period, the fund turned in
impressive total return performance when
compared with its peers.
- ------A-8
<PAGE> 32
APRIL 30, 1997
The Intermediate fund had a 6.68% total
return, outperforming the 10-year Lehman
Municipal Bond Index.
Nuveen has recently made significant and
exciting additions to the investment options
available to our shareholders -- additions
that make it easier to keep more of what you
earn. We introduced three new equity and
balanced funds for investors seeking both
long-term growth and current income. We also
introduced new fund pricing options to make
purchasing our mutual funds even more
convenient, and we revamped our prospectuses
and annual shareholder reports to make them
easier to read and provide expanded
information about the funds.
Further, Nuveen's array of municipal bond
funds is now one of the largest in the
industry since our merger with Flagship
Resources Inc. This merger offers you even
greater access to the municipal market plus
additional expertise, resources and increased
efficiencies for our shareholders.
On behalf of everyone at Nuveen, I thank you
for your confidence in us and our family of
investments. You can continue to depend on us
for high-quality investment products that
withstand the test of time. We look forward
to serving you in the future.
Sincerely,
Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
June 12, 1997
- ------A-9
<PAGE> 33
APRIL 30, 1997
Answering Your Questions
WHAT ARE THE INVESTMENT OBJECTIVES OF THE
FUND?
The fund aims to provide investors with a
high level of tax-free income while
preserving the capital that investors have
entrusted to us. Many investors rely on their
portfolio as a principal source of their
ongoing financial security. To that end, we
focus our portfolio strategy on preserving
what Nuveen investors have accumulated while
generating income to support a comfortable
lifestyle.
WHAT IS YOUR STRATEGY FOR MEETING THOSE
OBJECTIVES?
Rigorous research analysis and a value
investing approach are at the foundation of
these fund's strategies. Each is a Nuveen
hallmark, and they go hand in hand.
A value strategy means that we look for
high-quality securities that are undervalued
and attractively priced relative to the rest
of the market. Nuveen Research helps identify
those market sectors, geographic regions and
bond structures likely to produce bonds whose
long-term value is higher than their current
prices would indicate.
One current example of a region we've
identified as undervalued is the Sun Belt.
The growth of the Southeast and Southwest has
resulted in a huge volume of municipal bond
issuance, most of which is to provide
essential services: schools, correctional
facilities, and water and sewer systems. The
combination of volume and quality has created
tremendous opportunities to find value.
- ------A-10
<PAGE> 34
APRIL 30, 1997
That's not to say it's easy. There is more
municipal market information out there than
ever before, and the markets are more
efficient. As a result, there are fewer
opportunities to find value. But by focusing
on quality issues with fundamental value, as
opposed to trying to call the direction of
interest rates, we're able to produce the
high level of income consistent share price
performance investors expect.
HOW DID THE FUND PERFORM DURING THE YEAR AND
WHAT KEY ECONOMIC AND MARKET FACTORS AFFECTED
THE FUND'S PERFORMANCE?
The Intermediate fund was one of the top
performing funds in its Lipper category also
(6th of 136 national intermediate municipal
bond funds), providing shareholders with a
total return of 6.68%, compared with the
10-year Lehman Index of 6.36%.
The fund continued to focus on improving call
protection and found opportunities to buy
higher yielding securities, which enhanced
the fund's income level. Attractive bonds
were found in selective healthcare,
transportation and tax-backed bonds. The fund
also began paying a stabilized dividend,
ensuring consistent and regular cash flows to
shareholders.
WHAT IS YOUR MARKET OUTLOOK FOR THE COMING
YEAR?
We continue to see an economic expansion
characterized by low unemployment and little
wage and price inflation pressures. The
Federal Reserve has demonstrated its
continued vigilance against inflation by
making a pre-emptive rate hike at the end of
March. We anticipate continued municipal
market demand as individual investors focus
on strategically rebalancing their portfolios
and reducing their exposure to the volatility
recently demonstrated by the equity market.
- ------A-11
<PAGE> 35
APRIL 30, 1997
By following a disciplined value strategy,
and depending on sound research, the
long-term outlook for our municipal bond
funds -- and for Nuveen shareholders -- is
very good. We will continue to look for
opportunities in sectors like healthcare and
public power and in regions like the Midwest
and the Sun Belt, and to identify bonds that
are structured in ways that make them
attractive through a complete interest rate
cycle.
- ------A-12
<PAGE> 36
APRIL 30, 1997
INTERMEDIATE
MUNICIPAL BOND FUND
OVERVIEW
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------
SHARE CLASS A B C R
<S> <C> <C> <C> <C>
Inception Date 9/92 N/A 12/95 2/97
....................................................................
Net Asset Value (NAV) $10.47 N/A $10.47 $10.45
--------------------------------------------------------------------
--------------------------------------------------------------------
Total Net Assets ($000) $43,915
....................................................................
Average Weighted Maturity (years) 9.09
....................................................................
Duration (years) 7.16
--------------------------------------------------------------------
</TABLE>
ANNUALIZED TOTAL RETURN(1)
<TABLE>
<CAPTION>
--------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
1-Year 6.68% 3.48% N/A 5.99% 6.53%
.............................................................
Life of Fund 6.88% 6.17% N/A 6.29% 6.85%
-------------------------------------------------------------
</TABLE>
TAX-FREE YIELDS
<TABLE>
<CAPTION>
--------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 4.91% 4.76% N/A 4.36% 5.12%
.............................................................
SEC 30-Day Yld 5.03% 4.88% N/A 4.48% 5.24%
.............................................................
Taxable Equiv Yld(2) 7.29% 7.07% N/A 6.49% 7.59%
-------------------------------------------------------------
</TABLE>
1 Returns of the oldest share class of a fund
are actual. Returns for other classes are
actual for the period since inception and
prior to class inception are the returns
for the fund's oldest class, adjusted for
differences in sales charges and expenses.
Class A shares have an initial sales
charge, while Class C and R shares have no
initial sales charge. Class B shares have a
CDSC that declines from 5% to 0% after 6
years. Class C shares have a 1% CDSC for
redemptions within one year. Returns do not
reflect imposition of the CDSC.
2 Based on SEC yield and a federal income tax
rate of 31%. Represents the yield on a
taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax
basis.
3 Overall rating of Class A Shares among
1,257,608 and 274 municipal bond funds for
the 3-, 5- and 10-year periods ended
4/30/97, respectively.
[PIE CHARTS]
<TABLE>
<S> <C>
- ------------------------------------------
A 13.5%
AA 9.8%
AAA 39.5%
BBB/NR 37.2%
- ------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------
<S> <C>
Lease Rental 11%
Educational Facilities 6%
Transportation 17%
Pollution Control 17%
General Obligations 12%
Housing Facilities 3%
Water and Sewer 9%
Health Care Facilities 23%
Electric Utilities 3%
Other 9%
- ------------------------------------------
</TABLE>
MORNINGSTAR RATING(3)
- ------A-13
<PAGE> 37
APRIL 30, 1997
* The Index Comparison shows change in value of a $10,000 investment in
the A shares of the Nuveen fund compared with the Lehman Brothers
Intermediate Municipal Bond Index. The Lehman Intermediate Municipal Bond
Index is comprised of a broad range of investment-grade, intermediate-term
municipal bonds, and does not reflect any initial or ongoing expenses. The
Nuveen fund return depicted in the chart reflects the initial maximum sales
charge applicable to A shares (3.0%) and all ongoing fund expenses.
Index Comparison*
[WE HAVE NO PLOT POINTS FOR THIS CHART]
[LINE GRAPH]
----------------------------------------------------------------------
September 1992 April 1997
Lehman Brothers Intermediate Municipal Bond Index - $13,620
Nuveen Flagship Intermediate Municipal Bond Fund (NAV) - $13,599
Nuveen Flagship Intermediate Municipal Bond Fund (Offer) - $13,191
Past performance is not predictive of future performance.
----------------------------------------------------------------------
Dividend History (A Shares)
[WE HAVE NO PLOT POINTS FOR THIS CHART]
[BAR GRAPH]
----------------------------------------------------------------------
May 1996 April 1997
----------------------------------------------------------------------
- ------
A-14
<PAGE> 38
EXHIBIT B
NOVEMBER 30, 1997
MANAGEMENT'S DISCUSSION OF FLORIDA INTERMEDIATE FUND PERFORMANCE
- --------------------------------------------------------------------------------
Dear Shareholder
It's a pleasure to share with you the
outstanding performance record of the Nuveen
Flagship Florida Intermediate Municipal Bond
Fund for the 12 months ended November 30,
1997. Over the past year, investors continued
to enjoy attractive, tax-free dividends
generated by the portfolios of municipal
bonds. As of November 30, 1997, Class A
shareholders in the Florida Intermediate
Fund, Class A shareholders were receiving a
current yield on net asset value of 4.13%. To
match this yield, investors in the 31%
federal income tax bracket would have had to
earn 5.99% on taxable alternatives.
During this same period, the Florida
Intermediate Fund generated a 6.61% total
return on net asset value, far outpacing its
peer group average of 5.28% for the Lipper
Florida intermediate municipal bond fund
category. You will find additional details on
the performance of the funds on pages B-6 and
B-7.
THE YEAR IN REVIEW
Over the past year, U.S. investors have
benefited from robust economic growth with
little evidence of inflationary pressures.
With unemployment rates at 20-year lows and
the current economic expansion entering its
seventh year, the presence of benign
inflation has sparked debate over whether the
traditional link between growth and inflation
has been broken. During 1997, expectations
that excess growth would generate inflation
disrupted the markets on several occasions,
most notably following the Federal Reserve's
interest rate tightening in March and
speeches by Fed Chairman Alan Greenspan.
Still, falling commodity
- ------B-1
<PAGE> 39
NOVEMBER 30, 1997
prices kept producer prices in check, while
low import prices -- due in part to the
weakness in Asian markets -- limited U.S.
companies' ability to raise prices. This
combination has kept inflation subdued and
the Federal Reserve "on hold" since March.
The reduction in the federal deficit and the
passage of the Taxpayer Relief Act of 1997
offer additional encouragement to long-term
fixed-income investors.
HELPING YOU BUILD A BETTER PORTFOLIO
The events of 1997 have focused renewed
attention on the need for diversification and
appropriate asset allocation. Stock market
volatility, especially late in the year,
provided a vivid illustration of the
steadying effect that fixed-income
investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds
provide an excellent balance to other stock
and bond investments. Your financial adviser
can introduce you to a variety of other
Nuveen products and services to round out
your investment portfolio, including the
Nuveen Growth and Income Stock Fund and two
balanced stock and bond funds.
In addition, we recently expanded our private
asset management capabilities through the
acquisition of Rittenhouse Financial
Services, a well-respected growth investment
manager. We encourage you to talk with your
financial adviser about ways to complement
your current Nuveen investments by taking
advantage of these additional products and
services.
We at Nuveen remain committed to providing
you with quality investment solutions that
withstand the test of time. We thank you for
your confidence in us and our family of
investments, and we look forward to our next
report to you.
Sincerely,
Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
January 15, 1998
- ------
B-2
<PAGE> 40
NOVEMBER 30, 1997
Answering Your Questions
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED
THE PERFORMANCE OF THE MUNICIPAL BONDS OVER
THE PAST YEAR?
Over the past 12 months, the performance of
the municipal bond market was influenced by
three major factors: the continued strength
of the U.S. economy, minimal inflation, and
volatility in the equity markets. During
1997, these factors contributed to a positive
environment for fixed-income investments, as
reflected in the steady-to-declining interest
rates evident during the year.
Between December 1996 and November 1997, the
yield on the 30-year Treasury bond dropped
from 6.36% to 6.05%, and the municipal market
followed suit, as the yield on the Bond Buyer
40 declined from 5.63% to 5.36%. The spread
between tax-free municipal bonds and taxable
Treasury bonds remained tight, making
municipal bonds very attractive. The strong
total returns produced in this environment
were somewhat muted by a heavy supply of
newly issued bonds that temporarily reduced
bond prices. The increased supply worked to
our advantage, however, as it expanded
opportunities to find value in the
marketplace.
HOW HAS THE FUND PERFORMED DURING THIS
PERIOD?
As Tim mentioned in his letter to
shareholders, the fund performed well during
the one-year period ended November 30, 1997.
The Florida Intermediate Fund Class A Shares
generated a 6.61% total return on net asset
value for the period, compared with its peer
group average of 5.28% -- a 133 basis point
difference.
- ------
B-3
<PAGE> 41
NOVEMBER 30, 1997
GIVEN THE CURRENT MUNICIPAL MARKET, WHERE
WERE YOU ABLE TO FIND VALUE?
One of the ways that we achieved such
outstanding performance and created value for
shareholders was by finding well-structured
bonds to add to the portfolios. We looked for
bonds with the combination of maturity,
credit quality and call protection that we
felt would appreciate in value.
Well-structured state bonds are becoming more
difficult to find in the competitive
marketplace, so those bonds in our portfolios
are increasing in value. The price
appreciation of the bonds in the portfolios
allowed us to maintain strong dividends even
as interest rates fell during the year. In
addition, we uncovered a number of
undervalued securities in health care,
airport and housing sectors that we feel will
appreciate in value relative to similar
bonds. We also found value in some
non-callable bonds with maturities in the
long end of the intermediate-term range.
WHAT ARE YOUR KEY STRATEGIES FOR THE COMING
YEAR?
To sustain this level of performance, we take
a holistic approach to portfolio
management -- assessing all of the factors
that determine a fund's performance and
taking advantage of all of them to contribute
to total return and dividend stability. In
the coming year, we will continue to
selectively purchase the bonds that we feel
will keep the portfolios balanced in all of
these areas. With the future of the economy
so uncertain and many experts calling for a
market correction, we will lean toward a more
cautious portfolio management strategy in the
coming months.
As part of our value investing approach, we
will also continue to look for individual
bonds that offer good long-
- ------
B-4
<PAGE> 42
NOVEMBER 30, 1997
term value with the potential for
appreciating returns. Our thorough research
helps us find investment-quality bonds that
offer the best values -- such as bonds from
specific regions and sectors that have the
best potential for performance and
appreciation. We plan to continue to search
for bonds with pre-refunding potential, as
well as those that we feel are undervalued by
the market as a whole.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL
MARKET?
Looking at the year ahead, we believe the
overall market will continue to strike a good
balance between supply and demand. We expect
supply to increase as new issuers continue to
enter the market. A continued decline in
yields could also cause new supply to come to
market through refunding of current debt. On
the demand side, volatility in the equity
markets, plus the potential for a weakening
of the economy, could spark increased
interest in bonds of all types.
The financial crises in Asia, coupled with
the continued strength of the dollar and low
commodity prices, are all contributing to the
excellent inflation picture. This backdrop
should help offset stronger labor markets and
limit the effects of any bond market
corrections. In the meantime, positive
underlying fundamentals provide good support
for the municipal market.
- ------
B-5
<PAGE> 43
NOVEMBER 30, 1997
Nuveen Flagship Florida Intermediate
Municipal Bond Fund
Performance Overview
As of November 30, 1997
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
-----------------------------------------------------------------
SHARE CLASS A C R
<S> <C> <C> <C>
Inception Date 9/94 2/94 2/97
.................................................................
Net Asset Value (NAV) $10.39 $10.38 $10.41
.................................................................
CUSIP 67065L864 67065L856 67065L849
-----------------------------------------------------------------
-----------------------------------------------------------------
Total Net Assets ($000) $12,254
.................................................................
Average Weighted Maturity (Years) 9.80
.................................................................
Average Weighted Duration (Years) 7.28
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
---------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) C R
<S> <C> <C> <C> <C>
1-Year 6.61% 3.38% 5.95% 6.98%
...............................................................
3-Year 8.76% 7.65% 8.18% 8.89%
...............................................................
Since Inception 6.50% 5.66% 5.90% 6.60%
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE YIELDS
---------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) C R
<S> <C> <C> <C> <C>
Dist Rate 4.50% 4.37% 3.99% 4.73%
...............................................................
SEC 30-Day Yld 4.13% 4.00% 3.58% 4.32%
...............................................................
Taxable Equiv Yld(2) 5.99% 5.80% 5.19% 6.26%
---------------------------------------------------------------
</TABLE>
(1) Class A Share returns are actual. Class C
and R Share returns are actual for the
period since class inception; returns prior
to class inception are Class A Share
returns adjusted for differences in sales
charges and expenses, which are primarily
differences in distribution and service
fees. Class A Shares have a 3% maximum
up-front sales charge. Class C Shares have
a 1% contingent deferred sales charge
(CDSC) for redemptions within one year
which is not reflected in the one-year
total return.
(2) Based on SEC Yield and a federal income tax
rate of 31%. Represents the yield on a
taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax
basis.
(3) The fund paid a capital gains distribution
to shareholders in December of $0.0174 per
share.
- ------
B-6
<PAGE> 44
NOVEMBER 30, 1997
Credit Quality
[PIE CHART]
------------------------------------------
BBB/NR 13%
AA 9%
A 6%
AAA 72%
------------------------------------------
Diversification
[PIE CHART]
------------------------------------------
Tax Obligation (B.O.) 17%
Transportation 15%
Water & Sewer 8%
Health Care 7%
Housing (Multi-Family) 7%
Housing (Single-Family) 6%
Utilities 5%
Other 4%
Long-Term Care 3%
Tax Obligation (Limited) 28%
------------------------------------------
Dividend History (A Shares) 1
[BAR GRAPH]
------------------------------------------
December 1996
12/96 $0.0400
1/97 0.0400
2/97 0.0385
3/97 0.0385
4/97 0.0385
5/97 0.0385
6/97 0.0385
7/97 0.0385
8/97 0.0385
9/97 0.0385
10/97 0.0385
11/97 0.0385
November 1997
------------------------------------------
- ------
B-7
<PAGE> 45
MAY 31, 1997
Dear Shareholder
It's a pleasure to report to you on the
performance of the Nuveen Flagship Florida
Intermediate Municipal Bond Fund. Over the
past year, the fund posted sizable gains. For
the fiscal year ended May 31, 1997, the value
of Class A shares rose 7.16% for the Florida
Intermediate Fund, if you chose to reinvest
your tax-free income dividends.
Over this 12-month period, the total return
performance for the Florida Intermediate Fund
kept close pace with the 8.17% increase
generated by its comparable market measure,
the Lehman Brothers 10-Year Municipal Bond
Index.
In addition to substantial total returns,
shareholders continue to enjoy very
attractive current yields generated by a
portfolio of quality bonds, which provide
excellent income for investors. As of May 31,
1997, Class A shareholders were receiving
tax-free yields on net asset value of 4.34%
for the Florida Intermediate Fund. To match
this yield, investors in the 31% federal
income tax bracket would have had to earn at
least 6.29% for the Florida Intermediate Fund
on taxable alternatives.
These results were produced against a
backdrop of continued economic expansion and
the lowest unemployment rates in almost two
decades, a combination that in the past has
foreshadowed an increase in inflation. In
March, the Federal Reserve made a pre-emptive
strike by raising short-term interest rates
by 0.25%, but then maintained the status quo
at its May and July meetings. Overall market
returns continue to be good, but fear of
- ------
B-8
<PAGE> 46
MAY 31, 1997
inflation has hampered the performance of
municipals and led to increased volatility in
both the equity and bond markets.
During this time, bonds have often been the
bellwether for the direction of stocks.
Whenever inflation talk is at its most
rampant, the stock market has kept an eye on
the bond market for its response before
reacting.
In the first six months of the year, the
markets also focused on fiscal issues,
including the federal budget accord and
discussion of plans to reduce taxes and
eliminate the deficit. The economy appeared
to be moderating, corporate earnings reports
continued to exhibit strength, and interest
rates fell in the second quarter. All of this
was positive news. The net effect is that the
markets are better off now than at the
beginning of the year, but the volatility
experienced in getting there has been
significant.
Recently, the need for diversification and a
renewed emphasis on asset allocation -- as
well as attractive yields -- have sparked
increased interest in tax-free investments.
The current level of the stock market reminds
investors to re-allocate profits to other
segments of the market in order to limit
risk. Nuveen municipal bond funds provide an
excellent lower-risk alternative, and their
current yields make them very attractive.
On behalf of everyone at Nuveen, I thank you
for your confidence in us and our family of
investments. You can continue to depend on us
for high-quality investments that withstand
the test of time. We look forward to
reporting to you again in six months.
Sincerely,
Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
July 15, 1997
- ------
B-9
<PAGE> 47
MAY 31, 1997
Answering Your Questions
WHAT ARE THE INVESTMENT OBJECTIVES OF THE
FUND?
The fund aims to provide investors with a
high level of tax-free income while
preserving capital by investing in a
diversified portfolio of high-quality
municipal bonds. To that end, we attempt to
maximize the fund's after-tax total return by
generating high tax-free income and
minimizing the distribution of taxable
capital gains when possible.
WHAT IS YOUR STRATEGY FOR MEETING THESE
OBJECTIVES?
To meet the fund's objectives of income and
enhanced value, our portfolio management
strategy relies on conservative value
investing principles, sound research and
credit surveillance activities, and senior
management involvement. At Nuveen, value
investing means taking a fundamental approach
to finding bonds that offer the best balance
of high potential return with low risk
regardless of the direction of interest
rates. This approach focuses on the
characteristics of individual bonds, such as
sector, geographic region, structure and
intrinsic credit quality, rather than on the
general economic environment. The idea behind
this philosophy is that we, as investment
managers, can control the selection process,
but not the direction of the economy as a
whole.
WHAT KEY ECONOMIC FACTORS AFFECTED
THE FUND'S PERFORMANCE DURING THE YEAR?
The U.S. economy continued to grow exhibiting
low unemployment, increased manufacturing and
construction activity, and lack of price
pressure at the consumer and producer levels.
The fund had the added advantage of
- ------
B-10
<PAGE> 48
MAY 31, 1997
operating in a healthy supply environment,
where securities were available as needed.
GIVEN THIS MARKET ENVIRONMENT, HOW DID
THE FUND PERFORM?
The Florida Intermediate Municipal Bond Fund
performed well over the past year, rewarding
Class A shareholders with a total return on
net asset value for the year of 7.16%,
including price changes and reinvested
dividends. The fund performed well compared
with its peer group. In fact, the Florida
Intermediate Fund was ranked number one among
18 Florida intermediate municipal bond funds
for the one-year period by Lipper Analytical
Services, a nationally recognized performance
measurement service.
WHAT STRATEGIES DID YOU EMPLOY TO ADD VALUE?
We focused on strengthening the fund's
long-term income level by purchasing
higher-yielding bonds and maintaining
long-term call protection. We also took
advantage of the market's recent volatility
to purchase attractively priced bonds. In
particular, purchases in housing, healthcare
and transportation sectors added to the
overall strength of the funds.
WHAT IS THE CURRENT STATUS OF FLORIDA'S
MUNICIPAL MARKET?
Employment and personal income growth in
Florida have outpaced the nation since 1991
and recent economic reports note that the
state continues to experience job growth,
albeit at a more moderate pace. Economists
are also predicting another record tourism
year for the state. Healthy demand has
absorbed Florida's $4.9 billion in municipal
issuance through the first half of 1997 and
caused a slight tightening in credit spreads.
Florida is facing ongoing challenges relating
to financing growth, particularly in its
schools. In addition, deregulation of the
electric utility industry could adversely
affect the Southeast unless certain
provisions are included in federal
legislation. On the positive side, Miami's
financial position has stabilized and its
recent five-year recovery plan projects
balanced operations for the 1997 fiscal year.
- ------
B-11
<PAGE> 49
MAY 31, 1997
WHAT IS THE CURRENT OUTLOOK FOR THE MUNICIPAL
MARKET
AS A WHOLE?
As we make our way through the seventh year
of the current economic expansion, some
observers believe that a fundamental shift
may have occurred in our economy. Based on
past experience and months of reports of
economic growth, especially employment
statistics, the markets have long been
anticipating an increase in inflation.
However, even with almost full employment, we
have not seen the expected rise in hourly
wages that would be considered inflationary.
This change in the traditional economic
cause-and-effect relationship has been
variously attributed to the globalization of
the economy and consequent competitive
pressures, to increased use of technology,
and to corporations' recent ability to
downsize as necessary. Although structural
changes in the economy appear to have
suspended the relationship between faster
growth and higher inflation, the risk remains
that inflation may reassert itself if
capacity constraints are reached and
resources are stretched too thin.
Talk of Fed tightening will continue. If the
Fed does act to increase rates, it will be
perceived as a move against inflation. If the
Fed does not tighten, it will be seen as an
indication that the economy is doing well.
Nonetheless, for the remainder of 1997, the
municipal market should continue to offer the
attractive yields and tax advantages that
make it a good alternative if and when a
correction in the stock market occurs. While
money continues to flow into equity mutual
funds, investors are also beginning to
evaluate the effect of the huge run-up in
stock prices on their asset allocation and
many are rebalancing their portfolios by
shifting some assets into bonds.
- ------
B-12
<PAGE> 50
MAY 31, 1997
Florida Intermediate
Overview
[PIE CHARTS]
CREDIT QUALITY
<TABLE>
<S> <C>
AAA/Pre-refunded 68%
AA 9%
A 9%
BBB/NR 14%
</TABLE>
DIVERSIFICATION
<TABLE>
<S> <C>
Escrowed Bonds 13%
Housing Facilities 8%
General Obligations 20%
Utilities 3%
Hospitals 8%
Tax Revenue 19%
Municipal Appropriations 3%
Transportation 11%
Water & Sewer 10%
Other 5%
</TABLE>
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
-------------------------------------------------------------------
SHARE CLASS A C R
<S> <C> <C> <C>
Inception Date 2/94 2/94 2/97
...................................................................
Net Asset Value (NAV) $10.09 $10.08 $10.11
-------------------------------------------------------------------
-------------------------------------------------------------------
Total Net Assets ($000) $16,198
...................................................................
Average Weighted Maturity (years) 8.92
...................................................................
Duration (years) 6.7
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
---------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) C R
<S> <C> <C> <C> <C>
1-Year 7.16% 2.66% 6.47% 7.42%
...............................................................
Since Inception 5.85% 4.50% 5.25% 5.93%
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE YIELDS
---------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) C R
<S> <C> <C> <C> <C>
Dist Rate 4.61% 4.48% 4.07% 4.81%
...............................................................
SEC 30-Day Yld 4.34% 4.21% 3.90% 4.61%
...............................................................
Taxable Equiv Yld(2) 6.29% 6.10% 5.65% 6.68%
---------------------------------------------------------------
</TABLE>
(1) Returns of the oldest share class of a fund
are actual. Returns for other classes are
actual for the period since inception and
prior to class inception are the returns
for the fund's oldest class, adjusted for
differences in sales charges and expenses.
Class A shares have an initial sales
charge, while Class C and R shares have no
initial sales charge. Class C shares have a
1% CDSC for redemptions within one year.
Returns do not reflect imposition of the
CDSC.
(2) Based on SEC yield and a federal income tax
rate of 31%. Represents the yield on a
taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax
basis.
- ------
B-13
<PAGE> 51
MAY 31, 1997
* The Index Comparison shows change in value of a $10,000 investment in
the A shares of the Nuveen fund compared with the Lehman Brothers Municipal
Bond Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares (3.00%) and all ongoing fund
expenses.
Index Comparison*
[WE HAVE NO PLOT POINTS FOR THIS CHART]
[LINE GRAPH]
- -----------------------------------------------------------------------------
February 1994 April 1997
Lehman Brothers 10-Year Municipal Bond Index $11,912
Nuveen Flagship Florida Intermediate Municipal Bond Fund (NAV) $12,084
Nuveen Flagship Florida Intermediate Municipal Bond Fund (Offer) $11,576
Past performance is not predictive of future performance.
- -----------------------------------------------------------------------------
Dividend History (A Shares)
[BAR GRAPH]
- -----------------------------------------------------------------------------
Dividend History (A Shares) Capital Gain
June 1996
6/96 $0.03880
7/96 0.03880
8/96 0.03880
9/96 0.03880
10/96 0.03949
11/96 0.03939
12/96 0.03811 $0.0174
1/97 0.03939
2/97 0.03811
3/97 0.03939
4/97 0.03939
5/97 0.03811
May 1997
- -----------------------------------------------------------------------------
- ------
B-14
<PAGE> 52
EXHIBIT C
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------------- --------------------------
CLASS (INCEPTION DATE) NET REALIZED DIVIDENDS
NUVEEN FLAGSHIP NET ASSET AND UNREALIZED FROM TAX- NET TOTAL
INTERMEDIATE++ VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS ASSET RETURN ON
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL VALUE END NET ASSET
APRIL 30, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS OF PERIOD VALUE(A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1998(g) $10.47 $.26 $ .44 $(.26) $ -- $10.91 6.72%
1997(e) 10.27 .47 .20 (.47) -- 10.47 6.64
1996(f) 10.29 .51 (.02) (.51) -- 10.27 4.84
1995(f) 10.16 .51 .13 (.51) -- 10.29 6.63
1994(f) 10.35 .52 (.13) (.52) (.06)+++ 10.16 3.72
1993(c) 9.70 .36 .64 (.35) -- 10.35 14.06+
CLASS C (12/95)
1998(g) 10.47 .23 .44 (.23) -- 10.91 6.42
1997(e) 10.28 .44 .17 (.42) -- 10.47 6.00
1996(c) 10.57 .23 (.30) (.22) -- 10.28 (1.78)+
CLASS R (2/97)
1998(g) 10.45 .27 .44 (.27) -- 10.89 6.82
1997(d) 10.60 .13 (.15) (.13) -- 10.45 (.15)
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------
CLASS (INCEPTION DATE) RATIO OF RATIO OF NET RATIO OF NET
NUVEEN FLAGSHIP NET ASSETS EXPENSES TO INVESTMENT INCOME RATIO OF EXPENSES INVESTMENT
INTERMEDIATE++ END OF AVERAGE NET TO AVERAGE NET TO AVERAGE NET INCOME TO AVERAGE PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER NET ASSETS AFTER TURNOVER
APRIL 30, THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(B) REIMBURSEMENT(B) RATE
- ---------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1998(g) $40,504 1.05%+ 4.57%+ .75%+ 4.87%+ 8%
1997(e) 40,906 1.18+ 4.46+ .68+ 4.96+ 26
1996(f) 46,742 1.17 4.31 .62 4.86 81
1995(f) 42,069 1.24 4.45 .54 5.15 102
1994(f) 35,891 1.29 4.04 .40 4.93 69
1993(c) 18,971 1.59+ 3.78+ .39+ 4.98+ 102
CLASS C (12/95)
1998(g) 2,711 1.60+ 4.02+ 1.30+ 4.32+ 8
1997(e) 2,540 1.71+ 3.90+ 1.23+ 4.38+ 26
1996(c) 1,187 1.73+ 3.68+ 1.13+ 4.28+ 81
CLASS R (2/97)
1998(g) 543 .85+ 4.76+ .55+ 5.06+ 8
1997(d) 469 .82+ 4.98+ .40+ 5.40+ 26
</TABLE>
- ---------------
+ Annualized.
++ Information included prior to the 11 months ending April 30, 1997, reflects
the financial highlights of Flagship Intermediate.
+++ The amount shown includes a distribution in excess of capital gains of $.01
per share.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted through May 31.
(d) From commencement of class operations as noted through April 30.
(e) For the 11 months ending April 30.
(f) For the year ending May 31.
(g) For the six months ending October 31, 1997.
C-1
<PAGE> 53
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) --------------------------- --------------------------
NUVEEN FLAGSHIP NET REALIZED DIVIDENDS
FLORIDA NET ASSET AND UNREALIZED FROM TAX- NET TOTAL
INTERMEDIATE** VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS ASSET RETURN ON
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL VALUE END NET ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS OF PERIOD VALUE(A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1998(d) $10.09 $.23 $ .30 $(.23) $ -- $10.39 5.33%
1997 9.88 .45 .25 (.47) (.02) 10.09 7.16
1996 10.05 .46 (.12) (.46) (.05) 9.88 3.41
1995 9.66 .46 .33 (.40) -- 10.05 8.42
1994(c) 9.70 .12 (.04) (.12) -- 9.66 1.75*
CLASS C (2/94)
1998(d) 10.08 .20 .31 (.21) -- 10.38 5.06
1997 9.88 .40 .23 (.41) (.02) 10.08 6.47
1996 10.05 .40 (.11) (.41) (.05) 9.88 2.88
1995 9.66 .40 .33 (.34) -- 10.05 7.80
1994(c) 9.70 .11 (.06) (.09) -- 9.66 1.33*
CLASS R (2/97)
1988(d) 10.11 .24 .31 (.25) -- 10.41 5.43
1997(c) 10.20 .12 (.09) (.12) -- 10.11 .32
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) --------------------------------------------------------------------------------------------------
NUVEEN FLAGSHIP RATIO OF RATIO OF NET RATIO OF NET
FLORIDA NET ASSETS EXPENSES TO INVESTMENT INCOME RATIO OF EXPENSES INVESTMENT
INTERMEDIATE** END OF AVERAGE NET TO AVERAGE NET TO AVERAGE NET INCOME TO AVERAGE PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER NET ASSETS AFTER TURNOVER
MAY 31, THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(B) REIMBURSEMENT(B) RATE
- ---------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1998(d) $ 8,465 1.41%* 3.84%* .79%* 4.46%* 30%
1997 13,089 1.80 3.42 .73 4.49 35
1996 4,995 1.67 3.57 .76 4.48 66
1995 3,898 3.54 1.87 .67 4.74 105
1994(c) 964 6.70* (2.62)* .29* 3.79* 28
CLASS C (2/94)
1998(d) 3,671 1.97* 3.29* 1.34* 3.92* 30
1997 3,008 2.56 2.71 1.28 3.99 35
1996 3,079 2.25 2.97 1.34 3.88 66
1995 1,765 4.53 .85 1.19 4.19 105
1994(c) 1,058 7.38* (3.28)* .68* 3.42* 28
CLASS R (2/97)
1988(d) 119 1.22* 4.07* .60* 4.69* 30
1997(c) 101 1.21* 3.82* .56* 4.47* 35
</TABLE>
- ---------------
* Annualized.
** Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Florida Intermediate.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
C-2
<PAGE> 54
NUVEEN MUNICIPAL BOND FUNDS
AUGUST 27, 1997
PROSPECTUS
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
[PHOTO]
NATIONAL
<PAGE> 55
INVESTING IN NUVEEN MUTUAL FUNDS
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments 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
financial 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 philosophy. 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> 56
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
AUGUST 27, 1997
PROSPECTUS
OVERVIEW
The funds listed above are diversified funds and part of the Nuveen Flagship
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 circumstances 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 investing.
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.
<PAGE> 57
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OVERVIEW........................................ 1
FUND SUMMARIES AND FINANCIAL HIGHLIGHTS......... 3
FUND STRATEGIES
Investment Objective.......................... 15
How the Funds Select Investments.............. 16
Risk Reduction Strategies..................... 17
INVESTING IN THE FUNDS
How to Buy Fund Shares........................ 18
How to Select a Purchase Option............... 18
How to Sell Fund Shares....................... 21
Exchanging Shares............................. 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Optional Features and Services................ 22
DIVIDENDS AND TAXES
How the Funds Pay Dividends................... 23
Taxes and Tax Reporting....................... 24
Taxable Equivalent Yields..................... 25
GENERAL INFORMATION
How to Contact Nuveen......................... 25
Fund Service Providers........................ 25
How the Funds Report Performance.............. 27
How Fund Shares are Priced.................... 27
Organization.................................. 27
</TABLE>
<PAGE> 58
NUVEEN MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 4/30/97
INCEPTION: November 29, 1976
NET ASSETS: $2.9 billion
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 2.38% 6.87% 6.36% 6.16% 7.25%
5 Years 5.35% 6.26% 5.57% 5.49% 6.55%
10 Years 7.07% 7.53% 6.93% 6.74% 7.81%
Inception 6.71% 6.94% 6.65% 6.15% 7.21%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A, B and
C total returns reflect actual performance for periods since class inception,
and Class R performance for periods prior to class inception (see "Financial
Highlights" for dates), adjusted for the differences in sales charges and fees
between the classes. Class B total returns assume an ongoing investment and do
not reflect the imposition of the CDSC; your returns for the 1 year and 5 year
periods would be lower if you redeemed at the end of those periods. 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 for further information.
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
- ----------------------------------------------
Average Maturity 20.6
Average Modified Duration 7.9
- ----------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- ----------------------------------------------
BBB (8)%
A (18)%
AA (36)%
AAA (37)%
BB/NR (1)%
- ----------------------------------------------
</TABLE>
1
<PAGE> 59
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
----------------------------------------------
Electric Utilities 20)%
Health Care Facilities (17)%
Housing Facilities (16)%
Escrowed Bonds (13)%
Water/Sewer Facilities (9)%
Other (25)%
----------------------------------------------
</TABLE>
EXPENSE INFORMATION AS OF 4/30/97
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>
2
<PAGE> 60
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. You may find more information about the fund's performance in its
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 (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
NET
NET REALIZED AND DIVIDENDS NET TOTAL
MUNICIPAL BOND ASSET UNREALIZED FROM TAX ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
APRIL 30, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS PERIOD VALUE(A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (6/95)
1997(g) $9.24 $.08 $(.10) $(.08) $ -- $9.14 (.23)%
1997(f) 9.28 .48 -- (.47) (.05) 9.24 5.26%
1996(c) 9.15 .34 .14 (.32) (.03) 9.28 5.33%
CLASS B (2/97)
1997(g) 9.24 .09 (.11) (.07) -- 9.15 (.25)%
1997(c) 9.23 .03 .01 (.03) -- 9.24 .47%
CLASS C (6/95)
1997(g) 9.23 .07 (.09) (.07) -- 9.14 (.21)%
1997(f) 9.26 .42 -- (.40) (.05) 9.23 4.64%
1996(c) 9.15 .29 .13 (.28) (.03) 9.26 4.59%
CLASS R (11/76)
1997(g) 9.24 .08 (.09) (.08) -- 9.15 (.09)%
1997(f) 9.28 .49 .01 (.49) (.05) 9.24 5.53%
1996(f) 9.00 .51 .31 (.51) (.03) 9.28 9.31%
1995(f) 9.28 .52 (.21) (.51) (.08) 9.00 3.60%
1994(f) 9.45 .52 (.07) (.52) (.10) 9.28 4.79%
1993(f) 9.08 .56 .41 (.54) (.06) 9.45 11.04%
1992(d) 9.04 .24 .08 (.24) (.04) 9.08 3.56%
1991(e) 8.65 .58 .44 (.59) (.04) 9.04 12.15%
1990(e) 8.73 .60 (.08) (.60) -- 8.65 6.04%
1989(e) 8.52 .60 .24 (.60) (.03) 8.73 10.07%
1988(e) 8.02 .60 .54 (.60) (.04) 8.52 14.50%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------
CLASS (INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
MUNICIPAL BOND TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS
YEAR ENDING END OF AFTER AFTER PORTFOLIO
APRIL 30, PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
MILLIONS) MENT(B) MENT(B) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (6/95)
1997(g) $ 70.3 .77%+ 5.13%+ 2%
1997(f) 68.2 .81%+ 5.11%+ 12%
1996(c) 37.1 .83%+ 5.14%+ 17%
CLASS B (2/97)
1997(g) .5 1.53%+ 4.39%+ 2%
1997(c) -- 1.51%+ 5.23%+ 12%
CLASS C (6/95)
1997(g) 5.4 1.32%+ 4.58%+ 2%
1997(f) 5.0 1.54% 4.37% 12%
1996(c) 1.9 1.58%+ 4.39%+ 17%
CLASS R (11/76)
1997(g) 2,774.6 .57%+ 5.33%+ 2%
1997(f) 2,818.2 .57% 5.35% 12%
1996(f) 2,878.6 .59% 5.53% 17%
1995(f) 2,741.2 .59% 5.79% 17%
1994(f) 2,700.0 .62% 5.49% 15%
1993(f) 2,371.7 .61% 5.95% 14%
1992(d) 1,835.7 .62%+ 6.24%+ 6%
1991(e) 1,661.4 .60% 6.48% 10%
1990(e) 1,323.6 .62% 6.78% 8%
1989(e) 1,119.8 .64% 6.85% 12%
1988(e) 945.4 .65% 7.11% 8%
- -----------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(c) From commencement of class operations as noted through February 28/29.
(d) For the five months ending February 29.
(e) For the year ending September 30.
(f) For the year ending February 28/29.
(g) For the two months ending April 30.
Notes:
(1) The Class A 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. See "How to Select a Purchase Option."
(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 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%. 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. If you did not redeem Class B shares at the end of
each holding period, your expenses would have been $15 for the one year period,
$48 for the three year period, $83 for the five year period, and $161 for the
ten year period. This example does not represent past or future expenses; actual
expenses may be higher or lower.
3
<PAGE> 61
NUVEEN INSURED MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 4/30/97
INCEPTION: December 22, 1986
NET ASSETS: $790 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 1.66% 6.11% 5.57% 5.49% 6.46%
5 Years 6.02% 6.94% 6.15% 6.04% 7.14%
10 Years 7.62% 8.09% 7.45% 7.23% 8.32%
Inception 6.96% 7.41% 6.82% 6.55% 7.65%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A, B 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 assume an ongoing investment and do
not reflect the imposition of the CDSC; your returns for the 1 year and 5 year
periods would be lower if you redeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
- ----------------------------------------------
Average Maturity 22.1
Average Modified Duration 7.8
- ----------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- ----------------------------------------------
Escrowed (20)%
Insured (80)%
- ----------------------------------------------
</TABLE>
4
<PAGE> 62
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
----------------------------------------------
Health Care Facilities (18)%
General Obligation Bonds (19)%
Escrowed Bonds (20)%
Lease Rental Facilities (9)%
Water/Sewer Facilities (7)%
Other (27)%
----------------------------------------------
</TABLE>
EXPENSE INFORMATION AS OF 4/30/97
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>
5
<PAGE> 63
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. You may find more information about the fund's performance in its
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 (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
NET
INSURED MUNICIPAL NET REALIZED AND DIVIDENDS NET TOTAL
BOND ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
APRIL 30, OF PERIOD INCOME(b) INVESTMENTS INCOME GAINS PERIOD VALUE(s)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997(e) $10.82 $.09 $(.16) $(.09) $ -- $10.66 (.63)%
1997(d) 10.97 .56 (.13) (.54) (.04) 10.82 4.04 %
1996(d) 10.40 .54 .57 (.54) -- 10.97 10.90 %
1995(c) 10.31 .26 .12 (.27) (.02) 10.40 3.84 %
CLASS B (2/97)
1997(e) 10.82 .09 (.16) (.08) -- 10.67 (.65)%
1997(c) 10.80 .04 .02 (.04) -- 10.82 .55 %
CLASS C (9/94)
1997(e) 10.72 .08 (.16) (.08) -- 10.56 (.73)%
1997(d) 10.85 .46 (.09) (.46) (.04) 10.72 3.48 %
1996(d) 10.31 .46 .54 (.46) -- 10.85 9.88 %
1995(c) 10.29 .23 .08 (.27) (.02) 10.31 3.09 %
CLASS R (12/86)
1997(e) 10.78 .09 (.15) (.10) -- 10.62 (.60)%
1997(d) 10.92 .57 (.11) (.56) (.04) 10.78 4.38 %
1996(d) 10.38 .57 .54 (.57) -- 10.92 10.94 %
1995(d) 10.81 .57 (.40) (.58) (.02) 10.38 1.85 %
1994(d) 10.85 .57 .02 (.57) (.06) 10.81 5.47 %
1993(d) 10.03 .59 .88 (.59) (.06) 10.85 15.24 %
1992(d) 9.69 .61 .43 (.62) (.08) 10.03 11.03 %
1991(d) 9.52 .62 .19 (.61) (.03) 9.69 8.94 %
1990(d) 9.35 .63 .26 (.63) (.09) 9.52 9.73 %
1989(d) 9.30 .63 .05 (.63) -- 9.35 7.63 %
1988(d) 9.79 .64 (.49) (.64) -- 9.30 2.00 %
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------
CLASS (INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
INSURED MUNICIPAL TO AVERAGE AVERAGE
BOND NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
APRIL 30, THOUSANDS) MENT(b) MENT(b) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)
1997(e) $ 69.3 .84%+ 5.12%+ 12%
1997(d) 68.3 .87% 5.07% 35%
1996(d) 46.9 .91% 5.01% 27%
1995(c) 14.1 1.00%+ 5.55%+ 25%
CLASS B (2/97)
1997(e) .5 1.59%+ 4.36%+ 12%
1997(c) .2 1.58%+ 4.84%+ 35%
CLASS C (9/94)
1997(e) 5.6 1.39%+ 4.57%+ 12%
1997(d) 5.4 1.61% 4.33% 35%
1996(d) 5.2 1.63% 4.34% 27%
1995(c) 4.0 1.75%+ 4.83%+ 25%
CLASS R (12/86)
1997(e) 714.6 .64%+ 5.31%+ 12%
1997(d) 732.6 .63% 5.31% 35%
1996(d) 761.9 .63% 5.33% 27%
1995(d) 736.7 .64% 5.67% 25%
1994(d) 745.9 .65% 5.21% 11%
1993(d) 567.2 .72% 5.68% 20%
1992(d) 306.9 .73% 6.12% 45%
1991(d) 178.9 .80% 6.45% 53%
1990(d) 111.8 .83% 6.49% 78%
1989(d) 66.0 .87% 6.83% 106%
1988(d) 41.3 .60% 6.93% 88%
- -----------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(c) From commencement of class operations as noted through February 28.
(d) For the year ending February 28/29.
(e) For the two months ending April 30.
Notes:
(1) The Class A 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. See "How to Select a Purchase Option."
(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 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%. 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 0.975% 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. If you did not redeem Class B shares at the end of
each holding period, your expenses would have been $16 for the one year period,
$50 for the three year period, $87 for the five year period, and $169 for the
ten year period. This example does not represent past or future expenses; actual
expenses may be higher or lower.
6
<PAGE> 64
NUVEEN FLAGSHIP ALL-AMERICAN MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 4/30/97
INCEPTION: October 3, 1988
NET ASSETS: $272.3 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year 3.68% 8.23% 7.68% 7.64% 8.38%
5 years 6.96% 7.88% 7.30% 7.28% 7.91%
Inception 8.05% 8.59% 8.04% 7.99% 8.61%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Class A total returns reflect actual performance for all periods; Class B, C and
R total returns reflect actual performance for periods since class inception
(see "Financial Highlights" for dates), and Class A performance for periods
prior to class inception, adjusted for the differences in sales charges and (in
the case of Classes B and C) fees between the classes. Class B total returns
assume an ongoing investment and do not reflect the imposition of the CDSC; your
returns for the 1 year and 5 year periods would be lower if you redeemed at the
end of those periods. 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 for further information.
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
- ----------------------------------------------
Average Maturity 22.6
Average Modified Duration 8.2
- ----------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- ---------------------------------------------
BBB/NR 57%
A 23%
AA 5%
AAA 15%
- ---------------------------------------------
</TABLE>
7
<PAGE> 65
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
---------------------------------------------
Other 28%
Pollution Control 23%
Lease Rental 11%
Housing Facilities 7%
Educational Facilities 8%
Health Care Facilities 23%
---------------------------------------------
</TABLE>
EXPENSE INFORMATION AS OF 4/30/97
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 0.12% 0.12% 0.12% 0.12%
Total (Gross) 0.81% 1.56% 1.36% 0.61%
Waivers/Reimbursements -- -- -- --
Total (Net) 0.81% 1.56% 1.36% 0.61%
- --------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 50 $ 55 $ 14 $ 6
3 Years $ 67 $ 81 $ 43 $20
5 Years $ 85 $ 96 $ 74 $34
10 Years $138 $165 $164 $76
- --------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 66
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. You may find more information about the fund's performance in its
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 (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
NET
NET REALIZED AND DIVIDENDS NET TOTAL
ALL-AMERICAN++ ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
APRIL 30, OF PERIOD INCOME(b) INVESTMENTS INCOME GAINS PERIOD VALUE(a)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (10/88)
1997(e) $10.67 $.55 $ .29 $(.55) $(.06) $10.90 8.02%
1996(f) 10.79 .61 (.12) (.61) -- 10.67 4.64%
1995(f) 10.61 .63 .18 (.63) -- 10.79 8.01%
1994(f) 11.07 .65 (.30) (.65) (.16)+++ 10.61 2.99%
1993(f) 10.40 .67 .76 (.67) (.09) 11.07 14.25%
1992(f) 9.95 .69 .45 (.69) -- 10.40 11.94%
1991(f) 9.73 .72 .22 (.72) -- 9.95 10.10%
1990(f) 9.81 .71 (.06) (.72) (.01) 9.73 6.92%
1989(c) 9.58 .46 .23 (.46) -- 9.81 10.66%+
CLASS B (2/97)
1997(D) 10.98 .12 (.06) (.13) -- 10.91 .54%
CLASS C (6/93)
1997(E) 10.66 .50 .29 (.50) (.06) 10.89 7.48%
1996(f) 10.78 .55 (.12) (.55) -- 10.66 4.07%
1995(f) 10.60 .57 .18 (.57) -- 10.78 7.42%
1994(f) 11.09 .57 (.32) (.57) (.17)+++ 10.60 2.16%+
CLASS R (2/97)
1997(D) 10.99 .15 (.07) (.16) -- 10.91 .69%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------
CLASS (INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
ALL-AMERICAN++ NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
APRIL 30, THOUSANDS) MENT(b) MENT(b) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (10/88)
1997(e) $216.6 .87%+ 5.54%+ 39%
1996(f) 208.0 .83% 5.60% 79%
1995(f) 185.5 .76% 6.02% 71%
1994(f) 159.9 .62% 5.77% 81%
1993(f) 170.8 .65% 6.24% 72%
1992(f) 129.5 .56% 6.81% 86%
1991(f) 79.6 .42% 7.33% 94%
1990(f) 49.0 .42% 7.29% 132%
1989(c) 25.6 --% 7.27%+ 57%
CLASS B (2/97)
1997(D) .7 1.55%+ 4.83%+ 39%
CLASS C (6/93)
1997(E) 54.9 1.42%+ 4.99%+ 39%
1996(f) 47.3 1.37% 5.05% 79%
1995(f) 45.2 1.31% 5.47% 71%
1994(f) 40.0 1.09%+ 5.16%+ 81%
CLASS R (2/97)
1997(D) .2 .61%+ 5.95%+ 39%
- -----------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the period ending April 30, 1997, reflects the
financial highlights of Flagship All-American.
+++ The amounts shown include a distribution in excess of capital gains of $.10
per share.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted through May 31.
(d) From commencement of class operations as noted through April 30.
(e) For the 11 months ending April 30.
(f) For the year ending May 31.
Notes:
(1) The Class A 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. See "How to Select a Purchase Option."
(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%. 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. If you did not redeem Class B shares at
the end of each holding period, your expenses would have been $16 for the one
year period, $49 for the three year period, $85 for the five year period, and
$165 for the ten year period. This example does not represent past or future
expenses; actual expenses may be higher or lower.
9
<PAGE> 67
NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 4/30/97
INCEPTION: September 15, 1992
NET ASSETS: $43.9 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS C CLASS R
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 3.48% 6.68% 5.99% 6.53%
Inception 6.18% 6.88% 6.29% 6.85%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Class A total returns reflect actual performance for all periods; Class C and R
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 (in the case
of Class C) fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective, chiefly
in the form of interest rate risk and credit risk. The fund limits this risk by
purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies for further information.
MATURITY (YEARS)
<TABLE>
<S> <C>
- ----------------------------------------------
Average Maturity 9.1
Average Modified Duration 7.2
- ----------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- ---------------------------------------------
BBB/NR 37%
A 13%
AA 10%
AAA 40%
- ---------------------------------------------
</TABLE>
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- ---------------------------------------------
Health Care Facilities 23%
Transportation 17%
General Obligation 12%
Other 30%
Pollution Control 7%
Lease Rental 11%
- ---------------------------------------------
</TABLE>
10
<PAGE> 68
EXPENSE INFORMATION AS OF 4/30/97
SHAREHOLDER TRANSACTION EXPENSES
(MAXIMUM, AS % OF OFFERING PRICE)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CLASS A CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Charge on Purchases 3.00%(1) -- --
Sales Charge on Reinvested Dividends -- -- --
Contingent Deferred Sales Charge (CDSC) on Redemptions --(1) 1%(2) --
- -------------------------------------------------------------------------------------------------
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (3)
(ANNUAL, AS % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50%
12b-1 Fees 0.20% 0.75% --
Other 0.34% 0.34% 0.34%
Total (Gross) 1.04% 1.59% 0.84%
Waivers/Reimbursements (0.25)% (0.25)% (0.25)%
Total (Net) 0.79% 1.34% 0.59%
- ---------------------------------------------------------------------------------------------
</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 $ 38 $ 14 $ 6
3 Years $ 54 $ 42 $19
5 Years $ 73 $ 73 $33
10 Years $125 $161 $74
- ---------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 69
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. You may find more information about the fund's performance in its
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 (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
NET
NET REALIZED AND DIVIDENDS NET TOTAL
INTERMEDIATE++ ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
APRIL 30, OF PERIOD INCOME(b) INVESTMENTS INCOME GAINS PERIOD VALUE(a)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(e) $10.27 $.47 $ .20 $(.47) $ -- $10.47 6.64 %
1996(f) 10.29 .51 (.02) (.51) -- 10.27 4.84 %
1995(f) 10.16 .51 .13 (.51) -- 10.29 6.63 %
1994(f) 10.35 .52 (.13) (.52) (.06)+++ 10.16 3.72 %
1993(c) 9.70 .36 .64 (.35) -- 10.35 14.06 %+
CLASS C (12/95)
1997(e) 10.28 .44 .17 (.42) -- 10.47 6.00 %
1996(c) 10.57 .23 (.30) (.22) -- 10.28 (1.78)%+
CLASS R (2/97)
1997(d) 10.60 .13 (.15) (.13) -- 10.45 (.15)%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------
CLASS (INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
INTERMEDIATE++ NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
APRIL 30, THOUSANDS) MENT(b) MENT(b) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/92)
1997(e) $40.9 .68%+ 4.96%+ 26%
1996(f) 46.7 .62% 4.86% 81%
1995(f) 42.1 .54% 5.15% 102%
1994(f) 35.9 .40% 4.93% 69%
1993(c) 19.0 .39%+ 4.98%+ 102%
CLASS C (12/95)
1997(e) 2.5 1.23%+ 4.38%+ 26%
1996(c) 1.2 1.13%+ 4.28%+ 81%
CLASS R (2/97)
1997(d) .5 .40%+ 5.40%+ 26%
- -----------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the period ending April 30, 1997, reflects the
financial highlights of Flagship Intermediate.
+++ The amounts shown include a distribution in excess of capital gains of $.10
per share.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted through May 31.
(d) From commencement of class operations as noted through April 30.
(e) For the 11 months ending April 30.
(f) For the year ending May 31.
Notes:
(1) The Class A 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. See "How to Select a Purchase Option."
(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%. 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.
12
<PAGE> 70
NUVEEN FLAGSHIP LIMITED TERM MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 4/30/97
INCEPTION: October 19, 1987
NET ASSETS: $449 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS C CLASS R
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 2.18% 4.80% 4.49% 4.66%
5 years 5.14% 5.68% 5.34% 5.65%
Inception 6.33% 6.61% 6.29% 6.60%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Class A total returns reflect actual performance for all periods; Class C and R
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 (in the case
of Class C) fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective, chiefly
in the form of interest rate risk and credit risk. The fund limits this risk by
purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies for further information.
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
- ----------------------------------------------
Average Maturity 5.5
Average Modified Duration 4.7
- ----------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- ---------------------------------------------
BBB/NR 39%
A 17%
AA 5%
AAA 39%
- ---------------------------------------------
</TABLE>
13
<PAGE> 71
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
---------------------------------------------
Lease Rental 14%
General Obligations 13%
Transportation 8%
Other 36%
Educational Facilities 10%
Health Care Facilities 19%
---------------------------------------------
</TABLE>
EXPENSE INFORMATION AS OF 4/30/97
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>
14
<PAGE> 72
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. You may find more information about the fund's performance in its
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 (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
NET
NET REALIZED AND DIVIDENDS NET TOTAL
LIMITED TERM++ ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
APRIL 30, OF PERIOD INCOME(b) INVESTMENTS INCOME GAINS PERIOD VALUE(a)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (10/87)
1997(e) $10.57 $.46 $ .04 $(.46) $ -- $10.61 4.78%
1996(f) 10.65 .51 (.09) (.50) -- 10.57 4.03%
1995(f) 10.60 .51 .04 (.50) -- 10.65 5.41%
1994(f) 10.74 .52 (.13) (.52) (.01) 10.60 3.58%
1993(f) 10.29 .55 .45 (.55) -- 10.74 10.02%
1992(f) 10.04 .60 .26 (.60) (.01) 10.29 9.04%
1991(f) 9.92 .63 .13 (.64) -- 10.04 8.08%
1990(f) 9.91 .64 .01 (.64) -- 9.92 6.83%
1989(f) 9.88 .62 .02 (.61) -- 9.91 6.81%
1988(c) 9.75 .36 .13 (.36) -- 9.88 7.44%+
CLASS C (12/95)
1997(e) 10.56 .44 .03 (.43) -- 10.60 4.49%
1996(c) 10.76 .22 (.19) (.23) -- 10.56 .46%+
CLASS R (2/97)
1997(d) 10.73 .12 (.13) (.13) -- 10.59 (.09)%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
CLASS (INCEPTION DATE RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
LIMITED TERM++ NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
APRIL 30, THOUSANDS) MENT(b) MENT(b) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (10/87)
1997(e) $425.4 .80%+ 4.76%+ 29%
1996(f) 489.2 .79% 4.77% 39%
1995(f) 569.2 .74% 4.88% 20%
1994(f) 704.6 .70% 4.76% 22%
1993(f) 570.5 .70% 5.10% 20%
1992(f) 284.5 .47% 5.88% 48%
1991(f) 67.5 .56% 6.32% 167%
1990(f) 19.0 .70% 6.48% 38%
1989(f) 13.4 .56% 6.28% 50%
1988(c) 9.8 .40%+ 5.85%+ 67%
CLASS C (12/95)
1997(e) 23.6 1.11%+ 4.44%+ 29%
1996(c) 15.4 1.19%+ 4.17%+ 39%
CLASS R (2/97)
1997(d) -- .55%+ 5.07%+ 29%
- -----------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the period ending April 30, 1997, reflects the
financial highlights of Flagship Intermediate.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted through May 31.
(d) From commencement of class operations through April 30.
(e) For the 11 months ending April 30. (f) For the year ending May 31.
Notes:
(1) The Class A 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. See "How to Select a Purchase Option."
(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 0.50%
to 0.35%. 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.
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level of
current interest income exempt from regular federal income taxes as is
consistent with preservation of capital. There is no assurance that the funds
will achieve their investment objective.
15
<PAGE> 73
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 development
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 purchase only 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
identical -- S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the ratings
agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The adviser
then monitors each fund's portfolio to assure that municipal bonds purchased
continue to represent over time, in its opinion, the best values available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average maturity within a defined range. The
Limited-Term Fund maintains a weighted average portfolio maturity of 1 to 7
years. The Intermediate Fund maintains a
16
<PAGE> 74
weighted average portfolio maturity of 5 to 10 years. All of the other three
funds described in this prospectus are long-term funds and normally maintain a
weighted average portfolio maturity of 15 to 30 years. See "Defensive Investment
Strategies" below for further information.
INSURANCE
The Insured Municipal Bond Fund primarily purchases insured municipal bonds.
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.
The Insured Municipal Bond Fund can invest up to 20% of its net assets in
uninsured municipal bonds that 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
investment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
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
securities 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
(durations) 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
investment 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
diversification. 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).
17
<PAGE> 75
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order to
reduce risk and preserve capital. Under normal market conditions, each fund may
invest only up to 20% of net assets in short-term municipal securities that are
exempt from regular federal income tax, although the funds may invest up to 100%
as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have a
maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have no
present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," "Insurance," and "Risk Reduction Strategies"
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 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit trust
distributions have no purchase minimums. Purchases through sponsors of fee-based
programs meeting certain criteria, as described in the statement of additional
information, may be eligible for lower 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 investment
advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can refer
you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to the
appropriate fund) to the address listed under "How to Contact Nuveen." Sales
charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or increase
minimum investment requirements. The funds also reserve the right to suspend the
issuance of shares at any time; any suspension, however, will not affect your
ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the way
that is most suited to your individual circumstances and investment needs. Each
of the four available ways to purchase fund shares is called a class of shares:
Class A, Class B, Class C and Class R. While each of these classes features
different sales charges, on-going fees and eligibility requirements, each
entitles you to a share of the same portfolio of municipal bonds.
18
<PAGE> 76
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 financial
adviser directly, you should consider the fees your financial adviser charges
for investment advice or handling your trades in addition to any sales charges
and fees imposed by the funds. Please refer to your 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 PUBLIC AS % OF YOUR AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT OFFERING PRICE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over -(1) -- -(1)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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 PUBLIC AS % OF YOUR AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT OFFERING 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
Fund:
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
---------------------------------- --------------
AS % OF PUBLIC AS % OF YOUR NET AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE INVESTMENT OFFERING PRICE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 2.50% 2.56% 2.00%
$50,000 -- 100,000 2.00 2.04 1.60
$100,000 -- 250,000 1.50 1.52 1.20
$250,000 -- 500,000 1.25 1.27 1.00
$500,000 -- 1,000,000 0.75 0.76 0.60
$1,000,000 and over -(1) -- -(1)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commission, you
may be assessed a contingent deferred sales charge (CDSC) of 1% if you redeem
any of your shares within 18 months of purchase. The CDSC is calculated on the
lower of your purchase price or redemption proceeds.
19
<PAGE> 77
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 may also
make ongoing payments to authorized dealers to facilitate the marketing and
administration of new and existing shareholder accounts, including payments for
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
- - Rights of Accumulation
- - Letter of Intent (LOI)
- - Group Purchase
Sales Charge Waivers
- - Nuveen Unit Trust Reinvestment
- - Purchases using Redemptions from Unrelated Funds
- - Fee-Based Programs
- - Bank Trust Departments
- - Certain Employees of Nuveen or Authorized Dealers
Please refer to the statement of additional information for detailed
descriptions of these programs. Further information on these programs is also
available through your financial adviser or by calling (800) 621-7227. Your
financial 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
compensates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your financial
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
compensates your financial adviser for providing you with ongoing service, and a
0.55% (0.35% for the Limited Term Fund) annual distribution fee which
compensates Nuveen for paying your financial adviser for the sale, including a
1% commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
20
<PAGE> 78
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 under certain of the programs
described under "Other Sales Charge Discounts" above. See the statement of
additional information for more details. There are no sales charges or ongoing
fees. Class R shares have lower ongoing expenses than Class A shares.
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any day
the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order. Your
redemption request must be received before the close of trading of the New York
Stock Exchange (normally 4 p.m. Eastern time) for you to receive that day's
price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser may
charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will be
issued only to the shareholder on record and mailed to the address on record. If
you have established electronic funds transfer privileges on your account, you
may have redemption proceeds transferred electronically to your bank account; if
you are redeeming $1,000 or more, you may expedite your request by having your
redemption proceeds wired directly into your bank account. See "Fund
Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund 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.
21
<PAGE> 79
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
involuntary 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
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 determining
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 shortterm
trading. Excessive exchange activity may interfere with portfolio management,
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 additional copies of
these forms, or would like assistance completing them, contact your financial
adviser or call Nuveen at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost
averaging does not assure profits or protect against losses in a steadily
declining market. Since dollar cost averaging involves continuous investment
regardless of fluctuating price levels, you should consider your financial
ability to continue investing in declining as well as rising markets before
deciding to invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales Charge
Discounts").
22
<PAGE> 80
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.
THE POWER OF SYSTEMATIC INVESTING
[CHART APPEARS HERE]
[PLOT POINTS TO COME]
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, semi-annually or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Fund Direct--Electronic Funds Transfer" below), paid to a third party or
sent payable to you at an address other than your address of record. You must
complete the appropriate section of the account application or Account Update
Form to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds in shares of the same class up to one year later without incurring any
applicable sales charges, and your prior holding period will be reinstated. You
may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period
reinstated. 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
application or the Account Update Form. If you need additional copies of these
forms, or would like assistance completing them, contact your financial adviser
or call Nuveen at (800) 621-7227. You may use Fund Direct to quickly and
conveniently purchase or sell shares by telephone, systematically invest or
withdraw funds, or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be sent
by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular telephone
redemption via Fund Direct, the fund may charge you a fee for this expedited
service.
DIVIDENDS AND TAXES
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or other
distributions once a year in December. The funds declare dividends on or about
the ninth of each month and generally pay dividends on the first business day of
the following month.
23
<PAGE> 81
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class unless you request otherwise. You may request to
have your dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class 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 dividend
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
longterm 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
dividend, 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 effectively
represents a return of your purchase price. Similarly, if you sell or exchange
fund shares shortly before the record date for a tax-exempt dividend, a portion
of the price you receive may be treated as a taxable capital gain even though it
reflects tax-free income earned but not yet distributed by the fund.
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
dividends, 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.
24
<PAGE> 82
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.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like the
funds with taxable alternative investments, the table below presents the taxable
equivalent yields for a range of hypothetical tax-free yields and tax rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
TAX-FREE YIELD
<TABLE>
<CAPTION>
- -------------------------------------------
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 funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. Established in 1976, Nuveen Advisory is
25
<PAGE> 83
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 NET ASSET VALUE MANAGEMENT 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 NET ASSET VALUE MANAGEMENT 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 portfolio
managers of Nuveen Advisory and meets regularly to review economic conditions,
the outlook for the financial markets in general and the status of the municipal
markets in particular. Day-to-day operation of each fund and the execution of
its specific investment strategies is the responsibility of the designated
portfolio manager described below.
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 Assistant 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 outstanding. In order to help
compensate Nuveen for the sales commission paid to financial advisers at the
time of sale on
26
<PAGE> 84
sales of Class B and Class C shares, Nuveen retains the first year's service fee
on sales of Class B shares and all Class B distribution fees; and retains the
first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of record. The statement of
additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder
accounts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330,
currently serves as transfer agent for the 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 investment
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. You
may find more information about each fund's performance in its annual report.
Call Nuveen at (800) 621-7227 for a free copy.
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.
Class C shares of the Municipal Bond Fund and the Insured Municipal Bond Fund
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.
27
<PAGE> 85
SUPPLEMENT DATED MAY 4, 1998 TO THE
PROSPECTUS DATED SEPTEMBER 12, 1997
------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST I
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
------------------------
The Trustees of the Nuveen Flagship Multistate Trust I have approved a tax-free
reorganization of the Nuveen Flagship Florida Intermediate Municipal Bond Fund
(the "Fund"), as described below. The Fund is closed to new investors effective
May 8, 1998. On and after May 8, 1998 only shareholders with existing accounts
may continue to make additional purchases and to reinvest dividends into
existing accounts.
Under the terms of the reorganization, the Fund will transfer all of its assets
and liabilities to the Nuveen Flagship Intermediate Municipal Bond Fund (the
"Acquiring Fund"), a series of Nuveen Flagship Municipal Trust, in a tax-free
exchange for an equal value of shares of the Acquiring Fund. The Acquiring Fund
is a municipal bond fund whose investment objective is to provide as high a
level of current interest income exempt from regular federal income taxes as is
consistent with preservation of capital. Unlike the Fund, the Acquiring Fund
does not invest primarily in Florida municipal bonds. As with any mutual fund,
there is no assurance that the Acquiring Fund will meet its investment
objective. The reorganization is subject to certain regulatory approvals and the
approval of the Fund's shareholders. A meeting of shareholders has been called
for August 13, 1998. Further information regarding the proposed reorganization
and the shareholder meeting will be contained in a proxy statement that is
scheduled to be mailed in June, 1998.
<PAGE> 86
NUVEEN MUNICIPAL BOND FUNDS
SEPTEMBER 12, 1997
PROSPECTUS
DEPENDABLE, TAX-FREE INCOME TO HELP YOU
KEEP MORE OF WHAT YOU EARN.
[PHOTO]
FLORIDA
<PAGE> 87
INVESTING IN NUVEEN MUTUAL FUNDS
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments 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
financial 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 quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, 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 marketplace opportunity. 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> 88
NUVEEN FLAGSHIP FLORIDA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
SEPTEMBER 12, 1997
PROSPECTUS
OVERVIEW
The funds listed above are part of the Nuveen Flagship Multistate Trust I, an
open-end investment company. Each fund seeks to provide high double or triple
taxfree income and preservation of capital through investments in diversified
portfolios of quality municipal bonds whose income is exempt from regular
federal, state and, in some cases, local income or intangibles taxes.
Each fund offers a set of flexible purchase options which permit you to purchase
fund shares in the way that is best suited to your individual circumstances 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 investing.
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.
<PAGE> 89
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OVERVIEW................................. 1
FUND SUMMARIES AND FINANCIAL
HIGHLIGHTS............................. 2
FUND STRATEGIES
Investment Objective................ 6
How the Funds Select Investments.... 7
Risk Reduction Strategies........... 8
INVESTING IN THE FUNDS
How to Buy Fund Shares.............. 9
How to Select a Purchase Option..... 9
How to Sell Fund Shares............. 11
Exchanging Shares................... 12
Optional Features and Services...... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DIVIDENDS AND TAXES
How the Funds Pay Dividends......... 14
Taxes and Tax Reporting............. 14
Taxable Equivalent Yields........... 15
GENERAL INFORMATION
How to Contact Nuveen............... 15
Fund Service Providers.............. 16
How the Funds Report Performance.... 17
How Fund Shares are Priced.......... 17
Organization........................ 17
APPENDIX
Special State Considerations........ 18
</TABLE>
<PAGE> 90
NUVEEN FLAGSHIP FLORIDA MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: June 15, 1990
NET ASSETS: $357.1 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 3.07% 7.59% 7.02% 7.00% 7.66%
5 Years 5.75% 6.66% 6.08% 6.08% 6.67%
Inception 6.97% 7.63% 7.04% 7.04% 7.64%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Class A total returns reflect actual performance for all periods; Classes B, C
and R 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 (in
the case of Classes B and C) fees between the classes. Class B total returns
assume an ongoing investment and do not reflect the imposition of the CDSC; your
returns for the 1 year and 5 year periods would be lower if you redeemed at the
end of those periods. 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 for further information.
MATURITY (YEARS)
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
- ---------------------------------------------------
Average Maturity 21.2
Average Modified Duration 8.2
- ---------------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- --------------------------------------------------
BBB/NR (15%)
A (10%)
AA (10%)
AAA/Pre-refunded (65%)
- --------------------------------------------------
</TABLE>
1
<PAGE> 91
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
--------------------------------------------------
cEscrowed Bonds (10%)
General Obligations (9%)
Pollution Control (11%)
Housing Facilities (15%)
Hospitals (23%)
Other (32%)
--------------------------------------------------
</TABLE>
EXPENSE INFORMATION AS OF 5/31/97
SHAREHOLDER TRANSACTION EXPENSES
(MAXIMUM, AS % OF OFFERING PRICE)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) -- -- --
Sales Charge on Reinvested Dividends -- -- -- --
Contingent Deferred Sales Charge (CDSC) on
Redemptions --(1) 5%(2) 1%(3) --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES(4)
(ANNUAL, AS % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% --
Other 0.10% 0.10% 0.10% 0.10%
- ----------------------------------------------------------------------------------------------------------------
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>
2
<PAGE> 92
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. You may find more information about the fund's performance in its
annual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227. Information for the years
beginning prior to February 1, 1997 reflects the financial highlights of the
Flagship Florida Double Tax Exempt Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
FLORIDA++ NET
NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS PERIOD VALUE(A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (6/90)
1997 $10.39 $.56 $ .21 $(.56) $ -- $10.60 7.59%
1996 10.63 .57 (.24) (.57) -- 10.39 3.14%
1995 10.38 .58 .26 (.59) -- 10.63 8.43%
1994 10.76 .60 (.38) (.60) -- 10.38 2.00%
1993 10.18 .63 .61 (.64) (.02) 10.76 12.49%
1992 9.87 .66 .33 (.67) (.01) 10.18 10.32%
1991(c) 9.58 .64 .29 (.64) -- 9.87 9.81+
CLASS B (2/97)
1997(C) 10.59 .16 .02 (.16) -- 10.61 1.70%
CLASS C (9/95)
1997 10.39 .50 .21 (.50) -- 10.60 7.00%
1996(c) 10.65 .35 (.26) (.35) -- 10.39 1.30+
CLASS R (2/97)
1997(C) 10.59 .19 .01 (.19) -- 10.60 1.93%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------
CLASS (INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
FLORIDA++ EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS
YEAR ENDING END OF AFTER AFTER PORTFOLIO
MAY 31, PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
THOUSANDS) MENT(B) MENT(B) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (6/90)
1997 $296,970 .82% 5.34% 54%
1996 318,456 .83% 5.36% 94%
1995 341,374 .73% 5.71% 53%
1994 372,082 .58% 5.51% 32%
1993 369,123 .45% 6.01% 23%
1992 276,811 .26% 6.59% 50%
1991(c) 136,509 .19+ 6.86+ 152%
CLASS B (2/97)
1997(C) 785 1.58+ 4.52+ 54%
CLASS C (9/95)
1997 5.130 1.35% 4.75% 54%
1996(c) 1,175 1.38+ 4.59+ 94%
CLASS R (2/97)
1997(C) 54,247 .64+ 5.55+ 54%
- ---------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Florida.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(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 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%. 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 prior to the end of each stated period, your
expenses might be higher. If you did not redeem Class B shares at the end of
each holding period, your expenses would have been $16 for the one year period,
$50 for the three year period, $87 for the five year period, and $169 for the
ten year period. This example does not represent past or future expenses; actual
expenses may be higher or lower.
3
<PAGE> 93
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: February 1, 1994
NET ASSETS: $16.2 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS C CLASS R
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year 3.94% 7.16% 6.47% 7.42%
Inception 4.89% 5.85% 5.25% 5.93%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Class A total returns reflect actual performance for all periods; Class C and R
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 (in the case
of Class C) fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective, chiefly
in the form of interest rate risk and credit risk. The fund limits this risk by
purchasing only certain types and maturities of municipal bonds and by
diversifying its investment portfolio geographically and by industry. See Risk
Reduction Strategies for further information.
MATURITY (YEARS)
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
- ---------------------------------------------------
Average Maturity 8.9
Average Modified Duration 6.7
- ---------------------------------------------------
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
- --------------------------------------------------
BBB/NR (14%)
A (9%)
AA (9%)
AAA/Pre-refunded (68%)
- --------------------------------------------------
</TABLE>
4
<PAGE> 94
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
--------------------------------------------------
Escrowed Bonds (13%)
General Obligations (20%)
Tax Revenue (19%)
Transportation (11%)
Water & Sewer (10%)
Other (27%)
--------------------------------------------------
</TABLE>
EXPENSE INFORMATION AS OF 5/31/97
SHAREHOLDER TRANSACTION EXPENSES
(MAXIMUM, AS % OF OFFERING PRICE)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CLASS A CLASS C CLASS R
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Charge on Purchases 3.00%(1) -- --
Sales Charge on Reinvested Dividends -- -- --
Contingent Deferred Sales Charge (CDSC) on Redemptions --(1) 1%(2) --
- -------------------------------------------------------------------------------------------------------
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES(3)
(ANNUAL, AS % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CLASS A CLASS C CLASS R
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.75% --
Other 0.66% 0.66% 0.66%
- -------------------------------------------------------------------------------------------------------
Total (Gross) 1.41% 1.96% 1.21%
Waivers/Reimbursements (0.61%) (0.61%) (0.61%)
- -------------------------------------------------------------------------------------------------------
Total (Net) 0.80% 1.35% 0.60%
- -------------------------------------------------------------------------------------------------------
</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 $ 38 $ 14 $ 6
3 Years $ 55 $ 43 $19
5 Years $ 73 $ 74 $33
10 Years $126 $162 $75
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 95
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. You may find more information about the fund's performance in its
annual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ------------------------- --------------------------
NET
FLORIDA NET REALIZED AND DIVIDENDS NET TOTAL
INTERMEDIATE++ ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS PERIOD VALUE(A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (2/94)
1997 $ 9.88 $.45 $ .25 $(.47) $(.02) $10.09 7.16%
1996 10.05 .46 (.12) (.46) (.05) 9.88 3.41%
1995 9.66 .46 .33 (.40) -- 10.05 8.42%
1994(c) 9.70 .12 (.04) (.12) -- 9.66 1.75%+
CLASS C (2/94)
1997 9.88 .40 .23 (.41) (.02) 10.08 6.47%
1996 10.05 .40 (.11) (.41) (.05) 9.88 2.88%
1995 9.66 .40 .33 (.34) -- 10.05 7.80%
1994(c) 9.70 .11 (.06) (.09) -- 9.66 1.33%+
CLASS R (2/97)
1997(C) 10.20 .12 (.09) (.12) -- 10.11 .32%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------- ------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE ------------------------------------------------
RATIO OF
NET
RATIO OF INVESTMENT
FLORIDA EXPENSES INCOME TO
INTERMEDIATE++ TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS
YEAR ENDING END OF AFTER AFTER PORTFOLIO
MAY 31, PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
THOUSANDS) MENT(B) MENT(B) RATE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (2/94)
1997 $13,089 .73% 4.49% 35%
1996 4,995 .76% 4.48% 66%
1995 3,898 .67% 4.74% 105%
1994(c) 964 .29%+ 3.79%+ 28%
CLASS C (2/94)
1997 3,008 1.28% 3.99% 35%
1996 3,079 1.34% 3.88% 66%
1995 1,765 1.19% 4.19% 105%
1994(c) 1,058 .68%+ 3.42%+ 28%
CLASS R (2/97)
1997(C) 101 .56%+ 4.47%+ 35%
- ---------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Florida Intermediate.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(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%. 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 holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level of
current interest income exempt from regular federal income taxes as is
consistent with preservation of capital. The shares of each fund also will be
exempt from the Florida intangible personal property tax. There is no assurance
that the funds will achieve their investment objective.
6
<PAGE> 96
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
- - Earn regular monthly tax-free dividends;
- - Preserve investment capital over time;
- - Reduce taxes on investment income;
- - Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
- - Pursue an aggressive, high-growth investment strategy;
- - Invest through an IRA or 401k plan;
- - Avoid fluctuations in share price.
HOW THE FUNDS SELECT INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal income taxes and
which enable fund shares to be exempt from the Florida intangibles tax. Income
from these bonds may be subject to the federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically are
issued to finance public projects (such as roads or public buildings), to pay
general operating expenses, or to refinance outstanding debt. Municipal bonds
may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial development
and pollution control projects. General obligation bonds are backed by the full
faith and credit, or taxing authority, of the issuer and may be repaid from any
revenue source; revenue bonds may be repaid only from the revenues of a specific
facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds are not available at reasonable
prices and yields, a fund may invest in municipal bonds of U.S. territories
(such as Puerto Rico and Guam) which are exempt from regular federal, state, and
local income taxes. The Florida Fund may not invest more than 20% of its net
assets in these territorial municipal bonds.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase leases where the issuer has a strong
incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not
identical -- S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the ratings
agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The adviser
then monitors each fund's portfolio to assure that municipal bonds purchased
continue to represent over time, in its opinion, the best values available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average maturity within a defined range. The
Florida Intermediate Fund normally maintains a weighted average portfolio
maturity of 5 to 10 years. The Florida Fund is a long-term fund and normally
maintains a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
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<PAGE> 97
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
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
securities 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
(durations) or lower ratings generally provide higher current income, but are
subject to greater price fluctuation due to changes in market conditions than
bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from Florida, each fund
also bears investment risk from the economic, political or regulatory changes
that could adversely affect municipal bond issuers in the state and therefore
the value of the fund's investment portfolio. These risks may be greater for the
Florida Intermediate Fund, which as a "non-diversified" fund may concentrate its
investments in municipal bonds of certain issuers to a greater extent than the
Florida Fund described in this prospectus, which is a diversified fund.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their
investment portfolios 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
diversification. Each fund may not have more than:
- - 25% in any one industry sector, such as electric utilities or health care;
- - 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Florida Fund also may not have more than:
- - 5% in securities of any one issuer (except U.S. government securities or for
25% of the fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order to
reduce risk and preserve capital. Under normal market conditions, each fund may
invest only up to 20% of net assets in short-term municipal securities that are
exempt from regular federal income tax, although the funds may invest up to 100%
as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have a
maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have no
present intent to use these strategies.
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FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds" and "Risk Reduction Strategies" are
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 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit trust
distributions have no purchase minimums. Purchases through sponsors of fee-based
programs meeting certain criteria, as described in the statement of additional
information, may be eligible for lower minimums. The share price you pay will
depend on when Nuveen receives your order: orders received before the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time)
will receive that day's share price; otherwise you will receive the next
business day's share price.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial
advisers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments
continue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing investment
advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can refer
you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to the
appropriate fund) to the address listed under "How to Contact Nuveen." Sales
charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or increase
minimum investment requirements. The funds also reserve the right to suspend the
issuance of shares at any time; any suspension, however, will not affect your
ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the way
that is most suited to your individual circumstances and investment needs. Each
of the four available ways to purchase fund shares is called a class of shares:
Class A, Class B, Class C and Class R. While each of these classes features
different sales charges, on-going fees and eligibility requirements, each
entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on a
variety of factors. You should weigh carefully whether you and your 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 financial
adviser directly, you should consider the fees your financial adviser charges
for investment advice or handling your trades in addition to any sales charges
and fees imposed by the funds. Please refer to your 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.
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<PAGE> 99
The following Class A sales charges and commissions apply to the Florida Fund:
CLASS A SALES CHARGES AND COMMISSIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
---------------------------------- --------------
AS % OF PUBLIC AS % OF YOUR AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT OFFERING PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
1,000,000 and over -(1) -- -(1)
</TABLE>
The following Class A sales charges and commissions apply to the Florida
Intermediate Fund:
CLASS A SALES CHARGES AND COMMISSIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
---------------------------------- --------------
AS % OF PUBLIC AS % OF YOUR AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE NET INVESTMENT OFFERING PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 3.00% 3.09% 2.50%
$50,000-100,000 2.50 2.56 2.00
$100,000-250,000 2.00 2.04 1.50
$250,000-500,000 1.50 1.52 1.25
$500,000-1,000,000 1.25 1.27 1.00
1,000,000 and over -(1) -- -(1)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commission,
you may be assessed a contingent deferred sales charge (CDSC) of 1% if you
redeem any of your shares within 18 months of purchase. The CDSC is
calculated on the lower of your purchase price or redemption proceeds.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other events
at which Nuveen presents its products and services. Under certain circumstances,
Nuveen may also make ongoing payments to authorized dealers to facilitate the
marketing and administration of new and existing shareholder accounts, including
payments for advertising. The statement of additional information contains
further information about these programs.
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions
- - Rights of Accumulation
- - Letter of Intent
- - Group Purchase
Sales Charge Waivers
- - Nuveen Unit Trust Reinvestment
- - Purchases using Redemptions from Unrelated Funds
- - Fee-Based Programs
- - Bank Trust Departments
- - Certain Employees of Nuveen or Authorized Dealers
Please refer to the statement of additional information for detailed
descriptions of these programs. Further information on these programs is also
available through your financial adviser or by calling (800) 621-7227. Your
financial 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.
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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
compensates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your financial
adviser a 4% commission at the time of purchase. The Florida Intermediate
Municipal Bond Fund does not currently offer Class B shares.
Class B shares convert automatically to Class A shares eight years after
purchase. Class B shares will convert only if the fund is assured that the
conversion does not generate tax consequences for investors, based upon the
opinion of outside counsel or the written assurance of the IRS.
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be assessed
a contingent deferred sales charge (CDSC) based upon the following schedule:
<TABLE>
<CAPTION>
DURING YEAR
---------------------------------------
1 2 3 4 5 6 7+
---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of
purchase. The price you pay will equal the Class C NAV. There is no initial
sales charge, but Class C shares bear a 0.20% annual service fee which
compensates your financial adviser for providing you with ongoing service, and a
0.55% annual distribution fee which compensates Nuveen for paying your financial
adviser for the sale, including a 1% commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class R
shares only if you are investing at least $1 million or would otherwise qualify
to purchase Class A shares without a sales charge, under certain of the programs
described under "Other Sales Charge Discounts" above. See the statement of
additional information for more details. There are no sales charges or ongoing
fees. Class R shares have lower ongoing expenses than Class A shares.
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any day
the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order. Your
redemption request must be received before the close of trading of the New York
Stock Exchange (normally 4 p.m. Eastern time) for you to receive that day's
price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser may
charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will be
issued only to the shareholder on record and mailed to the address on record. If
you have established electronic funds transfer privileges on your account, you
may have redemption proceeds transferred electronically to your bank account; if
you are redeeming $1,000 or more, you may expedite your request by having your
redemption proceeds wired directly into your bank account. See "Fund Direct --
Electronic Funds Transfer" below.
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<PAGE> 101
Nuveen, the transfer agent or the fund will be liable for losses resulting from
unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immediately
verify your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
- - The fund's name;
- - Your name and account number;
- - The dollar or share amount you wish to redeem;
- - The signature of each owner exactly as it appears on the account;
- - The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
- - The address you want your redemption proceeds sent to, if other than to the
address of record;
- - Any certificates you have for the shares; and
- - Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A notary
public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no event
more than seven days from receipt of your redemption request. If any shares were
purchased less than 15 days prior to your request, the fund will not mail your
redemption proceeds until the check for your purchase has cleared, which may
take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more than
seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the fund
will first redeem any shares that are not subject to a CDSC or that represent an
increase in the value of your fund account due to capital 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
involuntary redemption.
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in another
Nuveen mutual fund that is available within your state. You may exchange fund
shares by calling (800) 621-7227 or by mailing your written request to Nuveen at
the address listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange must
meet the minimum purchase requirements of the fund into which you are
exchanging. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of determining
any future CDSC. You may not exchange Class B shares for shares of a Nuveen
money market fund.
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<PAGE> 102
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
management, 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 additional copies of these forms, or would like
assistance completing them, contact your financial adviser or call Nuveen
toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost
averaging does not assure profits or protect against losses in a steadily
declining market. Since dollar cost averaging involves continuous investment
regardless of fluctuating price levels, you should consider your financial
ability to continue investing in declining as well as rising markets before
deciding to invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales Charge
Discounts").
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.
THE POWER OF SYSTEMATIC INVESTING
LOGO
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, semi-annually or annually and may choose to receive
a check, have the monies transferred directly into your bank account (see "Fund
Direct -- Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must
complete the appropriate section of the account application or Account Update
Form to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds in shares of the same class up to one year later without incurring any
applicable sales charges, and your prior holding period will be reinstated. You
may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period
reinstated. You should consult your tax adviser about the tax consequences of
exercising your reinstatement privilege.
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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
application or the Account Update Form. If you need additional copies of these
forms, or would like assistance completing them, contact your financial adviser
or call Nuveen at (800) 621-7227. You may use Fund Direct to quickly and
conveniently purchase or sell shares by telephone, systematically invest or
withdraw funds, or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be sent
by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular telephone
redemption via Fund Direct, the fund may charge you a fee for this expedited
service.
DIVIDENDS AND TAXES
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or other
distributions once a year in December. The funds declare dividends on or about
the ninth of each month and generally pay dividends on the first business day of
the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class unless you request otherwise. You may request to
have your dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class 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 dividend
policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of each
class.
TAXES AND TAX REPORTING
The discussion below and the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about the
tax consequences of a specific fund investment.
Each fund primarily invests in Florida municipal bonds or in municipal bonds
whose income is otherwise exempt from regular federal income taxes and which
enable fund shares to be exempt from the Florida intangibles tax. Consequently,
the regular monthly dividends you receive will be exempt from regular federal
income taxes. All or a portion of these dividends, however, may be subject to
the federal alternative minimum tax (AMT). More specific state tax information
can be found below in the Appendix.
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net
longterm 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.
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<PAGE> 104
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable
dividend, the entire dividend you receive may be taxable to you even though a
portion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or
exchange fund shares shortly before the record date for a tax-exempt dividend, a
portion of the price you receive may be treated as a taxable capital gain even
though it reflects tax-free income earned but not yet distributed by the fund.
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
dividends, 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.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
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.
15
<PAGE> 105
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or conduct
other account transactions, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m.
Central time. If you are sending a written request to Nuveen, you should mail
your request to the following address:
Nuveen Mutual Funds
P.O. Box 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 funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. Established in 1976, Nuveen Advisory is a wholly-owned
subsidiary of John Nuveen & Co. Incorporated, which itself is approximately 78%
owned by the St. Paul Companies, Inc. Effective January 1, 1997, The John Nuveen
Company acquired Flagship Resources, Inc., and as part of that acquisition,
Flagship Financial, the adviser to the Flagship Funds, was merged with Nuveen
Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
<TABLE>
<CAPTION>
- --------------------------------------------------
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
- --------------------------------------------------
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds are
set by the Investment Policy Committee of Nuveen Advisory. The Investment Policy
Committee is comprised of the principal executive officers and portfolio
managers of Nuveen Advisory and meets regularly to review economic conditions,
the outlook for the financial markets in general and the status of the municipal
markets in particular. Day-to-day operation of each fund and the execution of
its specific investment strategies is the responsibility of the designated
portfolio manager described below.
Michael S. Davern is the portfolio manager for the Florida Fund. Mr. Davern has
managed the Florida Fund since 1995, and since 1991 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 by
The John Nuveen Company in January 1997. Paul Brennan has managed or co-managed
the Florida Intermediate Fund since 1995, and since 1991 had been an employee of
Flagship Financial Inc. until becoming an Assistant Vice President of Nuveen
Advisory in January 1997.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order to
reimburse Nuveen for its costs in connection with these activities, including
compensation paid to authorized dealers, each fund has adopted a distribution
and service plan under Rule 12b-1 of the Investment Company Act of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at
16
<PAGE> 106
the time of sale on sales of Class B and Class C shares, Nuveen retains the
first year's service fee on sales of Class B shares and all Class B distribution
fees, and retains the first year's service and distribution fees on sales of
Class C shares. Otherwise, Nuveen pays these fees to the broker of record. The
statement of additional information contains a detailed description of the plan
and its provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder
accounts. Boston Financial, P.O. Box 8509, Boston, MA 02266-8509, currently
serves as transfer agent for each fund.
HOW THE FUNDS REPORT PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders, sales
literature and advertisements. The funds may also compare their investment
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. You
may find more information about each fund's performance in its annual report.
Call Nuveen at (800) 621-7227 for a free copy.
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset value
for a class of fund shares is computed by calculating the total value of the
class' portion of the fund's portfolio investments and other assets, subtracting
any liabilities or other debts, and dividing by the total number of its shares
outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for
municipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act of
1940, consisting of two or more funds. The shares of each fund are divided into
classes. Each class of shares represents an interest in the same 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.
Class C shares of the former Nuveen Florida Fund purchased before February 1,
1997 convert to Class A shares six years after purchase, but only if you request
conversion. You must submit your request to the transfer agent no later than the
last business day of the 71st month following the month in which you purchased
your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may call
a special meeting for any purpose, including to elect or remove trustees or to
change fundamental policies.
The Florida Fund was formed as a result of a merger between existing Nuveen and
Flagship funds. The performance and the financial information of the fund
reflects that of the predecessor Flagship fund.
17
<PAGE> 107
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase Florida municipal bonds, each fund also
bears investment risk from economic, political or regulatory changes that could
adversely affect municipal bond issuers in that state and therefore the value of
the fund's investment portfolio. The following discussion of special state
considerations was obtained from official offering statements of these issuers
and has not been independently verified by the funds. The discussion includes
general state tax information related to an investment in fund shares. Because
tax laws are complex and often change, you should consult your tax adviser about
the state tax consequences of a specific fund investment. See the statement of
additional information for further information.
FLORIDA
Florida has a diverse economy with substantial insurance, banking, healthcare,
construction and trade sectors, yet it remains heavily dependent on the
agriculture and tourism industries. Employment and personal income growth have
outpaced the nation since 1991 and recent economic reports indicate that the
State continues to experience job growth, although at a more moderate pace.
Economists are also predicting another record tourism year for the State. This
economic growth as well as the State's healthy financial position were
recognized in the State's recent rating upgrade from AA to AA+ by Standard &
Poor's.
Florida's unemployment rate of 4.9% in June, 1997, is slightly better than the
comparable national average of 5.0%. Florida's 1996 per capita income of $24,104
is on a par with national averages and slightly above regional levels. The
State's population growth continues to exceed growth in the national population.
Florida voters approved a Constitutional amendment in 1995 which limits the rate
of growth of state revenues to the growth rate of personal income. The State's
fiscal 1996 results were better than expected due to sales tax revenue growth of
7.4% versus a 4% budgeted growth rate. The State's goal is to reach a 5% Budget
Stabilization Fund by fiscal 1999. As of July 31, 1997, Florida's general
obligation debt carries ratings of AA+ by Standard & Poor's, Aa2 by Moody's, and
AA by Fitch.
TAX TREATMENT.
Shares of the Florida funds will not be subject to the Florida intangible
personal property tax if on January 1 of the taxable year, the funds hold only
Florida municipal bonds and U.S. securities. If the funds hold any other types
of assets on that date, then the entire value of the funds' shares (except for
the portion of the value of the shares attributable to U.S. securities) will be
subject to such tax. Corporate shareholders of the Florida Fund also may be
subject to the Florida corporate income tax. Corporate shareholders should refer
to the statement of additional information for more detailed information.
18
<PAGE> 108
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen 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
Long-term
Insured Long-term
Intermediate-term
Limited-term
NUVEEN FAMILY OF MUNICIPAL BOND FUNDS
[Map Appears Here]
STATE FUNDS
Alabama
Arizona
California(1)
Colorado
Connecticut
Florida(2)
Georgia
Kansas
Kentucky(3)
Louisiana
Maryland
Massachusetts(1)
Michigan
Missouri
New Jersey(2)
New Mexico
New York(1)
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
1. Long-term and insured long-term portfolios.
2. Long-term and intermediate-term portfolios.
3. Long-term and limited-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
19
<PAGE> 109
NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND
Relating to the Acquisition of Assets and Liabilities of
Nuveen Flagship Florida Intermediate Municipal Bond Fund
DATED: , 1998
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides information about the
Nuveen Flagship Intermediate Municipal Bond Fund (the "Intermediate Fund" or a
"Fund"), a series of the Nuveen Flagship Municipal Trust, an open-end investment
company organized as a Massachusetts business trust ("Municipal Trust"), in
addition to information contained in the Prospectus/Proxy Statement of the
Intermediate Fund, dated , 1998, which also serves as the proxy
statement of the Nuveen Flagship Florida Intermediate Municipal Bond Fund (the
"Florida Intermediate Fund" or a "Fund"), a series of the Nuveen Flagship
Multistate Trust I, an open-end investment company organized as a Massachusetts
business trust (the "Multistate Trust"), in connection with the issuance of
Class A, C and R shares of the Intermediate Fund to shareholders of the Florida
Intermediate Fund. This Statement of Additional Information is not a prospectus.
It should be read in conjunction with the Prospectus/Proxy Statement, into which
it has been incorporated by reference and which may be obtained by contacting
the Funds located at 333 West Wacker Drive, Chicago, Illinois 60606 (telephone
No. (312) 917-7700 or (800) 414-7447).
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Proposed Reorganization of the Florida Intermediate Fund.... 1
Additional Information About the Intermediate Fund.......... 1
Additional Information About the Florida Intermediate
Fund...................................................... 1
Financial Statements........................................ 1
Plan and Agreement of Reorganization........................ Exhibit A
Statement of Additional Information for the Intermediate
Fund...................................................... Exhibit B
Statement of Additional Information for the Florida
Intermediate Fund......................................... Exhibit C
Financial Statements for the Intermediate Fund.............. Exhibit D
Financial Statements for the Florida Intermediate Fund...... Exhibit E
Pro Forma Financial Statements.............................. Exhibit F
</TABLE>
The Funds will provide, without charge, upon the written or oral request of
any person to whom this Statement of Additional Information is delivered, a copy
of any and all documents that have been incorporated by reference in the
registration statement of which this Statement of Additional Information is a
part.
PROPOSED REORGANIZATION OF THE FLORIDA INTERMEDIATE FUND
The shareholders of the Florida Intermediate Fund are being asked to
approve an acquisition of all of the assets of the Florida Intermediate Fund
solely in exchange for Class A, C and R shares of the Intermediate Fund and the
Intermediate Fund's assumption of the liabilities of the Florida Intermediate
Fund (the "Reorganization") pursuant to an Agreement and Plan of Reorganization
by and between the Intermediate Fund and the Florida Intermediate Fund (the
"Agreement"). A copy of the form of the Agreement is attached hereto as Exhibit
A.
ADDITIONAL INFORMATION ABOUT THE INTERMEDIATE FUND
Incorporated herein by reference in its entirety is the Statement of
Additional Information of the Intermediate Fund, dated August 27, 1997, attached
as Exhibit B to this Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT THE FLORIDA INTERMEDIATE FUND
Incorporated herein by reference in its entirety is the Statement of
Additional Information of the Florida Intermediate Fund, dated September 12,
1997, attached as Exhibit C to this Statement of Additional Information.
FINANCIAL STATEMENTS
Incorporated herein by reference in their entireties are (i) for the
Intermediate Fund, the unaudited financial statements for the six months ended
October 31, 1997 and the audited financial statements for the fiscal year ended
April 30, 1997, attached as Exhibit D hereto; (ii) for the Florida Intermediate
Fund, the unaudited financial statements for the six months ended November 31,
1997 and the audited financial statements for the fiscal year ended May 31,
1997, attached as Exhibit E hereto; and (iii) the proforma financial statements
as of April 30, 1998 attached as Exhibit F hereto.
<PAGE> 110
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
, 1998, by and between the (the "Acquiring Fund") series
of the Trust, a Massachusetts business trust formed under the
laws of the State of Massachusetts (the "Acquiring Fund Trust"), and the
(the "Acquired Fund") series of the Trust
(the "Acquired Fund Trust").
WITNESSETH:
WHEREAS, the Board of Trustees of the Acquiring Fund Trust and the Acquired
Fund Trust, on behalf of the Acquiring Fund and Acquired Fund respectively, have
determined that entering into this Agreement for the Acquiring Fund to acquire
the assets and liabilities of the Acquired Fund is in the best interests of the
shareholders of each respective fund; and
WHEREAS, the parties intend that this transaction qualify as a
reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. PLAN OF TRANSACTION.
A. Transfer of Assets. Upon satisfaction of the conditions precedent set
forth in Sections 7 and 8 hereof, the Acquired Fund will convey, transfer and
deliver to the Acquiring Fund at the closing, provided for in Section 2 hereof,
all of the existing assets of the Acquired Fund (including accrued interest to
the Closing Date) as more fully set forth on Schedule 1 hereto, and as amended
from time to time prior to the Closing Date (as defined below), free and clear
of all liens, encumbrances and claims whatsoever (the assets so transferred
collectively being referred to as the "Assets").
B. Consideration. In consideration thereof, the Acquiring Fund agrees that
on the Closing Date, defined in Section 2 hereof, the Acquiring Fund will (i)
deliver to the Acquired Fund, full and fractional Class A, Class B, Class C and
Class R shares of beneficial interest of the Acquiring Fund having net asset
values per share in an amount equal to the aggregate dollar value of the Assets
net of any liabilities of the Acquired Fund described in Section 3E hereof (the
"Liabilities") determined pursuant to Section 3A of this Agreement
(collectively, the "Acquiring Fund Shares") and (ii) assume all of the Acquired
Fund's Liabilities. The calculation of full and fractional Class A, Class C and
Class R shares of beneficial interest of the Acquiring Fund to be exchanged
shall be carried out to no less than two (2) decimal places. On the Closing
Date, the Acquiring Fund shall deliver to the Acquired Fund the Acquiring Fund
Shares in the amount determined pursuant to this Section 1B and the Acquired
Fund thereafter shall, in order to effect the distribution of such shares to the
Acquired Fund's shareholders in liquidation of the Acquired Fund and in exchange
for the shareholders' shares of the Acquired Fund, instruct the Acquiring Fund
to register the pro rata interest in the Acquiring Fund Shares (in full and
fractional shares) of each of the holders of record of shares of the Acquired
Fund in accordance with their holdings of either Class A, Class C or Class R
shares and shall provide as part of such instruction a complete and updated list
of such holders (including addresses and taxpayer identification numbers), and
the Acquiring Fund agrees promptly to comply with said instruction. The
Acquiring Fund shall have no obligation to inquire as to the validity, propriety
or correctness of such instruction, but shall assume that such instruction is
valid, proper and correct. All Acquiring Fund Shares delivered to the Acquired
Fund in exchange for such Assets shall be delivered at net asset value without
sales load, commission or other similar fee being imposed.
2. CLOSING OF THE TRANSACTION.
Closing Date. The closing shall occur within [fifteen (15)] business days
after the later of receipt of all necessary regulatory approvals and the final
adjournment of the meeting of shareholders of the Acquired Fund at which this
Agreement will be considered and approved or such later date as soon as
practicable thereafter, as the parties may mutually agree (the "Closing Date").
3. PROCEDURE FOR REORGANIZATION.
A. Valuation. The value of the Assets and Liabilities of the Acquired Fund
to be transferred and assumed, respectively, by the Acquiring Fund shall be
computed as of the Closing Date, in the manner set forth in the most
A-1
<PAGE> 111
recent Prospectus and Statement of Additional Information of the Acquiring Fund
(collectively, the "Acquiring Fund Prospectus"), copies of which have been
delivered to the Acquired Fund.
B. Delivery of Fund Assets. The Assets shall be delivered to The Chase
Manhattan Bank, 4 New York Plaza, New York 10004, as custodian for the Acquiring
Fund (the "Custodian") for the benefit of the Acquiring Fund, duly endorsed in
proper form for transfer in such condition as to constitute a good delivery
thereof, free and clear of all liens, encumbrances and claims whatsoever, in
accordance with the custom of brokers, and shall be accompanied by all necessary
state stock transfer stamps, the cost of which shall be borne by the Acquired
Fund.
C. Failure to Deliver Securities. If the Acquired Fund is unable to make
delivery pursuant to Section 3B hereof to the Custodian of any of the Acquired
Fund's securities for the reason that any of such securities purchased by the
Acquired Fund have not yet been delivered to it by the Acquired Fund's broker or
brokers, then, in lieu of such delivery, the Acquired Fund shall deliver to the
Custodian, with respect to said securities, executed copies of an agreement of
assignment and due bills executed on behalf of said broker or brokers, together
with such other documents as may be required by the Acquiring Fund or Custodian,
including brokers' confirmation slips.
D. Shareholder Accounts. The Acquiring Fund, in order to assist the
Acquired Fund in the distribution of the Acquiring Fund Shares to the Acquired
Fund shareholders after delivery of the Acquiring Fund Shares to the Acquired
Fund, will establish pursuant to the request of the Acquired Fund an open
account with the Acquiring Fund for each shareholder of the Acquired Fund and,
upon request by the Acquired Fund, shall transfer to such account the exact
number of full and fractional Class A, Class C and Class R shares of the
Acquiring Fund then held by the Acquired Fund specified in the instruction
provided pursuant to Section 2 hereof. The Acquiring Fund is not required to
issue certificates representing Acquiring Fund Shares. Upon liquidation or
dissolution of the Acquired Fund, certificates representing shares of beneficial
interest stock of the Acquired Fund shall become null and void.
E. Liabilities. The Liabilities shall include all of Acquired Fund's
liabilities, debts, obligations, and duties of whatever kind or nature, whether
absolute, accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable at the Closing Date,
and whether or not specifically referred to in this Agreement.
F. Expenses. In the event that the transactions contemplated herein are
consummated the Acquired Fund agrees to pay (i) for the reasonable outside
expenses of the Acquired Fund and the Acquiring Fund for the transactions
contemplated herein which are solely and directly related to the reorganization;
including, but not by way of limitation, the preparation of the Acquiring Fund
Trust's Registration Statement on Form N-14 (the "Registration Statement") and
the solicitation of the Acquired Fund shareholder proxies; (ii) the Acquired
Fund's and Acquiring Fund's legal counsel's reasonable attorney's fees, which
fees shall be payable pursuant to receipt of an itemized statement; and (iii)
the cost of rendering the tax opinion, more fully referenced in Section 7F
below. In the event that the transactions contemplated herein are not
consummated for any reason, then all reasonable outside expenses of the Acquired
Fund and the Acquiring Fund incurred to the date of termination of this
Agreement shall be borne by the Acquired Fund.
G. Liquidation and Dissolution. As soon as practicable after the Closing
Date but in no event later than one year after the Closing Date, the Board of
Trustees of the Acquired Fund Trust and the Acquired Fund shall take all
necessary and proper action to completely liquidate and terminate the Acquired
Fund as a series in accordance with Massachusetts law and the Trust's
Declaration of Trust. Immediately after the Closing Date, the stock transfer
books relating to the Acquired Fund shall be closed and no transfer of shares
shall thereafter be made on such books.
4. ACQUIRED FUND'S REPRESENTATIONS AND WARRANTIES.
The Acquired Fund hereby represents and warrants to the Acquiring Fund,
which representations and warranties are true and correct on the date hereof,
and agrees with the Acquiring Fund that:
A. Organization. The Acquired Fund Trust is a Massachusetts Business Trust
duly formed and in good standing under the laws of the State of Massachusetts
and is duly authorized to transact business in the State of Massachusetts. The
Acquired Fund is a separate series of the Acquired Fund Trust duly designated in
accordance with the applicable provisions of the Acquired Fund Trust's
Declaration of Trust. The Acquired Fund Trust and Acquired Fund are qualified to
do business in all jurisdictions in which they are required to be so qualified,
except jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Acquired Fund Trust or Acquired Fund. The
Acquired Fund has all material federal, state and local authorizations necessary
to own all of
A-2
<PAGE> 112
the properties and assets and to carry on its business as now being conducted,
except authorizations which the failure to so obtain would not have a material
adverse effect on the Acquired Fund.
B. Registration. The Acquired Fund Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act") as an open-end management
company and such registration has not been revoked or rescinded. The Acquired
Fund is a nondiversified series of the Acquired Fund Trust. The Acquired Fund
Trust and the Acquired Fund are in compliance in all material respects with the
1940 Act and the rules and regulations thereunder. All of the outstanding shares
of beneficial interest of the Acquired Fund have been duly authorized and are
validly issued, fully paid and nonassessable and not subject to pre-emptive or
dissenters' rights.
C. Audited Financial Statements. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the Acquired Fund audited as of and for the fiscal year
ended , true and complete copies of which have been heretofore
furnished to the Acquiring Fund, fairly represent the financial condition and
the results of operations of the Acquired Fund as of and for their respective
dates and periods in conformity with generally accepted accounting principles
applied on a consistent basis during the periods involved.
D. Financial Statements. The Acquired Fund shall furnish to the Acquiring
Fund (i) an unaudited statement of assets and liabilities and the portfolio of
investments and the related statements of operations and changes in net assets
of the Acquired Fund for the period ended ; and (ii) within [five
(5)] business days after the Closing Date, an unaudited statement of assets and
liabilities and the portfolio of investments and the related statements of
operations and changes in net assets as of and for the interim period ending on
the Closing Date; such financial statements will represent fairly the financial
position and portfolio of investments and the results of the Acquired Fund's
operations as of, and for the period ending on, the dates of such statements in
conformity with generally accepted accounting principles applied on a consistent
basis during the periods involved and the results of its operations and changes
in financial position for the periods then ended; and such financial statements
shall be certified by the Treasurer of the Acquired Fund as complying with the
requirements hereof.
E. Contingent Liabilities. There are no contingent Liabilities of the
Acquired Fund not disclosed in the financial statements delivered pursuant to
Sections 4C and 4D which would materially affect the Acquired Fund's financial
condition, and there are no legal, administrative, or other proceedings pending
or, to its knowledge, threatened against the Acquired Fund which would, if
adversely determined, materially affect the Acquired Fund's financial condition.
All Liabilities were incurred by the Acquired Fund in the ordinary course of its
business.
F. Material Agreements. The Acquired Fund is in compliance with all
material agreements, rules, laws, statutes, regulations and administrative
orders affecting its operations or its assets; and except as referred to in the
Acquired Fund's Prospectus and Statement of Additional Information, there are no
material agreements outstanding relating to the Acquired Fund to which the
Acquired Fund is a party.
G. Tax Returns. At the date hereof, all Federal and other material tax
returns and reports of the Acquired Fund required by law to have been filed by
such dates shall have been filed, and all Federal and other taxes shown thereon
shall have been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the Acquired Fund's knowledge no such return
is currently under audit and no assessment has been asserted with respect to any
such return.
H. Corporate Authority. The Acquired Fund has the necessary power to enter
into this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein have been duly authorized by the Acquired
Fund's Board of Trustees, and except for obtaining approval of the holders of
the shares of the Acquired Fund, no other corporate acts or proceedings by the
Acquired Fund are necessary to authorize this Agreement and the transactions
contemplated herein. This Agreement has been duly executed and delivered by the
Acquired Fund and constitutes the legal, valid and binding obligation of
Acquired Fund enforceable in accordance with its terms.
I. No Violation; Consents and Approvals. The execution, delivery and
performance of this Agreement by the Acquired Fund does not and will not (i)
violate any provision of the Acquired Fund Trust's Declaration of Trust or the
Designation of Series of the Acquired Fund, (ii) violate any statute, law,
judgment, writ, decree, order, regulation or rule of any court or governmental
authority applicable to the Acquired Fund, (iii) result in a violation or breach
of, or constitute a default under any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument or obligation to which the
Acquired Fund is subject, or (iv) result in the creation or imposition or any
lien, charge or encumbrance upon any property or assets of the Acquired Fund.
Except as set forth in Schedule 2 to this Agreement, (i) no consent, approval,
authorization, order or filing with or notice to any court or governmental
authority or agency is required for the consummation by the Acquired Fund of the
transactions
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contemplated by this Agreement and (ii) no consent of or notice to any third
party or entity is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement.
J. Title. The Acquired Fund has good and marketable title to the Assets,
free and clear of all liens, mortgages, pledges, encumbrances, charges, claims
and equities whatsoever, other than a lien for taxes not yet due and payable,
and full right, power and authority to sell, assign, transfer and deliver such
Assets; upon delivery of such Assets, the Acquiring Fund will receive good and
marketable title to such Assets, free and clear of all liens, mortgages,
pledges, encumbrances, charges, claims and equities other than a lien for taxes
not yet due and payable.
K. Prospectus/Proxy Statement. The Registration Statement and the
Prospectus/Proxy Statement contained therein as of the effective date of the
Registration Statement, as amended or as supplemented if it shall have been
amended or supplemented, conforms and will conform as it relates to the Acquired
Fund, in all material respects, to the applicable requirements of the applicable
Federal and state securities laws and the rules and regulations of the SEC
thereunder, and do not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that no representations or
warranties in this Section 4K apply to statements or omissions made in reliance
upon and in conformity with written information concerning the Acquiring Fund
furnished to the Acquired Fund by the Acquiring Fund.
L. Tax Qualification. The Acquired Fund has qualified as a regulated
investment company within the meaning of Section 851 of the Code for each of its
taxable years; and has satisfied the distribution requirements imposed by
Section 852 of the Code for each of its taxable years.
M. Fair Market Value. The fair market value on a going concern basis of the
Assets will equal or exceed the Liabilities to be assumed by the Acquiring Fund
and those to which the Assets are subject.
5. THE ACQUIRING FUND'S REPRESENTATIONS AND WARRANTIES.
The Acquiring Fund hereby represents and warrants to the Acquired Fund,
which representations and warranties are true and correct on the date hereof,
and agrees with the Acquired Fund that:
A. Organization. The Acquiring Fund Trust is a Massachusetts Business Trust
duly formed and in good standing under the laws of the State of Massachusetts
and is duly authorized to transact business in the State of Massachusetts. The
Acquiring Fund is a separate series of the Acquiring Fund Trust duly designated
in accordance with the applicable provisions of the Acquiring Fund Trust's
Declaration of Trust. The Acquiring Fund Trust and Acquiring Fund are qualified
to do business in all jurisdictions in which they are required to be so
qualified, except jurisdictions in which the failure to so qualify would not
have a material adverse effect on either the Acquiring Fund Trust or Acquiring
Fund. The Acquiring Fund has all material federal, state and local
authorizations necessary to own all of the properties and assets and to carry on
its business and the business thereof as now being conducted, except
authorizations which the failure to so obtain would not have a material adverse
effect on the Acquiring Fund.
B. Registration. The Acquiring Fund Trust is registered under the 1940 Act
as an open-end management company and such registration has not been revoked or
rescinded. The Acquiring Fund is a [nondiversified/ diversified] series of the
Acquiring Fund Trust. The Acquiring Fund Trust and the Acquiring Fund are in
compliance in all material respects with the 1940 Act and the rules and
regulations thereunder. All of the outstanding shares of beneficial interest of
the Acquiring Fund have been duly authorized and are validly issued, fully paid
and non-assessable and not subject to pre-emptive dissenters rights.
C. Audited Financial Statements. The statement of assets and liabilities
and the portfolio of investments and the related statements of operations and
changes in net assets of the Acquiring Fund audited as of and for the fiscal
year ended , true and complete copies of which have been heretofore
furnished to the Acquired Fund fairly represent the financial condition and the
results of operations of the Acquiring Fund as of and for their respective dates
and periods in conformity with generally accepted accounting principles applied
on a consistent basis during the periods involved.
D. Financial Statements. The Acquiring Fund shall furnish to the Acquired
Fund (i) an unaudited statement of assets and liabilities and the portfolio of
investments and the related statements of operations and changes in net assets
of the Acquiring Fund for the period ended and (ii) within
[five (5)] business days after the Closing Date, an unaudited statement of
assets and liabilities and the portfolio of investments and the related
statements of operations and changes in net assets as of and for the interim
period ending on the Closing Date; such financial statements will represent
fairly the financial position and portfolio of investments and the results of
its operations as of, and for the period ending on, the dates of such statements
in conformity with generally accepted
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accounting principles applied on a consistent basis during the periods involved
and the results of its operations and changes in financial position for the
periods then ended; and such financial statements shall be certified by the
Treasurer of the Acquiring Fund as complying with the requirements hereof.
E. Contingent Liabilities. There are no contingent liabilities of the
Acquiring Fund not disclosed in the financial statements delivered pursuant to
Sections 5C and 5D which would materially affect the Acquiring Fund's financial
condition, and there are no legal, administrative, or other proceedings pending
or, to its knowledge, threatened against the Acquiring Fund which would, if
adversely determined, materially affect the Acquiring Fund's financial
condition.
F. Material Agreements. The Acquiring Fund is in compliance with all
material agreements, rules, laws, statutes, regulations and administrative
orders affecting its operations or its assets; and except as referred to in the
Acquiring Fund Prospectus and Statement of Additional Information there are no
material agreements outstanding relating to the Acquiring Fund to which the
Acquiring Fund is a party.
G. Tax Returns. At the date hereof, all Federal and other material tax
returns and reports of the Acquiring Fund required by law to have been filed by
such dates shall have been filed, and all Federal and other taxes shall have
been paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to any
such return.
H. Corporate Authority. The Acquiring Fund has the necessary power to enter
into this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein have been duly authorized by the Acquiring
Fund's Board of Trustees, no other corporate acts or proceedings by the
Acquiring Fund are necessary to authorize this Agreement and the transactions
contemplated herein. This Agreement has been duly executed and delivered by the
Acquiring Fund and constitutes a valid and binding obligation of the Acquiring
Fund enforceable in accordance with its terms.
I. No Violation; Consents and Approvals. The execution, delivery and
performance of this Agreement by the Acquiring Fund does not and will not (i)
violate any provision of the Acquiring Fund Trust's Declaration of Trust or the
Designation of Series of the Acquiring Fund, (ii) violate any statute, law,
judgment, writ, decree, order, regulation or rule of any court or governmental
authority applicable to the Acquiring Fund or (iii) result in a violation or
breach of, or constitute a default under, any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument or obligation to which
the Acquiring Fund is subject, or (iv) result in the creation or imposition or
any lien, charge or encumbrance upon any property or assets of the Acquiring
Fund. Except as set forth in Schedule 3 to this Agreement, (i) no consent,
approval, authorization, order or filing with or notice to any court or
governmental authority or agency is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement and (ii) no
consent of or notice to any third party or entity is required for the
consummation by the Acquiring Fund of the transactions contemplated by this
Agreement.
J. Absence of Proceedings. There are no legal, administrative or other
proceedings pending or, to its knowledge, threatened against the Acquiring Fund
which would materially affect its financial condition.
K. Shares of the Acquiring Fund: Registration. The Acquiring Fund Shares to
be issued pursuant to Section 1 hereof will be duly registered under the
Securities Act and all applicable state securities laws.
L. Shares of the Acquiring Fund: Authorization. The shares of beneficial
interest of the Acquiring Fund to be issued pursuant to Section 1 hereof have
been duly authorized and, when issued in accordance with this Agreement, will be
validly issued and fully paid and non-assessable by the Acquiring Fund Trust and
conform in all material respects to the description thereof contained in the
Acquiring Fund's Prospectus furnished to the Acquired Fund.
M. Registration Statement. The Registration Statement and the
Prospectus/Proxy Statement contained therein as of the effective date of the
Registration Statement, and at all times subsequent thereto up to and including
the Closing Date, as amended or as supplemented if they shall have been amended
or supplemented, conforms and will conform as it relates to the Acquiring Fund,
in all material respects, to the applicable requirements of the applicable
Federal securities laws and the rules and regulations of the SEC thereunder, and
do not and will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representations or warranties in this Section 5M
apply to statements or omissions made in reliance upon and in conformity with
written information concerning the Acquired Fund furnished to the Acquiring Fund
by the Acquired Fund.
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N. Tax Qualification. The Acquiring Fund has qualified as a regulated
investment company within the meaning of Section 851 of the Code for each of its
taxable years; and has satisfied the distribution requirements imposed by
Section 852 of the Code for each of its taxable years.
6. COVENANTS.
During the period from the date of this Agreement and continuing until the
Closing Date the Acquired Fund and Acquiring Fund (except as expressly
contemplated or permitted by this Agreement) agree as follows:
A. Other Actions. The Acquired Fund and Acquiring Fund shall operate only
in the ordinary course of business consistent with prior practice. No party
shall take any action that would, or reasonably would be expected to, result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect.
B. Government Filings; Consents. The Acquired Fund and Acquiring Fund shall
file all reports required to be filed by the Acquired Fund and Acquiring Fund
with the SEC between the date of this Agreement and the Closing Date and shall
deliver to the other party copies of all such reports promptly after the same
are filed. Except where prohibited by applicable statutes and regulations, each
party shall promptly provide the other (or its counsel) with copies of all other
filings made by such party with any state, local or federal government agency or
entity in connection with this Agreement or the transactions contemplated
hereby. Each of the Acquired Fund and the Acquiring Fund shall use all
reasonable efforts to obtain all consents, approvals, and authorizations
required in connection with the consummation of the transactions contemplated by
this Agreement and to make all necessary filings with the Secretary of State of
the State of Massachusetts.
C. Preparation of the Registration Statement and the Prospectus/Proxy
Statement. In connection with the Registration Statement and the
Prospectus/Proxy Statement, each party hereto will cooperate with the other and
furnish to the other the information relating to the Acquired Fund or Acquiring
Fund, as the case may be, required by the Securities Act or the Exchange Act and
the rules and regulations thereunder, as the case may be, to be set forth in the
Registration Statement or the Prospectus/Proxy Statement, as the case may be.
The Acquired Fund shall promptly prepare and provide the Prospectus/Proxy
Statement to the Acquiring Fund and the Acquiring Fund shall promptly prepare
and file with the SEC the Registration Statement, in which the Prospectus/Proxy
Statement will be included as a prospectus. In connection with the Registration
Statement, insofar as it relates to the Acquired Fund and its affiliated
persons, the Acquiring Fund shall only include such information as is approved
by the Acquired Fund for use in the Registration Statement. The Acquiring Fund
shall not amend or supplement any such information regarding the Acquired Fund
and such affiliates without the prior written consent of the Acquired Fund which
consent shall not be unreasonably withheld or delayed. The Acquiring Fund shall
promptly notify and provide the Acquired Fund with copies of all amendments or
supplements filed with respect to the Registration Statement. The Acquiring Fund
shall use all reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing.
The Acquiring Fund shall also take any action (other than qualifying to do
business in any jurisdiction in which it is now not so qualified) required to be
taken under any applicable state securities laws in connection with the issuance
of the Acquiring Fund's shares of beneficial interest in the transactions
contemplated by this Agreement, and the Acquired Fund shall furnish all
information concerning the Acquired Fund and the holders of the Acquired Fund's
shares of beneficial interest as may be reasonably requested in connection with
any such action.
D. Access to Information. During the period prior to the Closing Date, the
Acquired Fund shall make available to the Acquiring Fund a copy of each report,
schedule, registration statement and other document (the "Documents") filed or
received by it during such period pursuant to the requirements of Federal or
state securities laws (other than Documents which such party is not permitted to
disclose under applicable law). During the period prior to the Closing Date, the
Acquiring Fund shall make available to the Acquired Fund each Document
pertaining to the transactions contemplated hereby filed or received by it
during such period pursuant to Federal or state securities laws (other than
Documents which such party is not permitted to disclose under applicable law).
E. Shareholders Meeting. The Acquired Fund shall call a meeting of the
Acquired Fund shareholders to be held as promptly as practicable for the purpose
of voting upon the approval of this Agreement and the transactions contemplated
herein, and shall furnish a copy of the Prospectus/Proxy Statement and form of
proxy to each shareholder of the Acquired Fund as of the record date for such
meeting of shareholders. The Board shall recommend to the Acquired Fund
shareholders approval of this Agreement and the transactions contemplated
herein, subject to fiduciary obligations under applicable law.
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F. Coordination of Portfolios. The Acquired Fund and Acquiring Fund
covenant and agree to coordinate the respective portfolios of the Acquired Fund
and Acquiring Fund from the date of the Agreement up to and including the
Closing Date in order that at Closing, when the Assets are added to the
Acquiring Fund's portfolio, the resulting portfolio will meet the Acquiring
Fund's investment objective, policies and restrictions, as set forth in the
Acquiring Fund's Prospectus, a copy of which has been delivered to the Acquired
Fund.
G. Distribution of the Shares. At Closing the Acquired Fund covenants that
it shall cause to be distributed the Acquiring Fund Shares in the proper pro
rata amount for the benefit of Acquired Fund's shareholders and such that the
Acquired Fund shall not continue to hold amounts of said shares so as to cause a
violation of Section 12(d)(1) of the 1940 Act. The Acquired Fund covenants
further that, pursuant to Section 3G, it shall liquidate and dissolve as
promptly as practicable after the Closing Date. The Acquired Fund covenants to
use all reasonable efforts to cooperate with the Acquiring Fund and the
Acquiring Fund's transfer agent in the distribution of said shares.
H. Brokers or Finders. Except as disclosed in writing to the other party
prior to the date hereof, each of the Acquired Fund and the Acquiring Fund
represents that no agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any broker's or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement, and each party shall hold the other harmless
from and against any all claims, liabilities or obligations with respect to any
such fees, commissions or expenses asserted by any person to be due or payable
in connection with any of the transactions contemplated by this Agreement on the
basis of any act or statement alleged to have been made by such first party or
its affiliate.
I. Additional Agreements. In case at any time after the Closing Date any
further action is necessary or desirable in order to carry out the purposes of
this Agreement the appropriate party or parties to this Agreement shall take all
such necessary action.
J. Public Announcements. For a period of time from the date of this
Agreement to the Closing Date, the Acquired Fund and the Acquiring Fund will
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement or the transactions
contemplated herein and shall not issue any press release or make any public
statement prior to such consultation, except as may be required by law or the
rules of any national securities exchange on which such party's securities are
traded.
K. Tax Status of Reorganization. The intention of the parties is that the
transaction will qualify as a reorganization within the meaning of Section
368(a) of the Code. Neither the Acquired Fund Trust, the Acquiring Fund Trust,
the Acquiring Fund nor the Acquired Fund shall take any action, or cause any
action to be taken (including, without limitation, the filing of any tax return)
that is inconsistent with such treatment or results in the failure of the
transaction to qualify as a reorganization within meaning of Section 368(a) of
the Code. At or prior to the Closing Date, the Acquired Fund Trust, the
Acquiring Fund Trust, the Acquiring Fund and the Acquired Fund will take such
action, or cause such action to be taken, as is reasonably necessary to enable
Vedder, Price, Kaufman & Kammholz, counsel to the Acquired Fund, to render the
tax opinion contemplated herein.
L. Declaration of Dividend. At or immediately prior to the Closing Date,
the Acquired Fund may declare and pay to its stockholders a dividend or other
distribution in an amount large enough so that it will have distributed
substantially all (and in any event not less than 98%) of its investment company
taxable income (computed without regard to any deduction for dividends paid) and
realized net capital gain, if any, for the current taxable year through the
Closing Date.
7. CONDITIONS TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund hereunder with respect to the
consummation of the Reorganization are subject to the satisfaction, or written
waiver by the Acquired Fund, of the following conditions:
A. Shareholder Approval. This Agreement and the transactions contemplated
herein shall have been approved by the affirmative vote of the holders of at
least a majority of the outstanding shares of beneficial interest in the
Acquired Fund.
B. Representations, Warranties and Agreements. Each of the representations
and warranties of the Acquiring Fund contained herein shall be true in all
material respects as of the Closing Date, and as of the Closing Date there shall
have been no material adverse change in the financial condition, results of
operations, business properties or assets of the Acquiring Fund, and the
Acquired Fund shall have received a certificate of an authorized officer of the
Acquiring Fund satisfactory in form and substance to the Acquired Fund so
stating. The Acquiring Fund shall have performed and complied in all material
respects with all agreements, obligations and covenants required by this
Agreement to be so performed or complied with by it on or prior to the Closing
Date.
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C. Registration Statement Effective. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.
D. Regulatory Approval. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.
E. No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect, nor shall any proceeding by any state, local or federal
government agency or entity asking any of the foregoing be pending. There shall
not be any action taken or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the transactions contemplated by this
Agreement, which makes the consummation of the transactions contemplated by this
Agreement illegal or which has a material adverse effect on business operations
of the Acquiring Fund.
F. Tax Opinion. The Acquired Fund shall have obtained an opinion from
Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of
the Closing Date, addressed to the Acquiring Fund Trust, Acquired Fund Trust,
Acquired Fund and Acquiring Fund, that the consummation of the transactions set
forth in this Agreement comply with the requirements of a reorganization as
described in Section 368(a) of the Code, substantially in the form attached as
Annex A.
G. Opinion of Counsel. The Acquired Fund shall have received the opinion of
Vedder, Price, Kaufman & Kammholz, counsel for the Acquiring Fund Trust and
Acquiring Fund, dated as of the Closing Date, addressed to the Acquired Fund
substantially in the form and to the effect that: (i) the Acquiring Fund Trust
is duly formed and in good standing as a business trust under the laws of the
State of Massachusetts; (ii) the Board of Trustees of the Acquiring Fund Trust
has duly designated the Acquiring Fund as a series of the Acquiring Fund Trust
pursuant to the terms of the Declaration of Trust of the Acquiring Fund Trust;
(iii) the Acquiring Fund Trust is registered as an open-end management company
under the 1940 Act; (iv) this Agreement and the reorganization provided for
herein and the execution of this Agreement have been duly authorized and
approved by all requisite action of the Acquiring Fund Trust and this Agreement
has been duly executed and delivered by the Acquiring Fund Trust on behalf of
the Acquiring Fund and (assuming the Agreement is a valid and binding obligation
of the other parties thereto) is a valid and binding obligation of the Acquiring
Fund; except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar law affecting
creditors' rights generally, or by general principals of equity (regardless of
whether enforcement is sought in a proceeding at equity at law); (v) neither the
execution or delivery by the Acquiring Fund Trust on behalf of the Acquiring
Fund of this Agreement nor the consummation by the Acquiring Fund Trust or
Acquiring Fund of the transactions contemplated thereby contravene the Acquiring
Fund Trust's Declaration of Trust, or, to the best of their knowledge, violate
any provision of any statute or any published regulation or any judgment or
order disclosed to it by the Acquiring Fund Trust as being applicable to the
Acquiring Fund Trust or the Acquiring Fund; (vi) to the best of their knowledge
based solely on the certificate of an appropriate officer of the Acquiring Fund
attached hereto, there is no pending or threatened litigation which would have
the effect of prohibiting any material business practice or the acquisition of
any material property or the conduct of any material business of the Acquiring
Fund or might have a material adverse effect on the value of any assets of the
Acquiring Fund; (vii) the Acquiring Fund's Shares have been duly authorized and
upon issuance thereof in accordance with this Agreement will, subject to certain
matters regarding the liability of a shareholder of a Massachusetts business
trust, be validly issued, fully paid and nonassessable; (viii) except as to
financial statements and schedules and other financial and statistical data
included or incorporated by reference therein and subject to usual and customary
qualifications with respect to Rule 10b-5 type opinions, as of the effective
date of the Registration Statement filed pursuant to the Agreement, the portions
thereof pertaining to the Acquiring Fund comply as to form in all material
respects with the requirements of the Securities Act, the Securities Exchange
Act and the 1940 Act and the rules and regulations of the SEC thereunder and no
facts have come to counsel's attention which would cause them to believe that as
of the effectiveness of the portions of the Registration Statement applicable to
the Acquiring Fund, the Registration Statement contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ix) to
the best of their knowledge and information and subject to the qualifications
set forth below, the execution and delivery by the Acquiring Fund Trust on
behalf of the Acquiring Fund of the Agreement and the consummation of the
transactions therein contemplated do not require, under the laws of the States
of Massachusetts and Illinois or the federal laws of the United States, the
consent, approval, authorization, registration, qualification or order of, or
filing with, any court or governmental agency or body (except such as have been
obtained). Counsel need express no opinion, however, as to any such consent,
approval, authorization, registration, qualification, order or filing (a) which
may be required as a result of the involvement of
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other parties to the Agreement in the transactions contemplated by the Agreement
because of their legal or regulatory status or because of any other facts
specifically pertaining to them; (b) the absence of which does not deprive the
Acquired Fund of any material benefit under the Agreement; or (c) which can be
readily obtained without significant delay or expense to the Acquired Fund,
without loss to the Acquired Fund of any material benefit under the Agreement
and without any material adverse effect on the Acquired Fund during the period
such consent, approval, authorization, registration, qualification or order was
obtained. The foregoing opinion relates only to consents, approvals,
authorizations, registrations, qualifications, orders or filings under (a) laws
which are specifically referred to in this opinion, (b) laws of the States of
Massachusetts and Illinois and the federal laws of the United States which, in
counsel's experience, are normally applicable to transactions of the type
provided for in the Agreement and (c) court orders and judgments disclosed to
counsel by the Acquiring Fund Trust on behalf of the Acquiring Fund in
connection with the opinion. In addition, although counsel need not specifically
have considered the possible applicability to the Acquiring Fund Trust or the
Acquiring Fund of any other laws, orders or judgments, nothing has come to their
attention in connection with their representation of the Acquiring Fund Trust
and the Acquiring Fund in this transaction that has caused them to conclude that
any other consent, approval, authorization, registration, qualification, order
or filing is required. In giving the opinions set forth above, counsel may state
that it is relying on certificates of officers of the Acquiring Fund with regard
to matters of fact and certain certificates and written statements of government
officers with respect to the good standing of the Acquiring Fund and on the
opinion of Bingham Dana LLP as to matters of Massachusetts law.
H. Officer Certificates. The Acquired Fund shall have received a
certificate of an authorized officer of the Acquiring Fund, dated as of the
Closing Date, certifying that (i) the representations and warranties set forth
in Section 5 are true and correct on the Closing Date, together with certified
copies of the resolutions adopted by the Board of Trustees shall be furnished to
the Acquired Fund and that (ii) from the date hereof through the Closing Date,
there shall not have been any change in the business, results of operations,
assets or financial condition or the manner of conducting the business of the
Acquiring Fund, other than changes in the ordinary course of its business, which
has had a material adverse effect on such business, results of operations,
assets or financial condition.
8. CONDITIONS TO OBLIGATIONS OF ACQUIRING FUND.
The obligations of the Acquiring Fund hereunder with respect to the
consummation of the Reorganization are subject to the satisfaction, or written
waiver by the Acquiring Fund of the following conditions:
A. Shareholder Approval. This Agreement and the transactions contemplated
herein shall have been approved by the affirmative vote of the holders of at
least a majority of the outstanding shares of beneficial interest of the
Acquired Fund.
B. Representations, Warranties and Agreements. Each of the representations
and warranties of the Acquired Fund contained herein shall be true in all
material respects as of the Closing Date, and as of the Closing Date there shall
have been no material adverse change in the financial condition, results of
operations, business, properties or assets of the Acquired Fund, and the
Acquiring Fund shall have received a certificate of an authorized officer of the
Acquired Fund satisfactory in form and substance to the Acquiring Fund so
stating. The Acquired Fund shall have performed and complied in all material
respects with all agreements, obligations and covenants required by this
Agreement to be so performed or complied with by them on or prior to the Closing
Date.
C. Registration Statement Effective. The Registration Statement shall have
become effective and no stop orders under the Securities Act pertaining thereto
shall have been issued.
D. Regulatory Approval. All necessary approvals, registrations, and
exemptions under federal and state securities laws shall have been obtained.
E. No Injunctions or Restraints: Illegality. No Injunction preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect, nor shall any proceeding by any state, local or federal government
agency or entity seeking any of the foregoing be pending. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this
Agreement, which makes the consummation of the transactions contemplated by this
Agreement illegal.
F. Tax Opinion. The Acquiring Fund shall have obtained an opinion from
Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund, dated as of
the Closing Date, addressed to the Acquiring Fund Trust, Acquired Fund Trust,
Acquired Fund and Acquiring Fund, that the consummation of the transactions set
forth in this Agreement comply with the requirements of a reorganization as
described in Section 368(a) of the Code substantially in the form attached as
Annex A.
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G. Opinion of Counsel. The Acquiring Fund shall have received the opinion
of Vedder, Price, Kaufman & Kammholz, counsel for the Acquired Fund Trust and
the Acquired Fund, dated as of the Closing Date, addressed to the Acquiring
Fund, substantially in the form and to the effect that: (i) the Acquired Fund
Trust is duly formed and existing as a trust under the laws of the State of
Massachusetts; (ii) the Board of Trustees of the Acquired Fund Trust has duly
designated the Acquired Fund as a series of the Acquired Fund Trust pursuant to
the terms of the Declaration of Trust of the Acquired Fund Trust; (iii) the
Acquired Fund Trust is registered as an open-end management company under the
1940 Act; (iv) this Agreement and the reorganization provided for herein and the
execution of this Agreement have been duly authorized by all requisite action of
the Acquired Fund Trust and this Agreement has been duly executed and delivered
by the Acquired Fund Trust on behalf of the Acquired Fund and (assuming the
Agreement is a valid and binding obligation of the other parties thereto) is a
valid and binding obligation of the Acquired Fund, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar law affecting creditors' rights generally, or by general
principals of equity (regardless of whether enforcement is sought in a
proceeding at equity or law); (v) neither the execution or delivery by the
Acquired Fund Trust on behalf of the Acquired Fund of this Agreement nor the
consummation by the Acquired Fund Trust or Acquired Fund of the transactions
contemplated thereby contravene the Acquired Fund Trust's Declaration of Trust
or, to their knowledge, violate any provision of any statute, or any published
regulation or any judgment or order disclosed to them by the Acquired Fund Trust
as being applicable to the Acquired Fund Trust or Acquired Fund; (vi) to their
knowledge based solely on the certificate of an appropriate officer of the
Acquired Fund attached thereto, there is no pending, or threatened litigation
involving the Acquired Fund except as disclosed therein; (vii) except as to
financial statements and schedules and other financial and statistical data
included or incorporated by reference therein and subject to usual and customary
qualifications with respect to Rule 10b-5 type opinions, as of the effective
date of the Registration Statement filed pursuant to the Agreement, the portions
thereof pertaining to the Acquired Fund comply as to form in all material
respects with their requirements of the Securities Act, the Securities Exchange
Act and the 1940 Act and the rules and regulations of the SEC thereunder and no
facts have come to counsel's attention which cause them to believe that as of
the effectiveness of the portions of the Registration Statement applicable to
the Acquired Fund, the Registration Statement contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (viii)
to their knowledge and subject to the qualifications set forth below, the
execution and delivery by the Acquired Fund Trust on behalf of the Acquired Fund
of the Agreement and the consummation of the transactions therein contemplated
do not require, under the laws of the States of Massachusetts or Illinois, or
the federal laws of the United States, the consent, approval, authorization,
registration, qualification or order of, or filing with, any court or
governmental agency or body (except such as have been obtained under the
Securities Act, the 1940 Act or the rules and regulations thereunder.) Counsel
need express no opinion, however, as to any such consent, approval,
authorization, registration, qualification, order or filing (a) which may be
required as a result of the involvement of other parties to the Agreement in the
transactions contemplated by the Agreement because of their legal or regulatory
status or because of any other facts specifically pertaining to them; (b) the
absence of which does not deprive the Acquiring Fund of any material benefit
under such agreements; or (c) which can be readily obtained without significant
delay or expense to the Acquiring Fund, without loss to the Acquiring Fund of
any material benefit under the Agreement and without any material adverse effect
on them during the period such consent, approval authorization, registration,
qualification or order was obtained. The foregoing opinion relates only to
consents, approvals, authorizations, registrations, qualifications, orders or
filings under (a) laws which are specifically referred to in the opinion, (b)
laws of the States of Massachusetts or Illinois and the federal laws of the
United States which, in our experience, are normally applicable to transactions
of the type provided for in the Agreement and (c) court orders and judgments
disclosed to counsel by the Acquired Fund in connection with the opinion. In
addition, although counsel need not specifically considered the possible
applicability to the Acquired Fund of any other laws, orders or judgments,
nothing has come to their attention in connection with their representation of
the Acquired Fund in this transaction that has caused them to conclude that any
other consent, approval, authorization, registration, qualification, order or
filing is required. In giving the opinion set forth above, counsel may state
that it is relying on certificates of officers of the Acquired Fund with regard
to matters of fact and certain certificates and written statutes of government
officers with respect to the good standing of the Acquired Fund and on the
opinion of Bingham Dana LLP as to matters of Massachusetts law.
H. Shareholder List. The Acquired Fund shall have delivered to the
Acquiring Fund an updated list of all shareholders of the Acquired Fund, as
reported by the Acquired Fund's transfer agent, as of [one (1)] business day
prior to the Closing Date with each shareholder's respective holdings in the
Acquired Fund, taxpayer identification numbers, Form W9 and last known address.
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<PAGE> 120
I. Officer Certificates. The Acquiring Fund shall have received a
certificate of an authorized officer of the Acquired Fund, dated as of the
Closing Date, certifying that (i) the representations and warranties set forth
in Section 4 are true and correct on the Closing Date, together with certified
copies of the resolutions adopted by the Board of Trustees and shareholders and
that (ii) from the date of this Agreement through the Closing Date, there shall
not have been:
(1) any change in the business, results of operations, assets, or
financial condition or the manner of conducting the business of the
Acquired Fund, other than changes in the ordinary course of its business,
or any pending or threatened litigation, which has had or may have a
material adverse effect on such business, results of operations, assets or
financial condition;
(2) issued any option to purchase or other right to acquire shares of
the Acquired Fund granted by the Acquired Fund to any person other than
subscriptions to purchase shares at net asset value in accordance with
terms in the Prospectus for the Acquired Fund;
(3) any entering into, amendment or termination of any contract or
agreement by Acquired Fund, except as otherwise contemplated by this
Agreement;
(4) any indebtedness incurred, other than in the ordinary course of
business, by the Acquired Fund for borrowed money or any commitment to
borrow money entered into by the Acquired Fund;
(5) any amendment of the Acquired Fund Trust's Declaration of Trust or
Designation of Series of the Acquired Fund; or
(6) any grant or imposition of any lien, claim, charge or encumbrance
(other than encumbrances arising in the ordinary course of business with
respect to covered options) upon any asset of the Acquired Fund other than
a lien for taxes not yet due and payable.
9. AMENDMENT, WAIVER AND TERMINATION.
A. The parties hereto may, by agreement in writing authorized by the Board,
amend this Agreement at any time before or after approval thereof by the
shareholders of the Acquired Fund; provided, however, that after receipt of
Acquired Fund shareholder approval, no amendment shall be made by the parties
hereto which substantially changes the terms of Sections 1, 2 and 3 hereof
without obtaining Acquired Fund's shareholder approval thereof.
B. At any time prior to the Closing Date, either of the parties may by
written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein. No delay on the part of either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, or any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege.
C. This Agreement may be terminated, and the transactions contemplated
herein may be abandoned at any time prior to the Closing Date:
(1) by the mutual consents of the Board of the Acquiring Fund Trust
and Acquired Fund Trust on behalf of the Acquired Fund and Acquiring Fund,
respectively;
(2) by the Acquired Fund, if the Acquiring Fund breaches in any
material respect any of its representations, warranties, covenants or
agreements contained in this Agreement and fails to cure promptly such
breach after receipt of notice thereof;
(3) by the Acquiring Fund, if the Acquired Fund breaches in any
material respect any of its representations, warranties, covenants or
agreements contained in this Agreement and fails to cure promptly such
breach after receipt of notice thereof;
(4) by either the Acquired Fund or Acquiring Fund, if the Closing has
not occurred on or prior to [December 31, 1998] (provided that the rights
to terminate this Agreement pursuant to this subsection (C)(iv) shall not
be available to any party whose failure to fulfill any of its obligations
under this Agreement has been the cause of or resulted in the failure of
the Closing to occur on or before such date);
10. REMEDIES.
In the event of termination of this Agreement by either or both of the
Acquired Fund and Acquiring Fund pursuant to Section 9C, written notice thereof
shall forthwith be given by the terminating party to the other party
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<PAGE> 121
hereto, and this Agreement shall therefore terminate and become void and have no
effect, and the transactions contemplated herein and thereby shall be abandoned,
without further action by the parties hereto. However, this Section 10 shall not
limit the remedies available for a breach of this Agreement prior to its
termination.
11. SURVIVAL.
The provisions set forth in Sections 10 and 16 hereof shall survive the
termination of this Agreement for any cause whatsoever. The representations and
warranties included or provided for herein, or in the Schedules or other
instruments delivered or to be delivered pursuant hereto shall not survive the
Closing Date.
12. NOTICES.
All notices hereunder shall be sufficiently given for all purposes
hereunder if in writing and delivered personally or sent by registered mail or
certified mail, postage prepaid. Notice to the Acquired Fund shall be addressed
to the Acquired Fund c/o Nuveen Advisory Corp., 333 West Wacker Drive, Chicago,
Illinois 60606, Attention: General Counsel, or at such other address as the
Acquired Fund may designate by written notice to the Acquiring Fund. Notice to
the Acquiring Fund shall be addressed to the Acquiring Fund c/o Nuveen Advisory
Corp., 333 West Wacker Drive, Chicago, Illinois, 60606, Attention: General
Counsel, or at such other address and to the attention of such other person as
the Acquiring Fund may designate by written notice to the Acquired Fund. Any
notice shall be deemed to have been served or given as of the date such notice
is delivered personally or mailed.
13. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns. This Agreement shall not be
assigned by any party without the prior written consent of the other party
hereto.
14. BOOKS AND RECORDS.
The Acquired Fund and the Acquiring Fund agree that copies of the books and
records of the Acquired Fund relating to the Assets including, but not limited
to all files, records, written materials; e.g., closing transcripts,
surveillance files and credit reports shall be delivered by the Acquired Fund to
the Acquiring Fund at the Closing Date. In addition to, and without limiting the
foregoing, the Acquired Fund and the Acquiring Fund agree to take such action as
may be necessary in order that the Acquiring Fund shall have reasonable access
to such other books and records as may be reasonably requested, all for three
years after the Closing Date and for the last three tax years ending[,
, 1995, , 1996 and , 1997]; namely, general
ledger, journal entries, voucher registers; distribution journal; payroll
register, monthly balance owing report; income tax returns; tax depreciation
schedules; and investment tax credit basis schedules.
15. GENERAL.
This Agreement supersedes all prior agreements between the parties (written
or oral), is intended as a complete and exclusive statement of the terms of the
Agreement between the parties and may not be amended, modified or changed or
terminated orally. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by the Acquired Fund
and Acquiring Fund and delivered to each of the parties hereto. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. This Agreement is
for the sole benefit of the parties thereto, and nothing in this Agreement,
expressed or implied, is intended to confer upon any other person any rights or
remedies under or by reason of this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois without
regard to principles of conflicts or choice of law.
16. LIMITATION OF LIABILITY.
Consistent with the Acquiring Fund Trust's and the Acquired Fund Trust's
Declarations of Trust, notice is hereby given and the parties hereto acknowledge
and agree that this instrument is executed on behalf of the Trustees of each
Trust on behalf of the Acquiring Fund and the Acquired Fund, respectively, as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders of the Acquiring Fund
Trust, Acquired Fund Trust, Acquiring Fund or Acquired Fund individually but
binding only upon the assets and property of the Acquiring Fund or the Acquired
Fund as the case may be.
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IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
ACQUIRING FUND TRUST, on behalf of
ACQUIRING FUND
By:
-----------------------------------------
Title:
-----------------------------------------
Attest:
- -------------------------------------------------
Title:
- --------------------------------------------------
ACQUIRED FUND TRUST, on behalf of
ACQUIRED FUND
By:
-----------------------------------------
Title:
-----------------------------------------
Attest:
- -------------------------------------------------
Title:
- --------------------------------------------------
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<PAGE> 123
EXHIBIT B
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 August 27, 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) 621-7227.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Policies and Investment Portfolio................ B-2
Management.................................................. B-15
Investment Adviser and Investment Management Agreement...... B-20
Portfolio Transactions...................................... B-21
Net Asset Value............................................. B-22
Tax Matters................................................. B-22
Performance Information..................................... B-26
Additional Information on the Purchase and Redemption of
Fund Shares............................................... B-31
Distribution and Service Plan............................... B-36
Independent Public Accountants and Custodian................ B-37
Financial Statements........................................ B-38
Appendix A -- Ratings of Investments........................ AA-1
Appendix B -- Description of Hedging Techniques............. BB-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports. The Annual Reports accompany this Statement
of Additional Information.
<PAGE> 124
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of
each Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the shares
of that Fund:
(1) Invest in securities other than Municipal Obligations and
short-term securities, as described in the Prospectus. Municipal
Obligations are municipal bonds that pay interest that is exempt from
regular federal income taxes.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government 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.
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<PAGE> 125
In addition, each Fund, as a non-fundamental policy, may not invest more
than 15% of its net assets in "illiquid" securities, including repurchase
agreements maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2)
above, an issuer shall be deemed the sole issuer of a security when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
non-governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to be
the sole issuer. Where a security is also backed by the enforceable obligation
of a superior or unrelated governmental entity or other entity (other than a
bond insurer), it shall also be included in the computation of securities owned
that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated as
an issue of such government, other entity or bank. Where a security is insured
by bond insurance, it shall not be considered a security issued or guaranteed by
the insurer; instead the issuer of such security will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the Fund's assets that may be invested in securities
insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the Investment
Company Act of 1940, this means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the Fund's shares are
present or represented by proxy, or (ii) more than 50% of the Fund's shares,
whichever is less.
The Nuveen Flagship 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 Flagship 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 Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the Trust
for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is remote.
PORTFOLIO SECURITIES
As described in the Prospectus, each 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
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<PAGE> 126
construction of a wide range of public facilities such as airports, bridges,
highways, hospitals, housing, mass transportation, schools, streets and water
and sewer works. Industrial development bonds and pollution control bonds that
are issued by or on behalf of public authorities to finance various
privately-rated facilities are included within the term Municipal Obligations if
the interest paid thereon is exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal
Obligations which are rated at the time of purchase within the four highest
grades (Baa or BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by
Standard and Poor's Corporation ("S&P") or by Fitch Investors Service, Inc.
("Fitch"), (2) unrated Municipal Obligations which, in the opinion of Nuveen
Advisory, have credit characteristics equivalent to bonds rated within the four
highest grades by Moody's, S&P or Fitch, except that the Fund may not invest
more than 20% of its net assets in unrated bonds and (3) temporary investments
as described below, the income from which may be subject to state income tax or
to both federal and state income taxes. See Appendix A for more information
about ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal
Obligations that constitute participations in a lease obligation or installment
purchase contract obligation (hereafter collectively called "lease obligations")
of a municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
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
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<PAGE> 127
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.
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.
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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.
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
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<PAGE> 129
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 $2,642,000,000 (unaudited) and statutory capital of
approximately $1,509,000,000 (unaudited) as of March 31, 1997. Statutory capital
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.
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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, 1997, 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 $691,321,000 (unaudited) and $417,390,000 (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
$824,939,000 (unaudited) and $361,589,000 (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")
The Insurer 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 the Insurer. The Insurer is domiciled in the State of New York
and licensed to do business in and subject to regulation under the laws of 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. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
As of December 31, 1996 the Insurer had admitted assets of $4.4 billion
(audited), total liabilities of $3.0 billion (audited), and total capital and
surplus of $1.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1997, the Insurer had admitted assets of $4.5
billion (unaudited), total liabilities of $3.0 billion (unaudited), and total
capital and surplus of $1.5 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities.
Furthermore, copies of the Insurer's year end financial statements prepared
in accordance with statutory accounting practices are available without charge
from the Insurer. A copy of the Annual Report on Form 10-K of MBIA Inc. is
available from the Insurer or the Securities and Exchange Commission. The
address of the Insurer is 113 King Street, Armonk, New York 10504. The telephone
number of the Insurer is (914) 273-4545.
The Insurer'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 the Insurer'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").
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The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Municipal Obligation. The
Insurer'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. The Insurer'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.
With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the policy, the Insurer 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 the Insurer 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, the
Insurer 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 the Insurer, and appropriate instruments to effect the appointment of the
Insurer 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.
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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, 1997, the total
capital and surplus of Financial Guaranty was approximately $1,123,724,061.
Financial Guaranty prepares financial statements on the basis of both statutory
accounting principles and 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.
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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 their investment objective. Securities may be
sold in anticipation of market decline or purchased in anticipation of market
rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage of
what Nuveen Advisory believes to be a temporary disparity in the normal yield
relationship between the two 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 1996 fiscal year-end of
each Fund as a series of its predecessor entity (described above), and for the
1997 fiscal year-end, as indicated, were
<TABLE>
<CAPTION>
FISCAL YEAR
------------
1996 1997
---- ----
<S> <C> <C>
Nuveen Municipal Bond Fund.................................. 17% 12%*
Nuveen Insured Municipal Bond Fund.......................... 27% 35%*
Nuveen Flagship All-American Municipal Bond Fund............ 79% 39%**
Nuveen Flagship Intermediate Municipal Bond Fund............ 81% 26%**
Nuveen Flagship Limited Term Municipal Bond Fund............ 39% 29%**
</TABLE>
- ---------------
* For the fiscal year ended February 28, 1997. For the period March 1, 1997 to
April 30, 1997, the portfolio turnover rate for the Nuveen Municipal Bond
Fund was 2% and the rate for the Nuveen Insured Municipal Bond Fund was 12%.
** For the eleven months ended April 30, 1997.
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. (When-issued transactions normally settle within 15-45 days.)
On such transactions the payment obligation and the interest rate are fixed at
the time the buyer enters into the commitment. The commitment to purchase
securities on a when-issued or delayed delivery basis may involve an element of
risk because the value of the securities is subject to market fluctuation, no
interest accrues to the purchaser prior to settlement of the transaction, and at
the time of delivery the market value may be less than cost. At the time a Fund
makes the commitment to purchase a Municipal Obligation on a when-issued or
delayed delivery basis, it will record the transaction and reflect the amount
due and the value of the security in determining its net asset value. Likewise,
at the time a Fund makes the commitment to sell a Municipal Obligation on a
delayed delivery basis, it will record the transaction and include the proceeds
to be received in determining its net asset value; accordingly, any fluctuations
in the value of the Municipal Obligation sold pursuant to a delayed delivery
commitment are ignored in calculating net asset value so long as the commitment
remains in effect. The Funds will maintain designated readily marketable assets
at least equal in value to commitments to purchase when-issued or delayed
delivery securities, such assets to be segregated by the Custodian specifically
for the settlement of such commitments. The Funds will only make commitments to
purchase Municipal Obligations on a when-issued or delayed delivery basis with
the intention of actually acquiring the securities, but the Funds reserve the
right to sell these securities before the settlement date if it is deemed
advisable. If a when-issued security is sold before delivery any gain or loss
would not be tax-exempt. The Funds commonly engage in when-issued transactions
in order to purchase or sell newly-issued Municipal Obligations, and may engage
in delayed delivery transactions in order to manage its operations more
effectively.
B-11
<PAGE> 134
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.
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
B-12
<PAGE> 135
level of government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the revenues
would, when received, be used to meet other obligations could affect the ability
of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These notes
may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available
therefrom. Maturities of municipal paper generally will be shorter than the
maturities of TANs, BANs or RANs. There is a limited secondary market for issues
of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion
of the tax-exempt note market, other types of notes are occasionally available
in the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States Treasury
and include bills, notes and bonds.
-- Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
-- Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
-- Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks in
exchange for the deposit of funds and normally can be traded in the secondary
market, prior to maturity. The Fund will only invest in U.S. dollar denominated
CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from U.S.
corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements -- A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future
B-13
<PAGE> 136
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.
B-14
<PAGE> 137
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 PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Timothy R. Schwertfeger*....... 48 Chairman and Chairman since July 1, 1996 of The John Nuveen Company, John
333 West Wacker Drive Trustee Nuveen & Co. Incorporated, Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; prior thereto Executive Vice
President and Director of The John Nuveen Company (since
March 1992), John Nuveen & Co. Incorporated, Nuveen Advisory
Corp. (since October 1992) and Nuveen Institutional Advisory
Corp. (since October 1992).
Anthony T. Dean*............... 52 President and President since July 1, 1996 of The John Nuveen Company,
333 West Wacker Drive Trustee John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.; prior thereto,
Executive Vice President and Director of The John Nuveen
Company (since March 1992), John Nuveen & Co. Incorporated,
Nuveen Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Robert P. Bremner.............. 56 Trustee Private Investor and Management Consultant.
3725 Huntington Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown.............. 63 Trustee Retired (August 1989) as Senior Vice President of The
201 Michigan Avenue Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri........... 64 Trustee President and Chief Executive Officer of Blanton-Peale
3 West 29th Street Institute of Religion and Health.
New York, NY 10001
Peter R. Sawers................ 64 Trustee Adjunct Professor of Business and Economics, University of
22 The Landmark Dubuque, Iowa; Adjunct Professor, Lake Forest Graduate
Northfield, IL 60093 School of Management, Lake Forest, Illinois; Chartered
Financial Analyst; Certified Management Consultant.
William J. Schneider........... 52 Trustee Senior Partner, Miller-Valentine Partners, Vice President,
4000 Miller-Valentine Ct. Miller- Valentine Group.
P.O. Box 744
Dayton, OH 45401
Judith M. Stockdale............ 49 Trustee Executive Director, Gaylord and Dorothy Donnelley Foundation
35 East Wacker Drive (since 1994); prior thereto, Executive Director, Great Lakes
Chicago, IL 60601 Protection Fund (from 1990 to 1994).
Bruce P. Bedford............... 57 Executive Vice Executive Vice President of John Nuveen & Co., Nuveen
333 West Wacker Drive President Advisory Corp. and Nuveen Institutional Advisory Corp.
Chicago, IL 60606 (since January 1997); prior thereto, Chairman and CEO of
Flagship Resources Inc. and Flagship Financial Inc. and the
Flagship funds (since January 1986).
Michael S. Davern.............. 40 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 (since September 1991) of Flagship Financial.
William M. Fitzgerald.......... 33 Vice President Vice President of Nuveen Advisory Corp. (since December
333 West Wacker Drive 1995); Assistant Vice President of Nuveen Advisory Corp.
Chicago, IL 60606 (from September 1992 to December 1995), prior thereto
Assistant Portfolio Manager of Nuveen Advisory Corp. (from
June 1988 to September 1992).
Kathleen M. Flanagan........... 50 Vice President Vice President of John Nuveen & Co. Incorporated, Vice
333 West Wacker Drive President (since June 1996) of Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.
J. Thomas Futrell.............. 42 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
B-15
<PAGE> 138
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Richard A. Huber............... 34 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 (since August 1985) of Flagship Financial.
Steven J. Krupa................ 39 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis.............. 51 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin................ 46 Vice President Vice President (since September 1992), and Assistant
333 West Wacker Drive Secretary and Assistant General Counsel of John Nuveen & Co.
Chicago, IL 60606 Incorporated; Vice President (since May 1993) and Assistant
Secretary of Nuveen Advisory Corp.; Vice President (since
May 1993) and Assistant Secretary (since January 1992) of
Nuveen Institutional Advisory Corp.; Assistant Secretary of
The John Nuveen Company (since February 1993).
Edward F. Neild, IV............ 32 Vice President Vice President (since September 1996), previously Assistant
One South Main Street Vice President (since December 1993) of Nuveen Advisory
Dayton, OH 45402 Corp., portfolio manager prior thereto (since January 1992);
Vice President (since September 1996), previously Assistant
Vice President (since May 1995) of Nuveen Institutional
Advisory Corp., portfolio manager prior thereto.
Walter K. Parker............... 48 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 (since July 1994) of Flagship Financial; Portfolio Manager
and CIO Trust Investor (between 1983 and June 1994) for PNC
Bank.
O. Walter Renfftlen............ 58 Vice President Vice President and Controller of The John Nuveen Company
333 West Wacker Drive (since March 1992), John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory Corp.
Thomas C. Spalding, Jr......... 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen
333 West Wacker Drive Institutional Advisory Corp.; Chartered Financial Analyst.
Chicago, IL 60606
H. William Stabenow............ 63 Vice President Vice President and Treasurer of The John Nuveen Company
333 West Wacker Drive (since March 1992), John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory Corp.
(since January 1992).
Jan E. Terbrueggen............. 41 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 (since January 1992) of Flagship Financial.
Gifford R. Zimmerman........... 40 Vice President and Vice President (since September 1992), Assistant Secretary
333 West Wacker Drive Assistant and Assistant General Counsel of John Nuveen & Co.
Chicago, IL 60606 Secretary Incorporated; Vice President (since May 1993) and Assistant
Secretary of Nuveen Advisory Corp.; Vice President (since
May 1993) and Assistant Secretary (since January 1992) of
Nuveen Institutional Advisory Corp.
</TABLE>
Anthony Dean, Peter Sawers, and Timothy Schwertfeger serve as members of
the Executive Committee of the Board of Trustees. The Executive Committee, which
meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are directors or trustees, as the case may be, of
42 Nuveen open-end funds and 52 Nuveen closed-end funds advised by Nuveen
Advisory Corp.
B-16
<PAGE> 139
The following table sets forth compensation paid by the Trust to each of
the trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended April 30, 1997. 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 COMPENSATION
AGGREGATE COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- ---------------------- ------------------
<S> <C> <C>
Robert P. Bremner.................... $ 5,127(1) $25,333(1)
Lawrence H. Brown.................... $ 9,364 $74,750
Anne E. Impellizzeri................. $ 9,364 $74,750
Margaret K. Rosenheim................ $11,963(2) $84,714(3)
Peter R. Sawers...................... $ 9,364 $74,750
William J. Schneider................. $ 5,327(1) $26,333(1)
Judith M. Stockdale.................. $ 0(4) $ 0(4)
</TABLE>
- ---------------
(1) Includes compensation received as a trustee of the Flagship Funds, for the
period June 1, 1996 to January 1, 1997.
(2) Includes $465 in interest accrued on deferred compensation from prior years;
former Trustee, retired July 1997.
(3) Includes $1,964 in interest accrued on deferred compensation from prior
years.
(4) Elected to the Board in July 1997.
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 August 13, 1997, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
---------------------- ------------------------- -------------
<S> <C> <C>
Nuveen Municipal Bond Fund
Class B Shares............................... Smith Barney Inc. 10.35
D015DR81311
388 Greenwich Street
New York, New York 10015
BHC Securities, Inc. 7.13
FAO 70875400
Attn: Mutual Funds Dept
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
Joseph Robinson & Esther Robinson 6.99
JT TEN WROS NOT TC
47 Pierce St
Kingston, PA 18704-4632
Dolores J. Corby 6.49
1532 NE 96th St
Seattle, WA 98115-2540
PaineWebber For The Benefit Of 6.02
Carl C. Chaffee
3843 S. Nevia St.
Denver, CO 80237-1636
NFSC FEBO OBV-71031B 5.25
Gregory J. Lyons
P.O. Box 161
East Earl, PA 17519
Nuveen Municipal Bond Fund
Class C Shares............................... Oppenheimer & Co., Inc. 5.75
FBO 020-38275-14
P.O. Box 3484
Church Street Station
New York, NY 10008-8484
</TABLE>
B-17
<PAGE> 140
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
---------------------- ------------------------- -------------
<S> <C> <C>
PaineWebber For The Benefit Of 5.69
Irene Ruth Kroske Soule
771 Via Milano Circle
Apopka, FL 32712-3187
Nuveen Insured Municipal Bond Fund
Class A Shares............................... NYSC FEBO 08Y-055 646 5.53
Jack H. Martinelli
Harriet R. Martinelli TTEE
Martinelli Family Trust
U/A 3/27/92 -- 748 Pico Ave
San Mateo, CA 94403
Nuveen Insured Municipal Bond Fund
Class B Shares............................... MLPF&S For The Benefit Of Its Customers 32.14
Attn: Fund Admn
4800 Deer Lake Dr E FL 5
Jacksonville, FL 32246-6484
FUBS & Co. FEBO 9.75
Marjorie B. Guy Trustee
FBO Marjorie B. Guy Trust
UTD 5/28/97
5004 Dickers Ave
Tampa, FL 33629
US Clearing Corp 9.69
FBO 953-15168-14
26 Broadway
New York, NY 10006-179B
Ruth Martin 8.54
9240 Lehigh Ave
Morton Grove, IL 60053-2310
Waverly G. Spears Cons 7.03
EST Charles Nolan Anderson Jr.
U/O DTD Oct 28 92
110 Sherwood Dr
Jackson, AL 36545-2135
Riley & Hill 6.85
Uson Rural Development
TEN COM
PO Box 428
Ontario, OR 97914-0428
Nuveen Insured Municipal Bond Fund
Class C Shares............................... NFSC FEBO DC8-368148 5.83
Florence B. Freer
196 Apache Lane
Stratford, CT 06497
Oregon Waste Technology Inc. 5.46
P.O. Box 4008
Brookings, OR 97415-0081
Nuveen Flagship All-American Municipal Bond
Fund
Class A Shares............................... Merrill Lynch, Pierce, Fenner & 39.32
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 Municipal Bond
Fund
Class B Shares............................... Merrill Lynch, Pierce, Fenner & 29.65
Smith For The Sole Benefit Of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Marianne Zinga 10.99
Susan M. Zinga JTTEN
3 West Noyes
Arlington Heights, IL 60005-3745
</TABLE>
B-18
<PAGE> 141
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
---------------------- ------------------------- -------------
<S> <C> <C>
Prudential Securities Inc. FBO 7.60
Mrs. Eleanor T. Flaherty
10851 Gulfshore Dr. Apt. 401
Naples, FL 34108-3026
Prudential Securities Inc. FBO 8.86
Alice G. DeAngelo
2500 Virginia Ave. NW
Washington, D.C. 20037-1901
Prudential Securities Inc. FBO 5.98
Hilda A. Hoffman TTER
August A. Hoffman & Hilda A. Hoffman JT
DBCL Tr UA Dtd 09/29/92
Tequesta, FL 33469
Nuveen Flagship All-American Municipal Bond
Fund
Class C Shares............................... Merrill Lynch, Pierce, Fenner & 63.83
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 Municipal Bond
Fund
Class R Shares............................... Bruce P. Bedford 91.38
1761 Buttonbush Circle
Palm City, FL 34990-8093
Nuveen Flagship Intermediate Municipal Bond
Fund
Class A Shares............................... Merrill Lynch, Pierce, Fenner & 31.27
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 Municipal Bond
Fund
Class C Shares............................... Merrill Lynch, Pierce, Fenner & 69.10
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 Municipal Bond
Fund
Class R Shares............................... Patricia G. Diemer TR 77.48
U/A Jul 26 89
Patricia G. Diemer Trust
950 Hawthorne Ln
Northbrook, IL 60062-3417
Mary P. Madden 9.97
James R. Madden JT TEN
5090 Jameswood Circle
Kettering, OH 45429-5415
R. G. Van Moppes TTER 9.36
U/A Dtd Feb 4 85
Russell G. Van Moppes
Living Trust
P.O. Box 97308
Bellevue, WA 98009-9308
Nuveen Flagship Limited Term Municipal Bond
Fund
Class A Shares............................... Merrill Lynch, Pierce, Fenner & 29.86
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 Municipal Bond
Fund
Class C Shares............................... Merrill Lynch, Pierce, Fenner & 58.34
Smith For The Sole Benefit Of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
</TABLE>
B-19
<PAGE> 142
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OWNERSHIP
---------------------- ------------------------- -------------
<S> <C> <C>
Nuveen Flagship Limited Term Municipal Bond
Fund
Class R Shares............................... R. G. Van Moppes TTER U/A Dtd Feb 4 85 51.54
Russell G Van Moppes
Living Trust
P.O. Box 97308
Bellevue, WA 98009-9308
Karen M. Bergan 26.38
2109 Northwestern Ave.
Ames, IA 50010-4524
J.C. Bradford & Co. CUST 16.01
FBO Jeffery L. Cooper
330 Commerce St.
Nashville, TN 37201-1805
Catherine C. Smith 5.06
James C. Smith JT TEN
4 Morning View Dr.
Newport Coasts, CA 92657-1500
</TABLE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds except the Limited Term Fund has agreed to pay an
annual management fee at the rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE
--------------------------------- --------------
<S> <C>
For the first $125 million .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>
The Limited Term Fund has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
----------------------------- --------------
<S> <C>
For the first $125 million .4500 of 1%
For the next $125 million .4375 of 1%
For the next $250 million .4250 of 1%
For the next $500 million .4125 of 1%
For the next $1 billion .4000 of 1%
For assets over $2 billion .3750 of 1%
</TABLE>
Nuveen Advisory has agreed to waive 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 continue Flagship's general
dividend-setting practices.
B-20
<PAGE> 143
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
REIMBURSEMENT PAID TO FEE WAIVERS AND
NUVEEN ADVISORY FOR EXPENSE REIMBURSEMENTS FOR
THE YEAR ENDED THE YEAR ENDED
--------------------------------------- -----------------------------
2/28/95 2/29/96 2/28/97* 2/28/95 2/29/96 2/28/97*
----------- ----------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Municipal Bond Fund............................. $11,932,164 12,797,372 12,969,912 0 4,313 0
Nuveen Insured Municipal Bond Fund..................... 3,439,021 3,756,793 3,795,515 10,570 1,303 0
</TABLE>
- ---------------
* For the period March 1, 1997 to April 30, 1997, the management fees were
$2,148,330 and $631,735, respectively, and the fee waivers were $0 for both
funds.
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, and beginning on 2/1/97, to Nuveen
Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE
REIMBURSEMENT PAID TO FEE WAIVERS AND
FLAGSHIP FINANCIAL FOR EXPENSE REIMBURSEMENTS FOR
THE YEAR ENDED THE YEAR ENDED
------------------------------------ ------------------------------
5/31/95 5/31/96 4/30/97* 5/31/95 5/31/96 4/30/97*
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
All American Fund......................................... $ 420,954 644,844 948,683 632,023 588,351 269,587
Intermediate Fund......................................... 0 0 781 187,583 269,930 216,714
Limited Term Fund......................................... 1,369,218 1,259,810 1,406,439 458,100 332,579 75,003
</TABLE>
- ---------------
* For the eleven month period ended 4/30/97.
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. 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 $36 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. Founded in 1898, Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul,
Minnesota and is principally engaged in providing property-liability insurance
through subsidiaries. Effective January 1, 1997, The John Nuveen Company
acquired Flagship Resources Inc., and as part of that acquisition, Flagship
Financial, the adviser to the Flagship Funds, was merged with Nuveen Advisory.
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.
B-21
<PAGE> 144
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. Securities for which quotations are not readily
available (which constitute a majority of the securities held by the Funds) are
valued at fair value as determined by the pricing service using methods which
include consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to determine
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the Board
of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Trust.
B-22
<PAGE> 145
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
longterm 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
taxexempt 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 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
B-23
<PAGE> 146
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
taxexempt 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
B-24
<PAGE> 147
redemption proceeds equal to the accrued tax-exempt interest as taxable gain (to
the extent the redemption or exchange price exceeds the shareholder's tax basis
in the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Among the requirements that a Fund must meet in order to qualify under
Subchapter M in any year is that less than 30% of its gross income must be
derived from the sale or other disposition of securities and certain other
assets held for less than three months.
Because the Funds may invest in private activity bonds, the interest on
which is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their tax
liability is determined under the alternative minimum tax regime. The Funds will
annually supply shareholders with a report indicating the percentage of Fund
income attributable to Municipal Obligations subject to the federal alternative
minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Funds their correct taxpayer identification number (in
the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The Code
and Treasury Regulations are subject to change by legislative or administrative
action, and any such change may be retroactive
B-25
<PAGE> 148
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.
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:
6
Yield = 2 [(a-b + 1) - 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 4.2% (3.0% for the
Intermediate Municipal Bond Fund and 2.5% for the Limited Term Municipal Bond
Fund).
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily consistent
with those that the Funds use to prepare their annual and interim financial
statements in conformity with generally accepted accounting principles. Thus,
yield may not equal the income paid to shareholders or the income reported in a
Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated federal 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
federal income tax rate and (2) the yields for the 30-day period quoted in the
right hand column.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1997
--------------------------------
TAXABLE
FEDERAL EQUIVALENT
YIELD TAX RATE* YIELD
----- --------- ----------
<S> <C> <C> <C>
Nuveen Municipal Bond Fund
Class A Shares............................................ 4.69% 39.6% 7.76%
Class B Shares............................................ 4.14% 39.6% 6.85%
Class C Shares............................................ 4.34% 39.6% 7.19%
Class R Shares............................................ 5.09% 39.6% 8.43%
Nuveen Insured Municipal Bond Fund
Class A Shares............................................ 4.57% 39.6% 7.57%
Class B Shares............................................ 4.02% 39.6% 6.66%
Class C Shares............................................ 4.23% 39.6% 7.00%
Class R Shares............................................ 4.97% 39.6% 8.23%
Nuveen Flagship All-American Municipal Bond Fund
Class A Shares............................................ 5.15% 39.6% 8.53%
Class B Shares............................................ 4.63% 39.6% 7.67%
Class C Shares............................................ 4.83% 39.6% 8.00%
Class R Shares............................................ 5.58% 39.6% 9.24%
Nuveen Flagship Intermediate Municipal Bond Fund
Class A Shares............................................ 4.88% 39.6% 8.08%
Class C Shares............................................ 4.48% 39.6% 7.42%
Class R Shares............................................ 5.24% 39.6% 8.68%
Nuveen Flagship Limited Term Municipal Bond Fund
Class A Shares............................................ 4.31% 39.6% 7.14%
Class C Shares............................................ 4.08% 39.6% 6.75%
Class R Shares............................................ 4.63% 39.6% 7.67%
</TABLE>
- ---------------
* These rates do not reflect the current federal tax limitations on itemized
deductions and personal exemptions, which may raise the effective tax rate
and taxable equivalent yield for taxpayers above certain income levels.
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields table in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
B-26
<PAGE> 149
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>
APRIL 30, 1997
DISTRIBUTION RATES
------------------------------------------
CLASS A CLASS B CLASS C CLASS R
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Nuveen Municipal Bond Fund.................................. 4.91% 4.39% 4.60% 5.31%
Nuveen Insured Municipal Bond Fund.......................... 4.96% 4.44% 4.60% 5.37%
Nuveen Flagship All-American Municipal Bond Fund............ 5.26% 4.73% 4.95% 5.69%
Nuveen Flagship Intermediate Municipal Bond Fund............ 4.76% N/A 4.36% 5.12%
Nuveen Flagship Limited Term Municipal Bond Fund............ 4.58% N/A 4.39% 4.91%
</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, 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.
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
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>
B-27
<PAGE> 150
The Nuveen Municipal Bond Fund's average annual return figures, including
the effect of the maximum sales charge for Class A Shares, and applicable CDSC
for Class B shares, for the one-year, five-year and ten-year periods ended April
30, 1997, and for the period from inception through April 30, 1997,
respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
----------------------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
APR. 30, 1997 APR. 30, 1997 APR. 30, 1997 APR. 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Nuveen Municipal Bond Fund
Class A Shares............................................ 2.38% 5.35% 7.07% 6.71%
Class B Shares............................................ 2.36% 5.41% 6.93% 6.65%
Class C Shares............................................ 6.16% 5.49% 6.74% 6.15%
Class R Shares............................................ 7.25% 6.55% 7.81% 7.21%
</TABLE>
The Nuveen Insured Municipal Bond Fund's average annual return figures,
including the effect of the maximum sales charge for Class A Shares, and
applicable CDSC for Class B shares, for the one-year, five-year, and ten-year
periods ended April 30, 1997, and for the period from inception through April
30, 1997, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Nuveen Insured Municipal Bond Fund
Class A Shares......................................... 1.66% 6.02% 7.62% 6.96%
Class B Shares......................................... 1.57% 6.00% 7.45% 6.82%
Class C Shares......................................... 5.49% 6.04% 7.23% 6.55%
Class R Shares......................................... 6.46% 7.14% 8.32% 7.65%
</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, and applicable CDSC for Class B shares, for one-year and five-year
periods ended April 30, 1997, and for the period from inception through April
30, 1997, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Nuveen Flagship All-American Municipal Bond Fund
Class A Shares............................................ 3.68% 6.96% 8.05%
Class B Shares............................................ 3.68% 7.15% 8.04%
Class C Shares............................................ 7.64% 7.28% 7.99%
Class R Shares............................................ 8.38% 7.91% 8.61%
</TABLE>
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 April 30, 1997, and for the period from
inception through April 30, 1997, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------
FROM
ONE YEAR INCEPTION
ENDED THROUGH
APRIL 30, 1997 APRIL 30, 1997
-------------- --------------
<S> <C> <C>
Nuveen Flagship Intermediate Municipal Bond Fund
Class A Shares............................................ 3.48% 6.18%
Class C Shares............................................ 5.99% 6.29%
Class R Shares............................................ 6.53% 6.85%
</TABLE>
B-28
<PAGE> 151
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 ended April 30, 1997, and for the
period from inception through April 30, 1997, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
---------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997
--------- ---------- --------------
<S> <C> <C> <C>
Nuveen Flagship Limited-Term Municipal Bond Fund
Class A Shares............................................ 2.18% 5.14% 6.33%
Class C Shares............................................ 4.49% 5.34% 6.29%
Class R Shares............................................ 4.66% 5.65% 6.60%
</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, and applicable
CDSC for Class B Shares, for the one-year, five-year, and ten year periods ended
April 30, 1997, and for the period since inception through April 30, 1997,
respectively, using the performance of the oldest class for periods prior to the
inception of the newer classes, as described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997 1997
--------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Nuveen Municipal Bond Fund
Class A Shares............................................ 2.38% 29.77% 97.99% 276.63%
Class B Shares............................................ 2.36% 30.14% 95.39% 271.99%
Class C Shares............................................ 6.16% 30.64% 91.98% 237.86%
Class R Shares............................................ 7.25% 37.33% 112.08% 314.01%
</TABLE>
The Nuveen Insured Municipal Bond Fund cumulative total return figures,
including the effect of the maximum sales charge for the Class A Shares, and
applicable CDSC for Class B Shares, for the one-year, five-year, and ten-year
periods ended April 30, 1997, and for the period since inception through April
30, 1997, respectively, using the performance of the oldest class for periods
prior to the inception of the newer classes, as described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1997 1977 1997
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Nuveen Insured Municipal Bond Fund
Class A Shares............................................ 1.66% 33.97% 108.48% 100.78%
Class B Shares............................................ 1.57% 33.80% 105.17% 98.03%
Class C Shares............................................ 5.49% 34.06% 100.95% 92.91%
Class R Shares............................................ 6.46% 41.19% 122.45% 114.46%
</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, and applicable CDSC for Class B Shares, for the one-year and five-year
periods ended April 30, 1997, and for the period since inception through April
30, 1997, respectively, using
B-29
<PAGE> 152
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
APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997
--------- ---------- ---------
<S> <C> <C> <C>
Nuveen Flagship All-American Municipal Bond Fund
Class A Shares............................................ 3.68% 40.00% 94.22%
Class B Shares............................................ 3.68% 41.26% 94.09%
Class C Shares............................................ 7.64% 42.08% 93.30%
Class R Shares............................................ 8.38% 46.34% 103.03%
</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 April 30, 1997, and for the period since
inception through April 30, 1997, respectively, using the performance of the
oldest class for periods prior to the inception of the newer classes, as
described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
RETURN
----------------------
FROM
ONE YEAR INCEPTION
ENDED THROUGH
APRIL 30, APRIL 30,
1997 1997
--------- ---------
<S> <C> <C>
Nuveen Flagship Intermediate Municipal Bond Fund
Class A Shares............................................ 3.48% 31.91%
Class C Shares............................................ 5.99% 32.54%
Class R Shares............................................ 6.53% 35.80%
</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-year and five-year periods ended April 30, 1997, and for the
period since inception through April 30, 1997, respectively, using the
performance of the oldest class for periods prior to the inception of the newer
classes, as described above were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997
--------- ---------- ---------
<S> <C> <C> <C>
Nuveen Flagship Limited Term Municipal Bond Fund
Class A Shares............................................ 2.18% 28.50% 79.51%
Class C Shares............................................ 4.49% 29.71% 78.80%
Class R Shares............................................ 4.66% 31.62% 83.86%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return for
each such calendar year by the amount of additional income that a taxable fund
would need to have generated to equal the income on an after-tax basis, at a
specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 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 April 30, 1997, was 12.02%.
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
B-30
<PAGE> 153
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 Funds primarily invest in investment grade Municipal Obligations
in pursuing their objective of as high a level of current interest income which
is exempt from federal and state income tax as is consistent, in the view of the
Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return
performance to the total return performance of taxable income funds such as
treasury securities funds, corporate bond funds (either investment grade or high
yield), or Ginnie Mae funds. These types of funds, because of the character of
their underlying securities, differ from municipal bond funds in several
respects. The susceptibility of the price of treasury bonds to credit risk is
far less than that of municipal bonds, but the price of treasury bonds tends to
be slightly more susceptible to change resulting from changes in market interest
rates. The susceptibility of the price of investment grade corporate bonds and
municipal bonds to market interest rate changes and general credit changes is
similar. High yield bonds are subject to a greater degree of price volatility
than municipal bonds resulting from changes in market interest rates and are
particularly susceptible to volatility from credit changes. Ginnie Mae bonds are
generally subject to less price volatility than municipal bonds from credit
concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market
interest rate changes. In addition, the volatility of Ginnie Mae bonds due to
changes in market interest rates may differ from municipal bonds of comparable
coupon and maturity because bonds of the sensitivity of Ginnie Mae prepayment
experience to change in interest rates.
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.
B-31
<PAGE> 154
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with respect
to any distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per share,
dividends per share and net asset value per share will vary among a Fund's
classes of shares.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares will
bear only those expenses that are directly attributable to that class, where the
type or amount of services received by a class varies from one class to another.
For example, class-specific expenses generally will include distribution and
service fees.
The minimum initial investment is $3,000 per fund share class, and may be
lower for accounts opened through fee-based programs for which the program
sponsor has established a single master account with the fund's transfer agent
and performs all sub-accounting services related to that account.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES
Rights of Accumulation. You may qualify for a reduced sales charge on a
purchase of Class A Shares of any Fund if the amount of your purchase, when
added to the value that day of all of your prior purchases of shares of any Fund
or of another Nuveen Mutual Fund, or units of a Nuveen unit trust, on which an
up-front sales charge or ongoing distribution fee is imposed, or is normally
imposed, falls within the amounts stated in the Class A Sales Charges and
Commissions table in "How 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 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 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.
B-32
<PAGE> 155
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 Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten or more participating members, has agreed to
include Fund sales publications in mailings to members and has agreed to comply
with certain administrative requirements relating to its group purchases.
Under any group purchase program, the minimum monthly investment in Class A
Shares of any particular Fund or portfolio by each participant is $50, and the
minimum initial investment in Class A Shares of any particular Fund or portfolio
for each participant in the program combined is $3,000. 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 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 more registered investment
companies not affiliated with Nuveen. You must provide appropriate documentation
that the redemption occurred not more than one year prior to the reinvestment of
the proceeds in Class A Shares, and that you either paid an upfront 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 or their
immediate family members;
- bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
- investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
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.
B-33
<PAGE> 156
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren parents-in-law, sons-and daughters-in-law, siblings, a sibling's
spouse, and a spouse's siblings); or (3) all purchases made through a group
purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $1 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for the
following categories of investors:
- officers, trustees and former trustees of the Nuveen and Flagship Funds;
- bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
- any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
- officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
- bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
- investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
- clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
In addition, purchasers of Nuveen unit investment trusts may reinvest their
distributions from such unit investment trusts in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions in
Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund shares).
Shareholders may exchange their Class R Shares of any Nuveen Fund into Class R
Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen
toll-free at (800) 621-7227.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18 months
of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares
not subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged on shares purchased as a result of automatic reinvestment of dividends
or capital gains paid. In addition, no CDSC will be charged on exchanges of
shares into another Nuveen Mutual Fund or Nuveen money market fund. You may not
exchange Class B Shares for shares of a Nuveen money market fund. The holding
period is calculated on a monthly basis and begins the first day of the month in
which the order for investment is received. The CDSC is calculated based on the
lower of the redeemed shares' cost or net asset value at the time of the
redemption and is deducted from the redemption proceeds. Nuveen receives the
amount of any CDSC shareholders pay. If 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 fund shares, and the
period during which the shareholder holds the
B-34
<PAGE> 157
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 12% annually of the
original investment amount. 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.
In addition to the types of compensation to dealers to promote sales of
fund shares that are described in the prospectus, Nuveen may from time to time
make additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen mutual funds
during specified time periods.
To help advisers and investors better understand and most efficiently use
the 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.
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.
B-35
<PAGE> 158
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Nuveen Flagship 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 (or by Flagship
Financial, Inc., which Nuveen acquired on January 1, 1997), were as follows (all
figures are to the nearest thousand):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997* FEBRUARY 29, 1996 FEBRUARY 28, 1995
------------------------- ------------------------- -------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED UNDERWRITING RETAINED UNDERWRITING RETAINED
FUND COMMISSIONS BY NUVEEN COMMISSIONS BY NUVEEN COMMISSIONS BY NUVEEN
---- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Municipal Bond Fund............... 967 170 1,575 316 2,248 467
Nuveen Insured Municipal Bond Fund....... 687 56 880 97 1,554 296
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997** MAY 31, 1996 MAY 31, 1995
--------------------------- --------------------------- ---------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED UNDERWRITING RETAINED UNDERWRITING RETAINED
FUND COMMISSIONS BY FLAGSHIP COMMISSIONS BY FLAGSHIP COMMISSIONS BY FLAGSHIP
---- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Flagship All -- American
Municipal Bond Fund............... 456 61 557 74 763 104
Nuveen Flagship Intermediate
Municipal Bond Fund............... 73 16 137 28 171 34
Nuveen Flagship Limited Term
Municipal Bond Fund............... 332 66 543 108 797 160
</TABLE>
- ---------------
* For the fourteen-month period ended April 30, 1997.
** For the eleven-month period ended April 30, 1997.
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.
B-36
<PAGE> 159
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 ended April 30, 1997, 100% of service fees and
distribution fees were paid out as compensation to authorized dealers. Prior to
February 1, 1997, 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
AllAmerican 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 Class C Shares and the distribution fee was .40% for Class A
Shares and .75% for Class C Shares (.50% for the Limited Term Fund). Thereafter,
the service fee for Class A, Class B, and Class C Shares was .20% and the
distribution fee was .75% for Class B Shares and .55% for Class C Shares (.35%
for the Limited Term Fund).
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1997
----------------------
<S> <C>
Nuveen Municipal Bond Fund*
Class A................................................... $ 156,403
Class B................................................... $ 390
Class C................................................... $ 38,967
Nuveen Insured Municipal Bond Fund*
Class A................................................... $ 163,030
Class B................................................... $ 735
Class C................................................... $ 58,367
Nuveen Flagship All-American Municipal Bond Fund**
Class A................................................... $ 683,251
Class B................................................... $ 660
Class C................................................... $ 421,541
Nuveen Flagship Intermediate Municipal Bond Fund**
Class A................................................... $ 145,606
Class C................................................... $ 16,039
Nuveen Flagship Limited Term Municipal Bond Fund**
Class A................................................... $1,482,478
Class C................................................... $ 120,039
</TABLE>
- ---------------
* For the fourteen month period ended April 30, 1997.
** For the eleven month period ended April 30, 1997.
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 noninterested 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 auditors, 1700 Courthouse Plaza N.E., Dayton, Ohio 45402 has been
selected for the Nuveen Flagship All-American Municipal Bond Fund, the Nuveen
Flagship Intermediate Municipal Bond
B-37
<PAGE> 160
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, 4 New
York Plaza, New York, New York 10004. 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. The Annual Reports accompany this Statement
of Additional Information.
B-38
<PAGE> 161
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.
AA-1
<PAGE> 162
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.
BB-1
<PAGE> 163
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.
BB-2
<PAGE> 164
EXHIBIT C
SEPTEMBER 12, 1997
NUVEEN FLAGSHIP MULTISTATE TRUST I
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Oklahoma Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Prospectus of the Nuveen Flagship Multistate Trust I dated September 12, 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) 621-7227.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Policies and Investment Portfolio................ C-2
Management.................................................. C-11
Investment Adviser and Investment Management Agreement...... C-19
Portfolio Transactions...................................... C-21
Net Asset Value............................................. C-21
Tax Matters................................................. C-22
Performance Information..................................... C-29
Additional Information on the Purchase and Redemption of
Fund Shares............................................... C-34
Distribution and Service Plan............................... C-39
Independent Public Accountants and Custodian................ C-40
Financial Statements........................................ C-41
Appendix A -- Ratings of Investments........................ AA-1
Appendix B -- Description of Hedging Techniques............. BB-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports; each is included herein by reference. The
Annual Reports accompany this Statement of Additional Information.
<PAGE> 165
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of
each Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the shares
of that Fund:
(1) Invest in securities other than Municipal Obligations and
short-term securities, as described in the Prospectus. Municipal
Obligations are municipal bonds that pay interest that is exempt from
regular federal, state and, in some cases, local income taxes.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the Arizona Municipal Bond Fund and the
Florida Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency
purposes and not for investment purposes and then only in an amount not
exceeding (a) 10% of the value of its total assets at the time of borrowing
or (b) one-third of the value of the Fund's total assets including the
amount borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph (2) above, it may pledge
securities having a market value at the time of pledge not exceeding 10% of
the value of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act
of 1940, except to the extent such issuance might be involved with respect
to borrowings described under item (3) above or with respect to
transactions involving futures contracts or the writing of options within
the limits described in the Prospectus and this Statement of Additional
Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas
or other mineral exploration or development programs, except for
transactions involving futures contracts within the limits described in the
Prospectus and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
(10) Make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary for the
clearance of transactions.
(11) Write or purchase put or call options, except to the extent that
the purchase of a stand-by commitment may be considered the purchase of a
put, and except for transactions involving options within the limits
described in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers
in any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
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<PAGE> 166
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
nongovernmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to be
the sole issuer. Where a security is also backed by the enforceable obligation
of a superior or unrelated governmental entity or other entity (other than a
bond insurer), it shall also be included in the computation of securities owned
that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated as
an issue of such government, other entity or bank. Where a security is insured
by bond insurance, it shall not be considered a security issued or guaranteed by
the insurer; instead the issuer of such security will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the Fund's assets that may be invested in securities
insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the Investment
Company Act of 1940, this means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the Fund's shares are
present or represented by proxy, or (ii) more than 50% of the Fund's shares,
whichever is less.
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end
management series investment company organized as a Massachusetts business trust
on July 1, 1996. Each of the Funds is an open-end management investment company
organized as a series of the Nuveen Flagship Multistate Trust I. The Trust is an
open-end management series company under SEC Rule 18f-2. Each Fund is a separate
series issuing its own shares. The Trust currently has nine series: the Nuveen
Flagship Arizona Municipal Bond Fund (formerly the Flagship Arizona Double Tax
Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen
Flagship Colorado Municipal Bond Fund (formerly the Flagship Colorado Double Tax
Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen
Flagship Florida Municipal Bond Fund (formerly the Flagship Florida Double Tax
Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen
Flagship Florida Intermediate Municipal Bond Fund (formerly the Flagship Florida
Intermediate Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust);
the Nuveen Maryland Municipal Bond Fund (formerly the Nuveen Maryland Tax-Free
Value Fund, a series of the Nuveen Multistate Tax-Free Trust); the Nuveen
Flagship New Mexico Municipal Bond Fund (formerly the Flagship New Mexico Double
Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the Nuveen
Oklahoma Municipal Bond Fund; the Nuveen Flagship Pennsylvania Municipal Bond
Fund (formerly the Flagship Pennsylvania Triple Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); and the Nuveen Flagship Virginia Municipal
Bond Fund (formerly the Flagship Virginia Double Tax Exempt Fund, a series of
the Flagship Tax Exempt Funds Trust). The Nuveen Oklahoma Municipal Bond Fund
has also been organized as a series of the Trust, but has issued no shares to
date. Certain matters under the Investment Company Act of 1940 which must be
submitted to a vote of the holders of the outstanding voting securities of a
series company shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding voting securities of
each Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the Trust
for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is remote.
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PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local income tax in each Fund's
respective state, which generally will be Municipal Obligations issued within
the Fund's respective state. In general, Municipal Obligations include debt
obligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public
facilities such as airports, bridges, highways, hospitals, housing, mass
transportation, schools, streets and water and sewer works. Industrial
development bonds and pollution control bonds that are issued by or on behalf of
public authorities to finance various privately-rated facilities are included
within the term Municipal Obligations if the interest paid thereon is exempt
from federal income tax.
The investment assets of each Fund will consist of (1) Municipal
Obligations which are rated at the time of purchase within the four highest
grades (Baa or BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by
Standard and Poor's Corporation ("S&P") or by Fitch Investors Service, Inc.
("Fitch"), (2) unrated Municipal Obligations which, in the opinion of Nuveen
Advisory, have credit characteristics equivalent to bonds rated within the four
highest grades by Moody's, S&P or Fitch, except that the Fund may not invest
more than 20% of its net assets in unrated bonds and (3) temporary investments
as described below, the income from which may be subject to state income tax or
to both federal and state income taxes. See Appendix A for more information
about ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal
Obligations that constitute participations in a lease obligation or installment
purchase contract obligation (hereafter collectively called "lease obligations")
of a municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
nonappropriation leases where Nuveen Advisory has determined that the issuer has
a strong incentive to continue making appropriations and timely payment until
the security's maturity. Some lease obligations may be illiquid under certain
circumstances. Lease obligations normally provide a premium interest rate which
along with regular amortization of the principal may make them attractive for a
portion of the assets of the Funds.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to the laws enacted in the future by Congress, state legislatures or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon
municipalities to levy taxes. There is also the possibility that, as a result of
legislation or other conditions, the power or ability of any issuer to pay, when
due, the principal of and interest on its Municipal Obligations may be
materially affected.
PORTFOLIO TRADING AND TURNOVER
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to limit
exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with their investment objective. Securities may be
sold in anticipation of market decline or purchased in anticipation of market
rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage of
what Nuveen Advisory believes to be a temporary disparity in the normal yield
relationship between the two 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.
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<PAGE> 168
The portfolio turnover rates for the Funds, for the 1996 fiscal year-end of the
Fund as a series of its predecessor entity (described above), and for the 1997
fiscal year-end, as indicated, were:
<TABLE>
<CAPTION>
FISCAL YEAR
------------
1996 1997
---- ----
<S> <C> <C>
Arizona Municipal Bond Fund................................. 38% 25%
Colorado Municipal Bond Fund................................ 70% 27%
Florida Municipal Bond Fund................................. 94% 54%
Florida Intermediate Municipal Bond Fund.................... 66% 35%
Maryland Municipal Bond Fund................................ 17% 4%*
New Mexico Municipal Bond Fund.............................. 57% 43%
Pennsylvania Municipal Bond Fund............................ 65% 46%
Virginia Municipal Bond Fund................................ 17% 23%
</TABLE>
- ---------------
* For the year ending January 31. For the four months ending May 31, 1997, the
portfolio turnover rate was 3%.
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise when
securities are purchased or sold with payment and delivery beyond the regular
settlement date. (When-issued transactions normally settle within 15-45 days.)
On such transactions the payment obligation and the interest rate are fixed at
the time the buyer enters into the commitment. The commitment to purchase
securities on a when-issued or delayed delivery basis may involve an element of
risk because the value of the securities is subject to market fluctuation, no
interest accrues to the purchaser prior to settlement of the transaction, and at
the time of delivery the market value may be less than cost. At the time a Fund
makes the commitment to purchase a Municipal Obligation on a when-issued or
delayed delivery basis, it will record the transaction and reflect the amount
due and the value of the security in determining its net asset value. Likewise,
at the time a Fund makes the commitment to sell a Municipal Obligation on a
delayed delivery basis, it will record the transaction and include the proceeds
to be received in determining its net asset value; accordingly, any fluctuations
in the value of the Municipal Obligation sold pursuant to a delayed delivery
commitment are ignored in calculating net asset value so long as the commitment
remains in effect. The Funds will maintain designated readily marketable assets
at least equal in value to commitments to purchase when-issued or delayed
delivery securities, such assets to be segregated by the Custodian specifically
for the settlement of such commitments. The Funds will only make commitments to
purchase Municipal Obligations on a when-issued or delayed delivery basis with
the intention of actually acquiring the securities, but the Funds reserve the
right to sell these securities before the settlement date if it is deemed
advisable. If a when-issued security is sold before delivery any gain or loss
would not be taxexempt. The Funds commonly engage in when-issued transactions in
order to purchase or sell newly-issued Municipal Obligations, and may engage in
delayed delivery transactions in order to manage its operations more
effectively.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES
As described in the Prospectus, except for investments in temporary
investments, each of the Funds will invest substantially all of its assets (at
least 80%) in municipal bonds that are exempt from federal and state tax in that
state ("Municipal Obligations"), generally Municipal Obligations issued in its
respective state. Each Fund is therefore more susceptible to political, economic
or regulatory factors adversely affecting issuers of Municipal Obligations in
its state. Brief summaries of these factors are contained in the Prospectus. Set
forth below is additional information that bears upon the risk of investing in
Municipal Obligations issued by public authorities in the states of currently
offered Funds. This information was obtained from official statements of issuers
located in the respective states as well as from other publicly available
official documents and statements. The Funds have not independently verified any
of the information contained in such statements and documents. The information
below is intended only as a general summary, and is not intended as a discussion
of any specific factor that may affect any particular obligation or issuer.
FACTORS PERTAINING TO ARIZONA
Arizona's economy is primarily based on services, tourism and high-tech
manufacturing. However, the military, agriculture, and mining of primary metals
still play a role. The State has experienced phenomenal economic and population
growth in the recent past due to an influx of businesses attracted by the
State's high quality of life, educated workforce, and friendly business
environment. Major employers include Intel Corp., Microchip Technology and
Charles Schwab. Over the last five years, the State has ranked second in the
nation in job growth with more
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than a 30 percent increase and some 380,000 jobs created. The State's leading
economic indicators hit an all-time high in April, suggesting that the State's
economic growth may continue in the near term. However, signs of slowing job
growth have surfaced.
The statewide unemployment rate was 4.7 percent, slightly below the U.S.
rate of 4.8 percent, at the end of May 1997. Additionally, unemployment rates in
the State's two largest metropolitan areas, Phoenix-Mesa and Tucson, were a very
low 3.2 percent and 3.3 percent, respectively. Statewide personal income grew at
a rate of 7.5 percent in 1996 to approximately $21,953. Retail sales in Arizona
during May 1997 were up 5.6 percent from May 1996, and for the calendar year
1996, retail sales grew by 5.5 percent.
The Arizona Constitution restricts the legislature's power to raise
revenues by increasing property taxes. The State has also enacted limits on
annual spending. The legislature recently approved a record high $5.2 billion
budget for the fiscal year 1998. The budget calls for a total of $316 million in
additional spending over fiscal 1997, a 6.4 percent increase. The two largest
budget items are an additional $236 million in education spending and $110
million in income tax cuts. This year's tax cuts are not dramatic but represent
a continuing downward trend in State income tax rates that began in 1993.
Arizona maintained a healthy general fund balance for fiscal 1996 of 11.2
percent of general fund revenues despite the previous income tax cuts. In fact,
in 1996 income tax revenues rose 1.5 percent from fiscal 1995. The State does
not issue general obligation bonds but relies on capital outlays, revenue bonds
and other methods to finance projects. Each project is individually rated for
its independent creditworthiness.
FACTORS PERTAINING TO COLORADO
Colorado's trade and service sectors represent over half of
non-agricultural employment in the State's economy and have expanded in the past
years. Manufacturing employment is comparatively small and continues to shrink
due to the concentration in defense production. The trade and services sectors,
led by a healthy tourist industry, helped pull the State out of a recession in
the late 1980's which had been caused by contraction in the energy, high
technology and construction industries. The State's economic activity tends to
mimic that of the nation as a whole albeit less severely according to Colorado's
Office of State Planning and Budgeting.
Colorado's unemployment rate was a very low 3.9% in June 1997, below the
national average of 5.0%. Monthly job growth averaged 2.67% from January to June
of 1997. Meanwhile, per capita income grew 4.7% to $25,084 in 1996. 1996 general
fund revenues were $4.3 billion against expenditures of $4.4 billion. 1997
projected revenues are $4.6 billion. There is no outstanding general obligation
debt, but outstanding lease obligations are rated A1 by Moody's and A+ by
Standard & Poor's.
FACTORS PERTAINING TO FLORIDA
Florida has a diverse economy with substantial insurance, banking,
healthcare, construction and trade sectors, yet it remains heavily dependent on
the agriculture and tourism industries. Employment and personal income growth
have outpaced the nation since 1991 and recent economic reports indicate that
the State continues to experience job growth, albeit at a more moderate pace.
Economists are also predicting another record tourism year for the State. This
economic growth as well as the State's healthy financial position were
recognized in the State's recent rating upgrade from AA to AA+ by S&P.
Florida's unemployment rate of 4.9% in June, 1997, is slightly better than
the comparable national average of 5.0%. Florida's 1996 per capita income of
$24,104 is on par with national averages and slightly above regional levels. The
State's population growth continues to exceed growth in the national population.
Florida voters approved a Constitutional amendment in 1995 which limits the
rate of growth of state revenues to the growth rate of personal income. The
State's fiscal 1996 results were better than expected due to sales tax revenue
growth of 7.4% versus a 4% budgeted growth rate. Fiscal 1996 unencumbered
reserves of $697.8 million in the General, Working Capital and Budget
Stabilization Funds totaled 4.7% of expenditures. For fiscal 1997, the Budget
Stabilization Fund and the Working Capital Fund are expected to reach $409
million and $219.4 million, respectively, which when combined would total the
highest reserve level the State has recorded in over 10 years. The State's goal
is to reach a 5% Budget Stabilization Fund by fiscal 1999. As of July 31, 1997,
Florida's general obligation debt carries ratings of AA+ by S&P, Aa2 by Moody's,
and AA by Fitch.
FACTORS PERTAINING TO MARYLAND
Maryland's recovery from the recession of the early 1990's has been slow as
the State has weathered reductions in defense industry and federal government
employment. Services, wholesale and retail trade, and government
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account for most of the State's employment. Unlike in most states, government
employment surpasses manufacturing employment in Maryland.
The State's unemployment rate, which fell to 4.7% in June 1997 from 4.9%
the prior year, remains below the national average. Maryland residents' per
capita income, which was $27,221 in 1996, ranks sixth in the nation.
The State Constitution mandates a balanced budget. In fiscal 1996, state
expenditures totaled $12.4 billion while revenues reached $12.7 billion. The
State ended fiscal 1996 with a $760.4 million total fund balance, or 7.4% of
operating expenditures. During its 1997 term, the Maryland legislature passed a
10% reduction to the state's income tax, which will be phased in from 1998
through 2002. The legislature is now considering reforms to its pension system.
Maryland's general obligation debt, which is constitutionally limited to a
maximum term of 15 years, remains moderate. Moody's, S&P, and Fitch confirmed
their respective triple-A ratings for the State in July and August, 1997.
FACTORS PERTAINING TO NEW MEXICO
New Mexico's major industries include energy resources, tourism, services,
crafts, agribusiness, manufacturing and mining. Energy resource production,
including gas and oil sales, was approximately $5.2 billion in 1997. The economy
also benefits from the employment and technology base supplied by federal
government scientific research facilities at Los Alamos, Albuquerque and White
Sands. Tourism generated about $2.3 billion for the state according to a 1991
estimate, a trend that should continue given the large number of state and
federal park lands in the State. Finally, crop and livestock production remains
diverse given the State's variety of climatic conditions and will also remain a
major part of the economy.
New Mexico's unemployment rate fell from 7.2% in August of 1996 to 6.5% in
June of 1997, surpassing the national averages of 5.1% and 5.0%. At the same
time, per capita income rose 3.4% in 1996 to reach $18,770.
A state Board consisting of the Governor, Lt. Governor, Treasurer and four
appointees maintains general supervisory authority over the fiscal affairs of
the state as the Constitution limits meetings of the Legislature to 90 calendar
days every two years. The executive branch's Department of Finance and
Administration holds the annual budget hearings. The Governor may exercise a
line-item veto over appropriations measures. 1996 audited general fund revenues
were $4.3 billion against expenditures of $4.2 billion. As of February 3, 1997,
Moody's gives the State's general obligation debt an Aa1 rating while Standard &
Poor's gives it an AA+.
FACTORS PERTAINING TO OKLAHOMA
Oklahoma's principal industries include trade, manufacturing, mineral and
energy exploration and production and agriculture. Oklahoma is vulnerable to
cyclical fluctuations in oil and gas prices just like any other energy driven
economy. Nonfuel mineral represented $338 million in activity in 1994 while
tourists spent some $3 billion in the state during the same year.
Oklahoma's unemployment rate is low compared to the national average. It
stood at 3.9% in August 1996 and 4.2% in August 1995 compared to national
averages of 5.1% and 5.6%. Per capita income rose 3.1% in 1995 to reach $18,152.
As of February 9, 1996, Moody's gives the state's general obligation debt
an Aa rating while S&P gives it an AA rating.
FACTORS PERTAINING TO PENNSYLVANIA
Pennsylvania's economy, which is one of the weaker economies in the
Northeast, is expected to continue to lag national economic trends in the near
future. The sluggish economy is in part the result of continued mergers and
acquisitions, expenditure reductions, and layoffs in the industries most
important to the Commonwealth's economy -- healthcare, defense, and
telecommunications. The State's healthcare environment continues to be
difficult, particularly in the Philadelphia and Pittsburgh metro areas.
Pennsylvania's unemployment rate outpaced national levels, rising from 4.9%
at the end of 1996 to 5.4% in June, 1997. Personal income growth has lagged
national levels, growing 5.5% in 1995, or 89% of the national gain. Pennsylvania
ranks 19th among the states in 1996 per capita income ($23,558).
The Governor must submit a balanced operating budget by law and while the
General Assembly may change items, the Governor retains a line-item veto power.
Total appropriations cannot exceed estimated revenues, also taking into account
any deficit or surplus remaining from the previous year. For fiscal 1996, the
general fund balance
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was drawn down $53.1 million to $635 million (or 2.5% of general fund revenues)
to fund business tax cuts. Total revenues and other sources in fiscal 1996
increased 8.7%. As of July 31, 1997, Pennsylvania's general obligation debt
carries ratings of AA- by S&P, A1 by Moody's, and AAby Fitch.
FACTORS PERTAINING TO VIRGINIA
Like the U.S. economy, the Virginia economy is broad-based and composed of
several distinct regions. In terms of employment composition, the Commonwealth's
economy nearly mirrors the U.S. economy with the services, trade, government,
and manufacturing sectors supplying a significant portion of employment. Recent
employment losses in the federal government, manufacturing, and mining sectors
has been offset by employment growth in other sectors, including
high-technology. The federal government, however, remains an important employer
and has a greater impact on the Commonwealth than it has on most other states.
Virginia's unemployment rate was a low 4.3% in June 1997, having declined
slightly from the previous year's rate of 4.4%. The Commonwealth's unemployment
rate remains below the U.S. average. At $24,925 in 1996, per capita income
remains above the U.S. average, although growth in per capita income has lagged
the national rate.
Virginia's Constitution requires a balanced biennial budget. The
Commonwealth has historically operated on a fiscally conservative basis but did
realize a fund balance deficit in fiscal year 1995, largely as the result of a
court decision that required the Commonwealth to refund certain taxes. A large
operating surplus in fiscal year 1996 allowed the Commonwealth to reduce the
fund balance deficit significantly. In May 1997, Moody's, S&P, and Fitch
confirmed their respective triple-A ratings for the Commonwealth.
HEDGING AND OTHER DEFENSIVE ACTIONS
Each Fund may periodically engage in hedging transactions. Hedging is a
term used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid in
all circumstances. As a result, in volatile markets, a Fund may not be able to
close out the transaction without incurring losses substantially greater than
the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to hedging transactions will reduce yield. Net gains, if
any, from hedging and other portfolio transactions will be distributed as
taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or
a subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free interest
payable to shareholders.
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<PAGE> 172
SHORT-TERM SECURITIES
The Prospectus discusses briefly the ability of the Funds to invest a
portion of their assets in federally tax-exempt or taxable short-term securities
("temporary investments"). Temporary investments will not exceed 20% of a Fund's
assets except when made for defensive purposes. The Funds will invest only in
taxable temporary investments that are either U.S. Government securities or are
rated within the highest grade by Moody's, S&P, or Fitch and mature within one
year from the date of purchase or carry a variable or floating rate of interest.
See Appendix A for more information about ratings by Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state and
local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments to
finance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. Tax anticipation notes are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or governmental
bodies with the expectation that future revenues from a designated source will
be used to repay the notes. In general, they also constitute general obligations
of the issuer. A decline in the receipt of projected revenues, such as
anticipated revenues from another level of government, could adversely affect an
issuer's ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained from
the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These notes
may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities and
their agencies. Payment of principal and interest on issues of municipal paper
may be made from various sources, to the extent the funds are available
therefrom. Maturities of municipal paper generally will be shorter than the
maturities of TANs, BANs or RANs. There is a limited secondary market for issues
of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
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.
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<PAGE> 173
-- Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities -- Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs) -- A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks in
exchange for the deposit of funds and normally can be traded in the secondary
market, prior to maturity. The Fund will only invest in U.S. dollar denominated
CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper -- Commercial paper is the term used to designate
unsecured short-term promissory notes issued by corporations. Maturities on
these issues vary from a few days to nine months. Commercial paper may be
purchased from U.S. corporations.
Other Corporate Obligations -- The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements -- A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to be
loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the opinion
of Nuveen Advisory present minimal credit risk. The risk to the Funds is limited
to the ability of the issuer to pay the agreed-upon repurchase price on the
delivery date; however, although the value of the underlying collateral at the
time the transaction is entered into always equals or exceeds the agreed-upon
repurchase price, if the value of the collateral declines there is a risk of
loss of both principal and interest. In the event of default, the collateral may
be sold but a Fund might incur a loss if the value of the collateral declines,
and might incur disposition costs or experience delays in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization upon the collateral by a
Fund may be delayed or limited. Nuveen Advisory will monitor the value of
collateral at the time the transaction is entered into and at all times
subsequent during the term of the repurchase agreement in an effort to determine
that the value always equals or exceeds the agreed upon price. In the event the
value of the collateral declined below the repurchase price, Nuveen Advisory
will demand additional collateral from the issuer to increase the value of the
collateral to at least that of the repurchase price. Each of the Funds will not
invest more than 10% of its assets in repurchase agreements maturing in more
than seven days.
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<PAGE> 174
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 PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Timothy R. Schwertfeger*....... 48 Chairman and Trustee Chairman since July 1, 1996 of The John Nuveen Company, John
333 West Wacker Drive Nuveen & Co. Incorporated, Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; prior thereto Executive Vice
President and Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory Corp. (since
October 1992) and Nuveen Institutional Advisory Corp. (since
October 1992).
Anthony T. Dean*............... 52 President and Trustee President since July 1, 1996 of The John Nuveen Company,
333 West Wacker Drive John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.; prior thereto,
Executive Vice President and Director of The John Nuveen
Company, John Nuveen & Co. Incorporated, Nuveen Advisory
Corp. (since October 1992) and Nuveen Institutional Advisory
Corp. (since October 1992).
Robert P. Bremner.............. 57 Trustee Private Investor and Management Consultant.
3725 Huntington
Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown.............. 63 Trustee Retired (August 1989) as Senior Vice President of The
201 Michigan Avenue Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri........... 64 Trustee President and Chief Executive Officer of Blanton-Peale
3 West 29th Street Institute of Religion and Health.
New York, NY 10001
Peter R. Sawers................ 64 Trustee Adjunct Professor of Business and Economics, University of
22 The Landmark Dubuque, Iowa; Adjunct Professor, Lake Forest Graduate
Northfield, IL 60093 School of Management, Lake Forest, Illinois; Chartered
Financial Analyst; Certified Management Consultant.
William J. Schneider........... 52 Trustee Senior Partner, Miller-Valentine Partners, Vice president,
4000 Miller-Valentine Ct. Miller- Valentine Group.
P.O. Box 744
Dayton, OH 45401
Judith M. Stockdale............ 49 Trustee Executive Director, Gaylord and Dorothy Donnelley Foundation
1913 North Mohawk St. (since 1994); prior thereto, Executive Director, Great Lakes
Chicago, IL 60614 Protection Fund (from 1990 to 1994).
Bruce P. Bedford............... 57 Executive Vice Executive Vice President of John Nuveen & Co. Incorporated,
333 West Wacker Drive President Nuveen Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since January 1997); prior thereto, Chairman and CEO
of Flagship Resources Inc. and Flagship Financial Inc. and
the Flagship funds (since January 1986).
Michael S. Davern.............. 40 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 of Flagship Financial.
William M. Fitzgerald.......... 33 Vice President Vice President of Nuveen Advisory Corp. (since December
333 West Wacker Drive 1995); Assistant Vice President of Nuveen Advisory Corp.
Chicago, IL 60606 (from September 1992 to December 1995), prior thereto
Assistant Portfolio Manager of Nuveen Advisory Corp. (from
June 1988 to September 1992).
Kathleen M. Flanagan........... 50 Vice President Vice President of John Nuveen & Co. Incorporated, Vice
333 West Wacker Drive President of Nuveen Advisory Corp. and Nuveen Institutional
Chicago, IL 60606 Advisory Corp. (since June 1996).
J. Thomas Futrell.............. 42 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Richard A. Huber............... 34 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 of Flagship Financial.
Steven J. Krupa................ 40 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
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<PAGE> 175
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH TRUST DURING PAST FIVE YEARS
---------------- --- ------------------ ----------------------
<S> <C> <C> <C>
Anna R. Kucinskis.............. 51 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin................ 46 Vice President and Vice President (since September 1992), and Assistant
333 West Wacker Drive Assistant Secretary Secretary and Assistant General Counsel of John Nuveen & Co.
Chicago, IL 60606 Incorporated; Vice President (since May 1993) and Assistant
Secretary of Nuveen Advisory Corp.; Vice President (since
May 1993) and Assistant Secretary of Nuveen Institutional
Advisory Corp.; Assistant Secretary of The John Nuveen
Company (since February 1993).
Edward F. Neild, IV............ 32 Vice President Vice President (since September 1996), previously Assistant
One South Main Street Vice President (since December 1993) of Nuveen Advisory
Dayton, OH 45402 Corp., portfolio manager prior thereto; Vice President
(since September 1996), previously Assistant Vice President
(since May 1995) of Nuveen Institutional Advisory Corp.,
portfolio manager prior thereto.
Walter K. Parker............... 48 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 (since July 1994) of Flagship Financial; Portfolio Manager
and CIO Trust Investor (between 1983 and June 1994) for PNC
Bank.
O. Walter Renfftlen............ 58 Vice President and Vice President and Controller of The John Nuveen Company,
333 West Wacker Drive Controller John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.
Thomas C. Spalding, Jr......... 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen
333 West Wacker Drive Institutional Advisory Corp.; Chartered Financial Analyst.
Chicago, IL 60606
H. William Stabenow............ 63 Vice President and Vice President and Treasurer of The John Nuveen Company,
333 West Wacker Drive Treasurer John Nuveen & Co. Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.
Jan E. Terbrueggen............. 41 Vice President Vice President of Nuveen Advisory Corp. (since January
One South Main Street 1997); prior thereto, Vice President and Portfolio Manager
Dayton, OH 45402 of Flagship Financial.
Gifford R. Zimmerman........... 41 Vice President and Vice President (since September 1992), Assistant Secretary
333 West Wacker Drive Assistant Secretary and Assistant General Counsel of John Nuveen & Co.
Chicago, IL 60606 Incorporated; Vice President (since May 1993) and Assistant
Secretary of Nuveen Advisory Corp.; Vice President (since
May 1993) and Assistant Secretary of Nuveen Institutional
Advisory Corp.
</TABLE>
Anthony Dean, Peter Sawers and Timothy Schwertfeger serve as members of the
Executive Committee of the Board of Trustees. The Executive Committee, which
meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are also directors or trustees, as the case may
be, of 42 Nuveen open-end funds and 52 Nuveen closed-end funds advised by Nuveen
Advisory Corp.
The following table sets forth compensation paid by the Trust to each of
the trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended May 31, 1997. The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION FROM TRUST
FROM THE SERIES AND FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- -----------------------
<S> <C> <C>
Robert P. Bremner......................... $2,859(1) $25,333(1)
Lawrence H. Brown......................... $2,054 $74,750
Anne E. Impellizzeri...................... $2,054 $74,750
Margaret K. Rosenheim*.................... $2,246 $82,750(2)
Peter R. Sawers........................... $2,054 $74,750
William J. Schneider...................... $3,023(1) $26,333(1)
Judith M. Stockdale....................... $ 0(3) $ 0(3)
</TABLE>
- ---------------
* Former trustee; retired July 1997.
(1) Includes compensation received as a trustee of the Flagship Funds, for the
period June 1, 1996 to January 1, 1997.
(2) Includes $1,964 in interest accrued on deferred compensation from prior
years.
(3) Elected to the Board in July 1997.
C-12
<PAGE> 176
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 August 21, 1997, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Arizona Municipal Bond Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 23.12%
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Arizona Municipal Bond Fund
Class B Shares.................................... NFSC FEBO OXS-294926 45.92
James L. Emmons
Esther Robinson
145 W. Glendale
Phoenix, AZ 85021-8722
Nuveen Flagship Arizona Municipal Bond Fund
Class B Shares.................................... Southwest Securities Inc FBO 27.31
Henry W. Drexel &
Marjory M. Drexel Acct 25416875
PO Box 509002
Dallas, TX 75250-9002
Donaldson Lufkin Jenrette 17.28
Securities Corporation Inc
PO Box 2052
Jersey City, NJ 07303-2052
Prudential Securities Inc FBO 5.18
Francis L. Veith
805 S. Revolta Cir
Mesa, AZ 85208-2629
Nuveen Flagship Arizona Municipal Bond Fund
Class C Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 38.98
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Colorado Municipal Bond Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 24.44
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Colorado Municipal Bond Fund
Class B Shares.................................... Marcella C. Kruse 23.60
1275 S. Birch St. Apt 509
Denver, CO 80246-7834
Helen May Ferrell 21.80
230 S. Monaco Pkwy #10
Denver, CO 80224-1116
Merrill Lynch, Pierce, Fenner & Smith 18.65
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Olde Discount FBO 02606256 12.72
751 Griswold St.
Detroit, MI 48226-3224
</TABLE>
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<PAGE> 177
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
Bertha O. Smith 10.95%
Allen J. Ferrell Trs
Bertha O. Smith Trust DTD 10-18-93
111 Emerson St. #322
Denver, CO 80218-3779
Olde Discount FBO 02606320 7.85
751 Griswold St.
Detroit, MI 48226-3224
Nuveen Flagship Colorado Municipal Bond Fund
Class C Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 48.71
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
PaineWebber 41.03
for the benefit of Michael L. Fordyce and
Theresa A. Fordyce JT/Wros
5700 Southmoor Lane
Englewood, CO 80111-1046
PaineWebber 7.88
for the benefit of Bret Fulton and
Lisa Rogers JT Wros
507 Front St.
Louisville, CO 80027-2015
Nuveen Flagship Colorado Municipal Bond Fund
Class R Shares.................................... Raymond & Lisa Ann Munyon & 43.24
Renee L. Miller TRS UA AUG 28 92
Munyon Family Irrevocable Trust
7650 Kline Dr.
Arvada, CO 80005-3776
Homer U. Van Hooser 25.69
250 Bennington Dr.
Colorado Springs, CO 80906-3355
Joseph N. Emmons 16.31
2428 Virgo Dr.
Colorado Springs, CO 80906-1048
Harold M. Gott 14.75
Darlene A. Gott JT WROS
P.O. Box. 1929
Montrose, CO 81402-1929
Nuveen Flagship Florida Municipal Bond Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 53.50
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Florida Municipal Bond Fund
Class B Shares.................................... Prudential Securities Inc. FBO 22.75
Mr. Roy D. Keuling Sr.
Mrs. Peggy B. Keuling Co TTEES
Roy and Peggy Keuling JT LV TR
UA DTD 02/03/97
Kings Park, NY 11754
Prudential Securities Inc. FBO 13.62
Katherine O. Harrington
3101 NE 57th Ct.
Ft. Lauderdale, FL 33308-2815
</TABLE>
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<PAGE> 178
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
PaineWebber 7.01%
for the benefit of
Ruth S. Coleman TTEE U/A DTD
071291 FBO Ruth S. Coleman
7383 Orangewood Lane
Apt. #402
Boca Raton, FL 33433-7470
NFSC FEBO OCG-078425 6.84
Joan Sievers Clifton TTEE
Joan Sievers Clifton Trust U/A 6/13/96
632 Iroquois St.
Merritt Island, FL 32952-5213
Merrill Lynch, Pierce, Fenner & Smith 6.28
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Lewco Securities Corp. 6.26
FBO A/C W63-220628-0-01
34 Exchange Pl 4th Floor
Jersey City, NJ 07302-3901
Smith Barney Inc. 5.48
00138518445
388 Greenwich Street
New York, NY 10013-2375
Nuveen Flagship Florida Municipal Bond Fund
Class C Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 72.69
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Rolland Eaton TR 6.95
Rolland Eaton Trust
U/A DTD 04/06/93
15520 Gullane Court SE
Fort Myers, FL 33912-3908
Nuveen Flagship Florida Intermediate Municipal Bond
Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 61.99
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
NFSC FEBO #OCD-075582 14.94
Big Fork Holding Co.
A partnership
Mac A. Greco
600 Madison Street
Tampa, FL 33602-4017
Nuveen Flagship Florida Intermediate Municipal Bond
Fund
Class C Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 71.19
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Florida Intermediate Municipal Bond
Fund
Class R Shares.................................... Prudential Securities FBO 99.90
Christine E. Reilly
6542 Las Flores Dr.
Boca Raton, FL 33433-2365
</TABLE>
C-15
<PAGE> 179
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Maryland Municipal Bond Fund
Class A Shares.................................... NFSC FEBO # A1F-375349 15.19%
Imelda J. Hall
4610 Col. Fenwick Place
Upper Marlboro, MD 20772
Merrill Lynch, Pierce, Fenner & Smith 7.36
for the sole benefit of its customers
Attn: Fund Administration #97E83
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Evelyn A. Thomas TTEE 5.47
UA April 10, 1991
Evelyn A. Thomas Trust
7215 Delfield St.
Chevy Chase, MD 20815-4045
Nuveen Maryland Municipal Bond Fund
Class B Shares.................................... Nathan Schofer & Reuben 22.33
Ambaruch & Phyllis Silvermann TRS
UA Jun 10 88
Nathan Schofer Revoc Trust
3330 W. Leisure World Blvd. #921
Silver Spring, Md 20906-5654
Dorothy K Lundin & Priscilla Lundin 15.97
JT Ten WROS Not TC
9707 Old Georgetown Rd. Apt. 2619
Bethesda, MD 20814-1763
NFSC FEBO # APF-326054 14.72
Martha Maria Hoh
11606 Bucknell Dr.
Wheaton, MD 20902
Stephen Carrick & 14.39
Linda Carrick
JT Ten WROS Not TC
112 Governors Way N
Queenstown, MD 21658-1620
Jerrold G. Bress 7.83
116 Southway Dr.
Havre De Grace, MD 21078-1615
Jack P. Webb & Dolores J. Webb 6.42
JT Ten WROS Not TC
273 Autumn Chase Dr.
Annapolis, MD 21401-7257
Olde Discount FBO 03103004 5.81
751 Griswold Street
Detroit, MI 48226
Marye R. Zomano 5.41
Courtney I. Newhorter
JT Ten WROS Not TC
1026 Potomac Ave.
Hagerstown, MD 21742-3970
Nuveen Maryland Municipal Bond Fund
Class C Shares.................................... NFSC FEBO # OC8-463639 34.63
Arnold P. Litman
15100 Carrolton Rd.
Rockville, MD 20853
Sylvia M. Pechman & 5.70
Ellen M. Pechman TRS
V/A 3/27/97
Sylvia M. Pechman Rev Trust
7112 Wilson Lane
Bethesda, MD 20817-4928
</TABLE>
C-16
<PAGE> 180
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette 5.70%
Securities Corporation, Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Catherine Small & Robert N. Small 5.56
JT Ten WROS Not TC
1039 Bay Front Ave.
North Beach, MD 20714-9751
Jessie L. & John L. Daniels & 5.10
Diane D. Cole & Lynne D. Mella TRS
UA Dec 21, 1992
Jessie L. Daniels Trust
9039 Rouen Ln.
Potomac, ND 20854-3135
Nuveen Maryland Municipal Bond Fund
Class R Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 6.48
for the sole benefit of its customers
Attn: Fund Admn/#979D5
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship New Mexico Municipal Bond Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 36.03
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship New Mexico Municipal Bond Fund
Class B Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 28.03
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. 3 FL 3
Jacksonville, FL 32246-6484
Smith Barney Inc. 12.89
00123229912
388 Greenwich Street
New York NY 10013-2375
Jack Grevey Tr. 9.39
The Helen Grevey Trust
U/A DTD 12-29-76
2015 Wyoming Blvd NE STE G
Albuquerque NM 87112-2647
Olde Discount F80 02606011 8.52
751 Griswold St.
Detroit MI 48226-3224
Jack Grevey Tr. 7.51
The Marianne Fischer Trust
U/A DTD 12-29-76
2015 Wyoming Blvd NE STE G
Albuquerque NM 87112-2647
Marion R. Rick TTEE 6.73
UA DTD 11-20-92
Marion Rita Rick Rev. Trust
4926 Quail Ridge Dr. NW
Albuquerque NM 87114-4350
Smith Barney Inc. 6.13
00189011320
386 Greenwich Street
New York NY 10013-2375
Smith Barney Inc. 6.02
00148128710
388 Greenwich Street
New York NY 10013-2375
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship New Mexico Municipal Bond Fund
Class C Shares.................................... Jack Grevey Tr. 40.47%
The Helen Grevey Trust
U/A DTD 12-29-76
2015 Wyoming Blvd NE STE G
Albuquerque NM 87112-2647
Jack Grevey Tr. 32.37
The Marianne Fischer Trust
U/A DTD 12-29-76
2015 Wyoming Blvd NE STE G
Albuquerque NM 87112-2647
Smith Barney Inc. 13.17
00148123273
388 Greenwich Street
New York NY 10013-2375
Smith Barney Inc. 6.58
00148100931
388 Greenwich Street
New York NY 10013-2375
George Sunderland 5.30
Loretta V. Sunderland JT WROS
2431 San Pedro Dr. N
Albuquerque NM 87110-4101
Nuveen Flagship New Mexico Municipal Bond Fund
Class R Shares.................................... Mary Swickard 87.71
84 Barcelona Ave.
Los Alamos NM 87544-3428
Herschel W. Rogers & Rosemary E. Rogers Tr. 12.26
UA 12/05/96
H.W. & R.E. Rogers Rev. Trust
4509 Acapulco Dr. NE
Albuquerque NM 87111-2813
Nuveen Flagship Pennsylvania Municipal Bond Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 46.60
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Pennsylvania Municipal Bond Fund
Class B Shares.................................... Merrill Lynch, Pierce, Fenner & Smith for 41.75
the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Eugene L. Mariani, Jr. & 8.70
Cynthia Mariani JT-TEN
4 Marian Road
Phoenixville PA 19460-2911
Ray P. Froehling 8.44
Crosslands Apt. #54
Kennett Square, PA 19348-2006
Janney Montgomery Scott, Inc. 6.63
A/C 5967-2226
Ilean Molish JT-TEN
1801 Market Street
Philadelphia, PA 19103-1628
Martin A. Stough 6.43
Beatrice M. Stough JT WROS
263 Martin Dr.
York New Salem, PA 17371
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
---------------------- ------------------------- ------------
<S> <C> <C>
Smith Barney Inc. 5.34%
00170503885
388 Greenwich Street
New York, NY 10013-2375
Nuveen Flagship Pennsylvania Municipal Bond Fund
Class C Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 68.78
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia Municipal Bond Fund
Class A Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 29.87
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia Municipal Bond Fund
Class B Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 33.54
for the sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E. Fl 3
Jacksonville, FL 32246-6484
FUBS & CO. FEBO 20.23
C. Douglas Holloman
Norma R. Phillips
1077 Saw Pen Point Tr.
Virginia Beach, VA 23455
FUBS & CO. FEBO 15.29
John G. Reiners and
Emily A. Reiners
5805 Williamsburg Landing Dr.
Williamsburg, VA 23185-3778
PaineWebber FBO 12.26
Kenneth Y. Tomlinson &
Rebecca M. Tomlinson JT Ten
Springbrook Farm
PO Box 1508
Middleburg VA 20118-1508
A Morine Upton TTEE Upton 5.19
Family Management Trust U/A
Dtd Jan. 16, 1992
c/o Jim Upton
4015 Gypsum Hill Rd.
Haymarket VA 20169-2403
Nuveen Flagship Virginia Municipal Bond Fund
Class C Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 57.25
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia Municipal Bond Fund
Class R Shares.................................... Merrill Lynch, Pierce, Fenner & Smith 6.56
for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
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
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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 MANAGEMENT FEE
----------------------------- --------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1%
For the next $250 million .5250 of 1%
For the next $500 million .5125 of 1%
For the next $1 billion .5000 of 1%
For net assets over $2 billion .4750 of 1%
</TABLE>
For all Funds, except the Maryland Fund, Nuveen Advisory has committed
through at least 1998 to continue Flagship's general dividend-setting practices.
For the Maryland Fund, Nuveen Advisory has voluntarily agreed through July 31,
1998 to waive fees or reimburse expenses so that the total operating expenses
(not counting distribution and service fees) for the fund do not exceed 0.75% of
average daily net assets.
For the last three fiscal years, the Maryland Municipal Bond Fund paid net
management fees to Nuveen Advisory as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE
REIMBURSEMENT PAID TO FEE WAIVERS AND
NUVEEN ADVISORY FOR EXPENSE REIMBURSEMENTS FOR
THE YEAR ENDED THE YEAR ENDED
------------------------------- ------------------------------
1/31/95 1/31/96 5/31/97* 1/31/95 1/31/96 5/31/97*
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Maryland Municipal Bond Fund............................... $189,022 131,476 332,471 65,460 148,537 81,437
</TABLE>
- ---------------
* For the sixteen month period ended May 31, 1997.
For the last three fiscal years, the Arizona Municipal Bond Fund, the
Colorado Municipal Bond Fund, the Florida Municipal Bond Fund, the Florida
Intermediate Municipal Bond Fund, the New Mexico Municipal Bond Fund, the
Pennsylvania Municipal Bond Fund, and the Virginia Municipal Bond Fund paid net
management fees to Flagship Financial, predecessor to Nuveen Advisory, and
beginning on 2/1/97, to Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE
REIMBURSEMENT PAID TO FEE WAIVERS AND
FLAGSHIP FINANCIAL FOR EXPENSE REIMBURSEMENTS FOR
THE YEAR ENDED THE YEAR ENDED
------------------------------------ ----------------------------------
5/31/95 5/31/96 5/31/97 5/31/95 5/31/96 5/31/97
-------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arizona Municipal Bond Fund........................ 122,032 82,113 277,387 277,079 337,926 190,556
Colorado Municipal Bond Fund....................... -- -- 24,740 169,048 257,637 142,072
Florida Municipal Bond Fund........................ 633,336 980,751 1,238,874 1,093,473 685,218 448,690
Florida Intermediate Municipal Bond Fund........... -- -- -- 19,498 75,798 110,883
New Mexico Municipal Bond Fund..................... 17,972 32,291 109,772 226,715 226,537 155,889
Pennsylvania Municipal Bond Fund................... 58,095 65,517 101,030 164,423 167,757 277,221
Virginia Municipal Bond Fund....................... 211,367 310,198 404,706 351,513 312,111 374,624
</TABLE>
In addition to the management fee of Nuveen Advisory, each Fund pays all
other costs and expenses of its operations and a portion of the Trust's general
administrative expenses allocated in proportion to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. 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 $36 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. Founded in 1898, Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul,
Minnesota and is principally engaged in providing property-liability insurance
through subsidiaries. Effective January 1, 1997, The John Nuveen Company
acquired Flagship Resources Inc., and as part of that acquisition, Flagship
Financial, the adviser to the Flagship Funds, was merged with Nuveen Advisory.
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<PAGE> 184
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and is
designed to assure that the interests of Fund shareholders are placed before the
interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities
for the account of each Fund, will place orders in such manner as, in the
opinion of management, will offer the best price and market for the execution of
each transaction. Portfolio securities will normally be purchased directly from
an underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to pay
any brokerage commissions. Purchases from underwriters will include a commission
or concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and asked price. Given the best price
and execution obtainable, it will be the practice of the Funds to select dealers
which, in addition, furnish research information (primarily credit analyses of
issuers and general economic reports) and statistical and other services to
Nuveen Advisory. It is not possible to place a dollar value on information and
statistical and other services received from dealers. Since it is only
supplementary to Nuveen Advisory's own research efforts, the receipt of research
information is not expected to reduce significantly Nuveen Advisory's expenses.
While Nuveen Advisory will be primarily responsible for the placement of the
business of the Funds, the policies and practices of Nuveen Advisory in this
regard must be consistent with the foregoing and will, at all times, be subject
to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such allocations
the main factors to be considered will be the respective investment objectives
of the Fund and such other clients, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment by
the Fund and such other clients, the size of investment commitments generally
held by the Fund and such other clients and opinions of the persons responsible
for recommending investments to the Fund and such other clients. While this
procedure could have a detrimental effect on the price or amount of the
securities available to a Fund from time to time, it is the opinion of the Board
of Trustees that the benefits available from Nuveen Advisory's organization will
outweigh any disadvantage that may arise from exposure to simultaneous
transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a member
except under certain limited conditions set forth in Rule 10f-3. The Rule sets
forth requirements relating to, among other things, the terms of an issue of
Municipal Obligations purchased by a Fund, the amount of Municipal Obligations
which may be purchased in any one issue and the assets of a Fund which may be
invested in a particular issue. In addition, purchases of securities made
pursuant to the terms of the Rule must be approved at least quarterly by the
Board of Trustees, including a majority of the trustees who are not interested
persons of the Trust.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Fund's shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the New York Stock Exchange (the
"Exchange") is normally open for trading. The Exchange is not open for trading
on New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of a class of shares of a Fund will be computed by dividing the
value of the Fund's assets attributable to the class, less the liabilities
attributable to the class, by the number of shares of the class outstanding.
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<PAGE> 185
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. Securities for which quotations are not readily
available (which constitute a majority of the securities held by the Funds) are
valued at fair value as determined by the pricing service using methods which
include consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to determine
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the Board
of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code") for tax treatment as a regulated
investment company. In order to qualify as a regulated investment company, a
Fund must satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, for
taxable years beginning on or before August 5, 1997 a Fund must derive less than
30% of its annual gross income from the sale or other disposition of any of the
following which was held for less than three months: (i) stock or securities and
(ii) certain options, futures, or forward contracts (the "short-short test").
The short-short test will not be a requirement for qualification as a regulated
investment company for taxable years beginning after August 5, 1997. Third, a
Fund must diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets is comprised of
cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to an amount not greater in value than 5% of the value of a Fund's
total assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the total assets is
invested in the securities of any one issuer (other than United States
Government securities and securities of other regulated investment companies) or
two or more issuers controlled by a Fund and engaged in the same, similar or
related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of
long-term capital loss, and any other taxable income other than "net capital
gain" (as defined below) and is reduced by deductible expenses) and (ii) its net
tax-exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net capital
gain (which consists of the excess of its net long-term capital gain over its
short-term capital loss). However, if a Fund retains any net capital gain or any
investment company taxable income, it will be subject to tax at regular
corporate rates on the amount retained. If a Fund retains any capital gain, such
Fund may designate the retained amount as undistributed capital gains in a
notice to its shareholders who, if subject to federal income tax on long-term
capital gains, (i) will be required to include in income for federal income tax
purposes, as long-term capital gain, their shares of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by such Fund against their federal income tax liabilities if any, and to claim
refunds to the extent the credit exceeds such liabilities. For federal income
tax purposes, the tax basis of shares owned by a shareholder of the Fund will be
increased by an amount equal under current law to 65% of the amount of
undistributed capital gains included in the shareholder's gross income. Each
Fund intends to distribute at least annually to its shareholders all or
substantially all of its net tax-exempt interest and any investment company
taxable income and net capital gain.
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
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<PAGE> 186
all or part of any net capital loss, any net long-term capital loss or any net
foreign currency loss incurred after October 31 as if they had been incurred in
the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will enable
it to designate distributions from the interest income generated by investments
in Municipal Obligations, which is exempt from regular federal income tax when
received by such Fund, as exempt-interest dividends. Shareholders receiving
exempt-interest dividends will not be subject to regular federal income tax on
the amount of such dividends. Insurance proceeds received by a Fund under any
insurance policies in respect of scheduled interest payments on defaulted
Municipal Obligations will be excludable from federal gross income under Section
103(a) of the Code. In the case of non-appropriation by a political subdivision,
however, there can be no assurance that payments made by the insurer
representing interest on "non-appropriation" lease obligations will be
excludable from gross income for federal income tax purposes. See "Investment
Policies and Investment Portfolio; Portfolio Securities."
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will be
treated as taxable interest income to the extent such gain does not exceed the
market discount, and any gain realized in excess of the market discount will be
treated as capital gains. Any net long-term capital gains realized by a Fund and
distributed to shareholders in cash or additional shares, will be taxable to
shareholders as long-term capital gains regardless of the length of time
investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital gain
dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was
tax-exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists
primarily of interest, none of its dividends, whether or not treated as
exempt-interest dividends, is expected to qualify under the Internal Revenue
Code for the dividends received deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
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.
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<PAGE> 187
All or a portion of a sales charge paid in purchasing shares of a Fund
cannot be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent of
any distributions of long-term capital gains made with respect to such shares.
In addition, no loss will be allowed on the redemption or exchange of shares of
a Fund if the shareholder purchases other shares of such Fund (whether through
reinvestment of distributions or otherwise) or the shareholder acquires or
enters into a contract or option to acquire securities that are substantially
identical to shares of a Fund within a period of 61 days beginning 30 days
before and ending 30 days after such redemption or exchange. If disallowed, the
loss will be reflected in an adjustment to the basis of the shares acquired.
It may not be advantageous from a tax perspective for shareholders to
redeem or exchange shares after tax-exempt income has accrued but before the
record date for the exempt-interest dividend representing the distribution of
such income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the extent
the redemption or exchange price exceeds the shareholder's tax basis in the
shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Because the Funds may invest in private activity bonds, the interest on
which is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their tax
liability is determined under the alternative minimum tax regime. The Funds will
annually supply shareholders with a report indicating the percentage of Fund
income attributable to Municipal Obligations subject to the federal alternative
minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
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<PAGE> 188
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares who
have not furnished to the Funds their correct taxpayer identification number (in
the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The Code
and Treasury Regulations are subject to change by legislative or administrative
action, and any such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult their own tax advisers for
more detailed information concerning the federal taxation of the Funds and the
income tax consequences to their shareholders.
STATE TAX MATTERS
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
satisfy the conditions which will cause distributions to qualify as
exempt-interest dividends to shareholders when distributed as intended, and that
each Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for state
tax purposes. The tax discussion summarizes general state tax laws which are
currently in effect and are subject to change by legislative or administrative
action; any such changes may be retroactive with respect to the applicable
Fund's transactions. Investors should consult a tax adviser for more detailed
information about state taxes to which they may be subject.
MARYLAND
The following is a general, abbreviated summary of certain provisions of
the applicable Maryland tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the Maryland
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Maryland Fund transactions.
The following is based on the assumptions that the Maryland Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Maryland Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Maryland Fund's
shareholders.
The Maryland Fund will be subject to the Maryland corporate income tax only
if it has a sufficient nexus with Maryland. If it is subject to the Maryland
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Maryland Fund that are attributable to interest on or
gain from the sale or exchange of any obligation of Maryland or its political
subdivisions or to interest on obligations of the United States, its
territories, possessions, or instrumentalities that are exempt from state
taxation under federal law will not be subject to the Maryland individual income
tax or the Maryland corporate income tax. All remaining distributions to
shareholders will be subject to the Maryland individual and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Maryland
Fund will be subject to the Maryland individual and corporate income taxes.
Shares of the Maryland Fund may be subject to the Maryland estate tax if
owned by a Maryland decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Maryland state and local tax matters.
C-25
<PAGE> 189
ARIZONA
The following is a general, abbreviated summary of certain provisions of
the applicable Arizona tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Arizona Fund.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Arizona Fund transactions.
The following is based on the assumptions that the Arizona Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will be registered as a diversified management company under (S)5 of the
Federal Investment Company Act of 1940, that it will satisfy the conditions
which will cause Arizona Fund distributions to qualify as exempt-interest
dividends to shareholders, and that it will distribute all interest and
dividends it receives to the Arizona Fund's shareholders.
The Arizona Fund is not subject to the Arizona corporate income tax.
Distributions by the Arizona Funds that are attributable to interest on any
obligation of Arizona and its political subdivision or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will not
be subject to the Arizona individual and corporate income taxes. All remaining
distributions, including distributions attributable to capital gains, will be
subject to the Arizona individual and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Arizona
Fund will be subject to the Arizona individual and corporate income taxes.
Shares of the Arizona Fund may be subject to the Arizona estate tax if
owned by an Arizona decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Arizona state and local tax matters.
COLORADO
The following is a general, abbreviated summary of certain provisions of
the applicable Colorado tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the Colorado
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Colorado Fund transactions.
The following is based on the assumptions that the Colorado Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Colorado Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Colorado Fund's
shareholders.
The Colorado Fund will be subject to the Colorado corporate income tax only
if it has a sufficient nexus with Colorado. If it is subject to the Colorado
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Colorado Fund that are attributable to interest earned
on any obligation of Colorado and its political subdivisions issued on or after
May 1, 1980 and certain such obligations issued before May 1, 1980 or to
interest on obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will not
be subject to the Colorado corporate income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
Colorado individual and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Colorado
Fund will be subject to the Colorado individual and corporate income taxes.
Shares of the Colorado Fund may be subject to the Colorado estate tax if
owned by an Colorado decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Colorado state and local tax matters.
C-26
<PAGE> 190
FLORIDA
The following is a general, abbreviated summary of certain provisions of
the applicable Florida tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Florida Funds.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to transactions of the Florida Funds.
The following is based on the assumptions that the Florida Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause distributions of Florida Funds
to qualify as exempt-interest dividends to shareholders, and that they will
distribute all interest and dividends they receive to the Florida Funds'
shareholders.
The Florida Funds will be subject to the Florida corporate income tax only
if they have a sufficient nexus with Florida. If the Florida Funds are subject
to the Florida corporate income tax, they do not expect to pay a material amount
of such tax. The Florida Funds will not be subject to the Florida intangible
personal property tax.
Shares of the Florida Funds will not be subject to the Florida intangible
personal property tax if on January 1 of the taxable year, the Funds hold only
tax-exempt obligations of Florida and its political subdivisions or of the
United States, its territories, possessions or instrumentalities that are exempt
from state taxation under federal law ("Federal Obligations"). If the Florida
Funds hold any other types of assets on that date, then the entire value of the
Funds' shares (except for the portion of the value of the shares attributable to
Federal Obligations) will be subject to the Florida intangible personal property
tax.
All distributions by the Florida Funds to corporate shareholders,
regardless of source, will be subject to the Florida corporate income tax. Gain
on the sale, exchange, or other dispositions of shares of the Florida Funds will
be subject to the Florida corporate income tax.
Shares of the Florida Funds may be subject to the Florida estate tax if
owned by a Florida decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Florida state and local tax matters.
NEW MEXICO
The following is a general, abbreviated summary of certain provisions of
the applicable New Mexico tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the New Mexico
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to New Mexico Fund transactions.
The following is based on the assumptions that the New Mexico Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause New Mexico Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the New Mexico Fund's
shareholders.
The New Mexico Fund will be subject to the New Mexico corporate franchise
tax and the New Mexico corporate income tax only if it has a sufficient nexus
with New Mexico. If the New Mexico Fund is subject to such taxes, it does not
expect to pay a material amount of either tax.
Distributions by the New Mexico Fund that are attributable to interest on
any obligation of New Mexico and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will not
be subject to the New Mexico personal income tax or the New Mexico corporate
income tax. All other distributions, including distributions attributable to
capital gains, will be subject to the New Mexico personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the New
Mexico Fund will be subject to the New Mexico personal and corporate income
taxes.
Shares of the New Mexico Fund may be subject to the New Mexico estate tax
if owned by a New Mexico decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New Mexico and local tax matters.
C-27
<PAGE> 191
PENNSYLVANIA
The following is a general, abbreviated summary of certain provisions of
the applicable Pennsylvania tax law as presently in effect as it directly
governs the taxation of resident individual and corporate shareholders of the
Pennsylvania Fund. This summary does not address the taxation of other
shareholders not does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Pennsylvania Fund
transactions.
The following is based on the assumptions that the Pennsylvania Fund will
qualify under Subchapter M of the Code and under the Investment Company Act of
1940 as a regulated investment company, that it will satisfy the conditions
which will cause Pennsylvania Fund distributions to qualify as exempt-interest
dividends to shareholders, and that it will distribute all interest and
dividends it receives to the Pennsylvania Fund's shareholders.
The Pennsylvania Fund will not be subject to the Pennsylvania corporate net
income tax. The Pennsylvania Fund will be subject to the Pennsylvania franchise
tax only if it has a sufficient nexus with Pennsylvania. If it is subject to the
Pennsylvania franchise tax, it does not expect to pay a material amount of such
tax.
Distributions from the Pennsylvania Fund that are attributable to interest
on any obligation of Pennsylvania or its political subdivisions or to interest
on obligations of the United States, its territories, possessions, or
instrumentalities that are exempt from state taxation under federal law will not
be subject to the Pennsylvania personal income tax or the Pennsylvania corporate
net income tax. Distributions by the Pennsylvania Fund that are attributable to
interest on the obligations of states other than Pennsylvania will not be
subject to the Pennsylvania corporate net income tax unless they are subject to
federal income tax. All other distributions, including those attributable to
capital gains, will be subject to the Pennsylvania personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the
Pennsylvania Fund will be subject to the Pennsylvania personal and corporate
income taxes.
Shares of the Pennsylvania Fund may be subject to the Pennsylvania
inheritance tax and the Pennsylvania estate tax if held by a Pennsylvania
decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Pennsylvania and local tax matters.
VIRGINIA
The following is a general, abbreviated summary of certain provisions of
the applicable Virginia tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the Virginia
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Virginia Fund transactions.
The following is based on the assumptions that the Virginia Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Virginia Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Virginia Fund's
shareholders.
The Virginia Fund will be subject to the Virginia corporate income tax only
if it has a sufficient nexus with Virginia. If it is subject to the Virginia
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Virginia Fund that are attributable to interest on or
gain from the sale or exchange of obligations of Virginia and its political
subdivisions and instrumentalities ("Virginia Obligations") or obligations of
the United States and its territories, possessions or instrumentalities that are
exempt from state taxation under federal law will not be subject to the Virginia
personal income tax or the Virginia corporate income tax. All remaining
distributions will be subject to the Virginia personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Virginia
Fund will be subject to the Virginia personal and corporate income taxes.
If a shareholder receives a distribution consisting in part of taxable
income, then the entire distribution will be taxed unless the shareholder
substantiates the portion which is exempt from taxation.
Shares of the Virginia Fund may be subject to the Virginia estate tax if
owned by a Virginia decedent at the time of death.
C-28
<PAGE> 192
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Virginia state and local tax matters.
PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each of
which will be calculated separately for each class of shares.
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield = 2 [(a-b)+1)/6/ - 1]
cd
In the above formula, a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20% (3% for the Florida
Intermediate Fund).
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily consistent
with those that the Funds use to prepare their annual and interim financial
statements in conformity with generally accepted accounting principles. Thus,
yield may not equal the income paid to shareholders or the income reported in a
Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal and
state income tax rate, taking into account the deductibility of state taxes for
federal income tax purposes) and adding the product to that portion, if any, of
the yield that is not tax exempt.
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
COMBINED
AS OF MAY 31, 1997 FEDERAL TAXABLE
------------------ AND STATE EQUIVALENT
YIELD TAX RATE* YIELD
----- --------- ----------
<S> <C> <C> <C>
Arizona Municipal Bond Fund Class A Shares.................. 4.36% 42.50% 7.58%
Class B Shares............................................ 3.80% 42.50% 6.61%
Class C Shares............................................ 4.01% 42.50% 6.97%
Class R Shares............................................ 4.76% 42.50% 8.28%
Colorado Municipal Bond Fund
Class A Shares............................................ 4.72% 42.50% 8.21%
Class B Shares............................................ 4.17% 42.50% 7.25%
Class C Shares............................................ 4.37% 42.50% 7.60%
Class R Shares............................................ 5.12% 42.50% 8.90%
Florida Municipal Bond Fund
Class A Shares............................................ 4.62% 39.60% 7.65%
Class B Shares............................................ 4.07% 39.60% 6.74%
Class C Shares............................................ 4.27% 39.60% 7.07%
Class R Shares............................................ 5.02% 39.60% 8.31%
Florida Intermediate Municipal Bond Fund
Class A Shares............................................ 4.08% 39.60% 6.75%
Class C Shares............................................ 3.80% 39.60% 6.29%
Class R Shares............................................ 4.50% 39.60% 7.45%
Maryland Municipal Bond Fund
Class A Shares............................................ 4.33% 42.50% 7.53%
Class B Shares............................................ 3.77% 42.50% 6.56%
Class C Shares............................................ 3.97% 42.50% 6.90%
Class R Shares............................................ 4.72% 42.50% 8.21%
</TABLE>
C-29
<PAGE> 193
<TABLE>
<CAPTION>
COMBINED
AS OF MAY 31, 1997 FEDERAL TAXABLE
------------------ AND STATE EQUIVALENT
YIELD TAX RATE* YIELD
----- --------- ----------
<S> <C> <C> <C>
New Mexico Municipal Bond Fund
Class A Shares............................................ 4.70% 44.50% 8.47%
Class B Shares............................................ 4.16% 44.50% 7.50%
Class C Shares............................................ 4.36% 44.50% 7.86%
Class R Shares............................................ 5.11% 44.50% 9.21%
Pennsylvania Municipal Bond Fund
Class A Shares............................................ 4.96% 41.50% 8.48%
Class B Shares............................................ 4.42% 41.50% 7.56%
Class C Shares............................................ 4.63% 41.50% 7.91%
Class R Shares............................................ 5.38% 41.50% 9.20%
Virginia Municipal Bond Fund
Class A Shares............................................ 4.94% 43.00% 8.67%
Class B Shares............................................ 4.41% 43.00% 7.74%
Class C Shares............................................ 4.61% 43.00% 8.09%
Class R Shares............................................ 5.36% 43.00% 9.40%
</TABLE>
- ---------------
* The combined tax rates used in these tables represent the highest or one of
the highest combined tax rates applicable to state taxpayers, rounded to the
nearest .5%; these rates do not reflect the current federal tax limitations
on itemized deductions and personal exemptions, which may raise the effective
tax rate and taxable equivalent yield for taxpayers above certain income
levels.
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen UITs, or the maximum public
offering price). The distribution rate differs from yield and total return and
therefore is not intended to be a complete measure of performance. Distribution
rate may sometimes differ from yield because a Fund may be paying out more than
it is earning and because it may not include the effect of amortization of bond
premiums to the extent such premiums arise after the bonds were purchased.
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20% (3% for the Florida
Intermediate Fund), were as follows:
<TABLE>
<CAPTION>
MAY 31, 1997
-------------------------------------------------
DISTRIBUTION RATES
-------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Arizona Municipal Bond Fund................................. 4.85% 4.32% 4.52% 5.27%
Colorado Municipal Bond Fund................................ 4.93% 4.39% 4.60% 5.34%
Florida Municipal Bond Fund................................. 5.00% 4.47% 4.68% 5.42%
Florida Intermediate Municipal Bond Fund.................... 4.48% N/A 4.07% 4.81%
Maryland Municipal Bond Fund................................ 4.65% 4.10% 4.28% 5.03%
New Mexico Municipal Bond Fund.............................. 4.75% 4.22% 4.42% 5.16%
Pennsylvania Municipal Bond Fund............................ 5.23% 4.70% 4.91% 5.65%
Virginia Municipal Bond Fund................................ 5.13% 4.62% 4.81% 5.56%
</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.
C-30
<PAGE> 194
Total returns for the oldest class of each fund reflect actual performance
for all periods. For other classes, 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.
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
---------------
<S> <C>
Arizona Municipal Bond Fund
Class A Shares............................................ October 29, 1986
Class B Shares............................................ February 1, 1997
Class C Shares............................................ February 7, 1994
Class R Shares............................................ February 1, 1997
Colorado Municipal Bond Fund
Class A Shares............................................ May 4, 1987
Class B Shares............................................ February 1, 1997
Class C Shares............................................ February 1, 1997
Class R Shares............................................ February 1, 1997
Florida Municipal Bond Fund
Class A Shares............................................ June 15, 1990
Class B Shares............................................ February 1, 1997
Class C Shares............................................ September 14, 1995
Class R Shares............................................ February 1, 1997
Florida Intermediate Municipal Bond Fund
Class A Shares............................................ February 1, 1994
Class C Shares............................................ February 2, 1994
Class R Shares............................................ February 1, 1997
Maryland Municipal Bond Fund
Class A Shares............................................ September 6, 1994
Class B Shares............................................ February 1, 1997
Class C Shares............................................ September 6, 1994
Class R Shares............................................ July 26, 1991
New Mexico Municipal Bond Fund
Class A Shares............................................ September 16, 1992
Class B Shares............................................ February 1, 1997
Class C Shares............................................ February 1, 1997
Class R Shares............................................ February 1, 1997
Pennsylvania Municipal Bond Fund
Class A Shares............................................ October 29, 1986
Class B Shares............................................ February 1, 1997
Class C Shares............................................ February 2, 1994
Class R Shares............................................ February 1, 1997
Virginia Municipal Bond Fund
Class A Shares............................................ March 27, 1986
Class B Shares............................................ February 1, 1997
Class C Shares............................................ October 4, 1993
Class R Shares............................................ February 1, 1997
</TABLE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A shares, and applicable CDSC for Class B Shares,
for the one-year, five-year, and ten-year periods (as applicable) ended May 31,
1997 and for the period from inception through May 31, 1997, respectively, using
the performance of the oldest class for periods prior to the inception of the
newer classes, as described above, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
---------------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, 1997 MAY 31, 1997 MAY 31, 1997 MAY 31, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Arizona Municipal Bond Fund
Class A Shares............................................ 3.32% 6.48% 7.86% 7.25%
Class B Shares............................................ 3.20% 6.65% 7.85% 7.24%
Class C Shares............................................ 7.28% 6.81% 7.73% 7.09%
Class R Shares............................................ 7.93% 7.41% 8.33% 7.69%
Colorado Municipal Bond Fund
Class A Shares............................................ 4.63% 6.48% 7.11% 6.76%
Class B Shares............................................ 4.67% 6.67% 7.10% 6.75%
Class C Shares............................................ 8.77% 7.01% 7.20% 6.84%
Class R Shares............................................ 9.38% 7.43% 7.59% 7.24%
</TABLE>
C-31
<PAGE> 195
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
---------------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, 1997 MAY 31, 1997 MAY 31, 1997 MAY 31, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Florida Municipal Bond Fund
Class A Shares............................................ 3.07% 5.75% N/A 6.97%
Class B Shares............................................ 3.02% 5.92% N/A 7.04%
Class C Shares............................................ 7.00% 6.08% N/A 7.04%
Class R Shares............................................ 7.66% 6.67% N/A 7.64%
Florida Intermediate Bond Fund
Class A Shares............................................ 3.94% N/A N/A 4.89%
Class C Shares............................................ 6.47% N/A N/A 5.25%
Class R Shares............................................ 7.42% N/A N/A 5.93%
Maryland Municipal Bond Fund
Class A Shares............................................ 2.18% 5.52% N/A 5.57%
Class B Shares............................................ 1.99% 5.55% N/A 5.57%
Class C Shares............................................ 5.92% 5.68% N/A 5.69%
Class R Shares............................................ 6.88% 6.70% N/A 6.71%
New Mexico Municipal Bond Fund
Class A Shares............................................ 4.33% N/A N/A 5.71%
Class B Shares............................................ 4.14% N/A N/A 5.71%
Class C Shares............................................ 8.47% N/A N/A 6.28%
Class R Shares............................................ 9.06% N/A N/A 6.71%
Pennsylvania Municipal Bond Fund
Class A Shares............................................ 3.81% 5.87% 7.65% 6.74%
Class B Shares............................................ 3.91% 6.07% 7.64% 6.74%
Class C Shares............................................ 7.88% 6.20% 7.53% 6.59%
Class R Shares............................................ 8.44% 6.80% 8.12% 7.18%
Virginia Municipal Bond Fund
Class A Shares............................................ 3.66% 6.08% 7.72% 7.11%
Class B Shares............................................ 3.54% 6.24% 7.71% 7.10%
Class C Shares............................................ 7.61% 6.38% 7.59% 6.92%
Class R Shares............................................ 8.28% 7.01% 8.19% 7.53%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial investment
from the redeemable value and dividing the remainder by the initial investment
and expressing the result as a percentage. The calculation assumes that all
income and capital gains distributions by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Cumulative total return
may also be shown as the increased dollar value of the hypothetical investment
over the period. Cumulative total return calculations that do not include the
effect of the sales charge would be reduced if such charge were included.
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, and applicable CDSC for Class B
Shares, for the one-year, five-year and ten-year periods (as applicable) ended
May 31, 1997, and for the period since inception through May 31, 1997,
respectively, using the performance of the oldest class for periods prior to the
inception of the newer classes, as described above, were:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, MAY 31, MAY 31, MAY 31,
1997 1997 1997 1997
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Municipal Bond Fund
Class A Shares............................................ 3.32% 36.89% 113.07% 109.74%
Class B Shares............................................ 3.20% 37.95% 112.94% 109.59%
Class C Shares............................................ 7.28% 39.02% 110.58% 106.53%
Class R Shares............................................ 7.93% 42.98% 122.56% 119.08%
Colorado Municipal Bond Fund
Class A Shares............................................ 4.63% 36.87% 98.81% 92.38%
Class B Shares............................................ 4.67% 38.08% 98.60% 92.16%
Class C Shares............................................ 8.77% 40.33% 100.33% 93.79%
Class R Shares............................................ 9.38% 43.08% 107.83% 101.11%
Florida Municipal Bond Fund
Class A Shares............................................ 3.07% 32.24% N/A 59.79%
Class B Shares............................................ 3.02% 33.34% N/A 60.55%
Class C Shares............................................ 7.00% 34.33% N/A 60.53%
Class R Shares............................................ 7.66% 38.13% N/A 66.91%
Florida Intermediate Municipal Bond Fund
Class A Shares............................................ 3.94% N/A N/A 17.21%
Class C Shares............................................ 6.47% N/A N/A 18.54%
Class R Shares............................................ 7.42% N/A N/A 21.13%
</TABLE>
C-32
<PAGE> 196
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, MAY 31, MAY 31, MAY 31,
1997 1997 1997 1997
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Maryland Municipal Bond Fund
Class A Shares............................................ 2.18% 30.81% N/A 32.97%
Class B Shares............................................ 1.99% 31.02% N/A 32.97%
Class C Shares............................................ 5.92% 31.80% N/A 33.72%
Class R Shares............................................ 6.88% 38.28% N/A 40.65%
New Mexico Municipal Bond Fund
Class A Shares............................................ 4.33% N/A N/A 29.82%
Class B Shares............................................ 4.14% N/A N/A 29.82%
Class C Shares............................................ 8.47% N/A N/A 33.19%
Class R Shares............................................ 9.06% N/A N/A 35.71%
Pennsylvania Municipal Bond Fund
Class A Shares............................................ 3.81% 33.00% 109.02% 99.55%
Class B Shares............................................ 3.91% 34.24% 108.88% 99.41%
Class C Shares............................................ 7.88% 35.07% 106.59% 96.50%
Class R Shares............................................ 8.44% 38.92% 118.33% 108.43%
Virginia Municipal Bond Fund
Class A Shares............................................ 3.66% 34.31% 110.44% 115.46%
Class B Shares............................................ 3.54% 35.32% 110.25% 115.28%
Class C Shares............................................ 7.61% 36.26% 107.73% 111.24%
Class R Shares............................................ 8.28% 40.30% 119.81% 125.06%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return for
each such calendar year by the amount of additional income that a taxable fund
would need to have generated to equal the income on an after-tax basis, at a
specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 42.5% maximum combined marginal federal and state tax rate for
1997, the annual taxable equivalent total return for the Maryland Municipal Bond
Fund's shares for the five-year period ended May 31, 1997 with respect to the
Class R Shares was 10.59%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general market
conditions, operating expenses and investment management. Any additional fees
charged by a securities representative or other financial services firm would
reduce returns described in this section. Shares of the Funds are redeemable at
net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of: (1)
the Consumer Price Index or various unmanaged bond indexes such as the Lehman
Brothers Municipal Bond Index and the Salomon Brothers High Grade Corporate Bond
Index and (2) other fixed income or municipal bond mutual funds or mutual fund
indexes as reported by Lipper Analytical Services, Inc. ("Lipper"), Morningstar,
Inc. ("Morningstar"), Wiesenberger Investment Companies Service ("Wiesenberger")
and CDA Investment Technologies, Inc. ("CDA") or similar independent services
which monitor the performance of mutual funds, or other industry or financial
publications such as Barron's, Changing Times, Forbes and Money Magazine.
Performance comparisons by these indexes, services or publications may rank
mutual funds over different periods of time by means of aggregate, average,
year-by-year, or other types of total return and performance figures. Any given
performance quotation or performance comparison should not be considered as
representative of the performance of the Funds for any future period.
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are subject
to fluctuating rollover rates. Money market funds are short-term investments
with stable net asset values, fluctuating yields and special features enhancing
liquidity.
C-33
<PAGE> 197
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds will
fluctuate. The Funds primarily invest in investment grade Municipal Obligations
in pursuing their objective of as high a level of current interest income which
is exempt from federal and state income tax as is consistent, in the view of the
Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return
performance to the total return performance of taxable income funds such as
treasury securities funds, corporate bond funds (either investment grade or high
yield), or Ginnie Mae funds. These types of funds, because of the character of
their underlying securities, differ from municipal bond funds in several
respects. The susceptibility of the price of treasury bonds to credit risk is
far less than that of municipal bonds, but the price of treasury bonds tends to
be slightly more susceptible to change resulting from changes in market interest
rates. The susceptibility of the price of investment grade corporate bonds and
municipal bonds to market interest rate changes and general credit changes is
similar. High yield bonds are subject to a greater degree of price volatility
than municipal bonds resulting from changes in market interest rates and are
particularly susceptible to volatility from credit changes. Ginnie Mae bonds are
generally subject to less price volatility than municipal bonds from credit
concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market
interest rate changes. In addition, the volatility of Ginnie Mae bonds due to
changes in market interest rates may differ from municipal bonds of comparable
coupon and maturity because bonds of the sensitivity of Ginnie Mae prepayment
experience to change in interest rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND
REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with respect
to any distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per share,
dividends per share and net asset value per share will vary among a Fund's
classes of shares.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares will
bear only those expenses that are directly attributable to that class, where the
type or amount of services received by a class varies from one class to another.
For example, class-specific expenses generally will include distribution and
service fees.
The minimum initial investment is $3,000 per fund share class, and may be
lower for accounts opened through fee-based programs for which the program
sponsor has established a single master account with the fund's transfer agent
and performs all sub-accounting services related to that account.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R
SHARE PURCHASE ELIGIBILITY
Rights of Accumulation. You may qualify for a reduced sales charge on a
purchase of Class A Shares of any Fund if the amount of your purchase, when
added to the value that day of all of your prior purchases of shares of any Fund
or of another Nuveen Mutual Fund, or units of a Nuveen unit trust, on which an
up-front sales charge or ongoing distribution fee is imposed, or is normally
imposed, falls within the amounts stated in the Class A Sales Charges and
Commissions table in "How 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.
C-34
<PAGE> 198
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 Mutual Fund
that you already own on which you paid an up-front sales charge or an ongoing
distribution fee and any Class B or C Shares of a Nuveen Mutual Fund that you
purchase over the next 13 months towards completion of your investment program,
but you will receive a reduced sales charge only on new Class A Shares you
purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without a
sales charge through investment of distributions from a Nuveen Mutual Fund or a
Nuveen 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 Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten or more participating members, has agreed to
include Fund sales publications in mailings to members and has agreed to comply
with certain administrative requirements relating to its group purchases.
Under any group purchase program, the minimum initial investment in Class A
shares of any particular Fund or portfolio for each participant in the program
is $3,000 and the minimum monthly investment in Class A shares of any particular
Fund or portfolio by each participant is $50. No certificates will be issued for
any participant's account. All dividends and other distributions by a Fund will
be reinvested in additional Class A Shares of the same Fund. No participant may
utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by calling Nuveen
toll-free (800) 621-7227.
Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also
purchase Class A Shares at net asset value without a sales charge if the
purchase takes place through a broker-dealer and represents the reinvestment of
the proceeds of the redemption of shares of one or more registered investment
companies not affiliated with Nuveen. You must provide appropriate documentation
that the redemption occurred not more than one year prior to the reinvestment of
the proceeds in Class A Shares, and that you either paid an up-front sales
C-35
<PAGE> 199
charge or were subject to a contingent deferred sales charge in respect of the
redemption of such shares of such other investment company.
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and Class R Shares may be purchased, by
the following categories of investors:
- officers, trustees and former trustees of the Nuveen and Flagship Funds;
- bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
- any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
- officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
- bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
- investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
- clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
Holders of Class C Shares acquired on or before January 31, 1997 can
convert those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased their
shares. Holders of Class C Shares purchased after that date will not have the
option to convert those shares to Class A Shares.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject to
minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a sibling's
spouse, and a spouse's siblings); or (3) all purchases made through a group
purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $1 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for the
following categories of investors:
- officers, trustees and former trustees of the Nuveen and Flagship Funds;
- bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
- any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
- officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
- bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
C-36
<PAGE> 200
- investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
- clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
In addition, purchasers of Nuveen unit investment trusts may reinvest their
distributions from such unit investment trusts in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions in
Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund shares).
Shareholders may exchange their Class R Shares of any Nuveen Fund into Class R
Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen
toll-free at (800) 621-7227.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18 months
of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares
not subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged on shares purchased as a result of automatic reinvestment of dividends
or capital gains paid. In addition, no CDSC will be charged on exchanges of
shares into another Nuveen Mutual Fund or Nuveen money market fund. You may not
exchange Class B Shares for shares of a Nuveen money market fund. The holding
period is calculated on a monthly basis and begins the first day of the month in
which the order for investment is received. The CDSC is calculated based on the
lower of the redeemed shares' cost or net asset value at the time of the
redemption and is deducted from the redemption proceeds. Nuveen receives the
amount of any CDSC shareholders pay. If 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 12% of the original
investment amount. 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.
C-37
<PAGE> 201
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 Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software, electronic information sites, or additional sales literature to
promote the advantages of using the Funds to meet these and other specific
investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may
be made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen money
market funds observe and will not make fund shares available for purchase on the
following holidays: Martin Luther King's Birthday, Columbus Day and Veterans
Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Each Fund may suspend the right of redemption, or delay payment to
redeeming shareholders for more than seven days, when the New York Stock
Exchange is closed (not including customary weekend and holiday closings); when
trading in the markets a Fund normally uses is restricted, or the SEC determines
that an emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
For more information on the procedure for purchasing shares of a Fund and
on the special purchase programs available thereunder, see "How to Buy Fund
Shares" in the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Nuveen Flagship Multistate Trust I, dated February 1, 1997
("Distribution Agreement"). Pursuant to the Distribution Agreement, the Trust
appointed Nuveen to be its agent for the distribution of the Funds' shares on a
continuous offering basis. Nuveen sells shares to or through brokers, dealers,
banks or other qualified financial intermediaries (collectively referred to as
"Dealers"), or others, in a manner consistent with the then effective
registration statement of the Trust. Pursuant to the Distribution Agreement,
Nuveen, at its own expense, finances certain activities incident to the sale and
distribution of the Funds' shares, including printing and distributing of
prospectuses and statements of additional information to other than existing
shareholders, the printing and distributing of sales literature, advertising and
payment of compensation and giving of concessions to Dealers. Nuveen receives
for its services the excess, if any, of the sales price of the Funds' shares
less the net asset value of those shares, and reallows a majority or all of such
amounts to the Dealers who sold the shares; Nuveen may act as such a Dealer.
Nuveen also receives compensation pursuant to a distribution plan adopted by the
Trust pursuant to Rule 12b-1 and described herein under "Distribution and
Service Plan." Nuveen receives any CDSCs imposed on redemptions of Shares.
C-38
<PAGE> 202
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Financial, Inc., which Nuveen acquired on
January 1, 1997) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997* JANUARY 31, 1996 JANUARY 31, 1995
-------------------------- -------------------------- --------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Maryland Fund.............................. 191 25 160 26 216 38
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996 MAY 31, 1995
-------------------------- -------------------------- --------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund............................... 145 20 194 26 227 31
Colorado Fund.............................. 78 10 98 13 95 13
Florida Fund............................... 443 61 609 83 882 112
Florida Intermediate Fund.................. 12 3 23 4 23 3
New Mexico Fund............................ 113 15 132 18 191 28
Pennsylvania Fund.......................... 110 14 107 14 119 15
Virginia Fund.............................. 279 38 311 26 381 50
</TABLE>
- ---------------
* For the sixteen month period ended May 31, 1997.
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders. These
services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net
assets of Class A Shares as a service fee under the Plan applicable to Class A
Shares. Each Fund may spend up to .75 of 1% per year of the average daily net
assets of Class B Shares as a distribution fee and up to .20 of 1% per year of
the average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended May 31, 1997, 100% of service fees and
distribution fees were paid out as compensation to Authorized Dealers. Prior to
February 1, 1997, the service fee for the Maryland Municipal Bond Fund was .25%
for both Class A and Class C Shares and the distribution fee was .75% for Class
C Shares. For such periods, the service fee for the other Funds was .20% and the
distribution fee was .40% for the Class A Shares and
C-39
<PAGE> 203
.75% for the Class C Shares (.55% for the Florida Intermediate Fund).
Thereafter, the service fee for the Class A and Class C Shares was .20% and the
distribution fee for the Class C Shares was .55%.
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1997
----------------------
<S> <C>
Arizona Municipal Bond Fund
Class A................................................... $ 270,038
Class B................................................... $ 617
Class C................................................... $ 22,346
Colorado Municipal Bond Fund
Class A................................................... $ 107,814
Class B................................................... $ 414
Class C................................................... $ 211
Florida Municipal Bond Fund
Class A................................................... $1,032,039
Class B................................................... $ 1,449
Class C................................................... $ 24,848
Florida Intermediate Municipal Bond Fund
Class A................................................... $ 21,227
Class C................................................... $ 26,833
Maryland Municipal Bond Fund*
Class A................................................... $ 31,680
Class B................................................... $ 185
Class C................................................... $ 22,810
New Mexico Municipal Bond Fund
Class A................................................... $ 171,788
Class B................................................... $ 776
Class C................................................... $ 228
Pennsylvania Municipal Bond Fund
Class A................................................... $ 149,056
Class B................................................... $ 418
Class C................................................... $ 45,521
Virginia Municipal Bond Fund
Class A................................................... $ 397,031
Class B................................................... $ 576
Class C................................................... $ 106,304
</TABLE>
- ---------------
* For the sixteen month period ended May 31, 1997.
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the Plan.
The Plan may be terminated at any time with respect to any class of shares,
without the payment of any penalty, by a vote of a majority of the trustees who
are not "interested persons" and who have no direct or indirect financial
interest in the Plan or by vote of a majority of the outstanding voting
securities of such class. The Plan may be renewed from year to year if approved
by a vote of the Board of Trustees and a vote of the non-interested trustees who
have no direct or indirect financial interest in the Plan cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may be continued
only if the trustees who vote to approve such continuance conclude, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under applicable law, that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan may not be amended to increase
materially the cost which a class of shares may bear under the Plan without the
approval of the shareholders of the affected class, and any other material
amendments of the Plan must be approved by the non-interested trustees by a vote
cast in person at a meeting called for the purpose of considering such
amendments. During the continuance of the Plan, the selection and nomination of
the non-interested trustees of the Trust will be committed to the discretion of
the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Deloitte & Touche LLP, independent auditors, 1700 Courthouse Plaza N.E.,
Dayton, Ohio 45402 has been selected as auditors for all of the Funds. Arthur
Andersen LLP, independent auditors, 33 West Monroe Street, Chicago, Illinois
60603, was selected as the auditor for the Nuveen Maryland Municipal Bond Fund
for the periods prior to January 31, 1997. In addition to audit services, the
auditors provide consultation and assistance on accounting, internal control,
tax and related matters. The financial statements incorporated by reference
elsewhere in this Statement of Additional Information and the information for
prior periods set forth under "Financial Highlights" in the Prospectus have been
audited by the auditors as indicated in their reports with respect thereto, and
are included in reliance upon the authority of those firms in giving their
reports.
C-40
<PAGE> 204
The custodian of the assets of the Funds is The Chase Manhattan Bank, 4 New
York Plaza, New York, New York 10004. The custodian performs custodial, fund
accounting, portfolio accounting, shareholder, and transfer agency services.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports and are incorporated herein by reference.
The Annual Reports accompany this Statement of Additional Information.
C-41
<PAGE> 205
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.
AA-1
<PAGE> 206
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
FUTURES AND INDEX TRANSACTIONS
Financial Futures. A financial future is an agreement between two parties
to buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to withdraw
credits in excess of the liquidity, the Fund may close out its position at any
time prior to expiration of the financial future by taking an opposite position.
At closing a final determination of debits and credits is made, additional cash
is paid by or to the Fund to settle the final determination and the Fund
realizes a loss or gain depending on whether on a net basis it made or received
such payments.
The sale of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. For example, if a
Fund owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds
as a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the
price of the securities which are the subject of the hedge, the hedge will not
be fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the financial
futures. Conversely, the Fund may enter into fewer financial futures if the
historical volatility of the price of the securities being hedged is less than
the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors
other than interest rates. One of these factors is the possibility that rapid
changes in the volume of closing transactions, whether due to volatile markets
or movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. The Funds may also purchase put or call
options on financial futures which are traded on a U.S. Exchange or board of
trade and enter into closing transactions with respect to such options to
terminate an existing position. Currently, options can be purchased with respect
to financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of put
options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to 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.
BB-1
<PAGE> 207
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.
BB-2
<PAGE> 208
EXHIBIT D
FINANCIAL STATEMENTS FOR THE INTERMEDIATE FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP INTERMEDIATE
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA--1.2%
$ 525,000 Pima County, Arizona, Industrial Development Authority,
Single Family Mortgage, Revenue Refunding, Series B,
5.850%, 5/01/09........................................... 5/07 at 102 AAA $ 541,548
- -------------------------------------------------------------------------------------------------------------------
CALIFORNIA--2.5%
1,000,000 Sacramento, California, Cogeneration Authority, Cogeneration
Project Revenue, Procter & Gamble Project, 6.200%,
7/01/06................................................... 7/05 at 102 BBB- 1,089,350
- -------------------------------------------------------------------------------------------------------------------
COLORADO--9.6%
2,300,000 Arapahoe County, Colorado, Capital Improvement Tollroad
Fund, Highway Revenue, 470 Series C, 0.000%, 8/31/06
(Pre-refunded to 8/31/05)................................. 8/05 at Aaa 1,540,839
95 30/32
500,000 Colorado Health Facilities Authority, Covenant Retirement
Communities Project, 6.200%, 12/01/07..................... 12/05 at 102 A- 541,070
1,000,000 Denver, Colorado, City & County Airport, Series B, 5.400%,
11/15/06.................................................. 11/05 at 102 AAA 1,049,170
1,000,000 Eagle County, Colorado, Air Term Corporation, Airport
Terminal Project, 6.750%, 5/01/06......................... No Opt. Call N/R 1,057,690
- -------------------------------------------------------------------------------------------------------------------
CONNECTICUT--0.8%
335,000 Eastern Connecticut Resource Recovery Authority, Solid Waste
Revenue, Wheelabrator Lisbon Project, Series A, 5.150%,
1/01/05................................................... 1/03 at 102 A- 341,469
- -------------------------------------------------------------------------------------------------------------------
DELAWARE--1.2%
500,000 Delaware State Economic Development Authority, Revenue
Refunding, 1st Mortgage, Peninsula Ltd., Series A, 6.100%,
5/01/10................................................... 5/07 at 102 BBB 528,815
- -------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--0.5%
205,000 District of Columbia, American University, 5.375%,
10/01/08.................................................. 10/06 at 101 AAA 213,060
- -------------------------------------------------------------------------------------------------------------------
FLORIDA--5.8%
275,000 Florida State, Broward County Expressway Authority, 9.875%,
7/01/09................................................... No Opt. Call AA+ 395,139
1,000,000 Palm Beach County, Florida, School Board, Certificates of
Participation, Series A, 5.800%, 8/01/04.................. No Opt. Call AAA 1,082,130
1,000,000 Sanford, Florida, Airport Authority, Industrial Development
Revenue, Central Florida Terminals Inc. Project, Series A,
7.500%, 5/01/06........................................... No Opt. Call N/R 1,047,390
- -------------------------------------------------------------------------------------------------------------------
ILLINOIS--3.6%
1,000,000 Illinois Health Facilities Authority, Mercy Hospital &
Medical Center, 6.000%, 1/01/06........................... No Opt. Call A- 1,066,990
500,000 Illinois Health Facilities Authority, Victory Health
Services, Series A, 5.750%, 8/15/08 (WI).................. 8/07 at 101 A- 524,765
- -------------------------------------------------------------------------------------------------------------------
INDIANA--2.3%
500,000 Indiana Bond, Special Program, Hendricks Redevelopment,
Series B, 5.750%, 2/01/08................................. 2/07 at 102 AA- 529,130
500,000 Indiana Health Facility Financing Authority, Hospital
Revenue, Charity Obligation Group, Series D, 5.000%,
11/02/26.................................................. No Opt. Call AA+ 499,220
- -------------------------------------------------------------------------------------------------------------------
KANSAS--1.0%
420,000 Lenexa, Kansas, Multifamily Housing, Revenue Refunding,
Barrington Park Apartments Project, Series A, 6.200%,
2/01/08................................................... 2/03 at 102 AA 440,664
- -------------------------------------------------------------------------------------------------------------------
KENTUCKY--5.3%
1,165,000 Kentucky Infrastructure Authority, Revenue Refunding,
Governmental Agencies Program, Series H, 5.600%,
8/01/06................................................... 8/05 at 102 A 1,242,869
1,000,000 McCracken County, Kentucky, Hospital, Revenue Refunding,
Mercy Health System, Series A, 6.100%, 11/01/04........... No Opt. Call AAA 1,093,290
- -------------------------------------------------------------------------------------------------------------------
LOUISIANA--0.6%
265,000 Louisiana Public Facilities Authority, Revenue Refunding,
Student Loan, Senior, Series A-2, 6.600%, 3/01/03......... 9/02 at 102 Aaa 280,357
- -------------------------------------------------------------------------------------------------------------------
MARYLAND--1.2%
500,000 Maryland State Health & Higher Educational Facilities
Authority, Revenue Refunding, Pickersgill Issue, Series A,
5.750%, 1/01/08........................................... 1/07 at 102 A- 530,180
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
D-1
<PAGE> 209
PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
NUVEEN FLAGSHIP INTERMEDIATE
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS--5.6%
Massachusetts State Health & Educational Facilities
Authority, Dana Farber Cancer Project, Series G-1:
$ 500,000 6.500%, 12/01/05.......................................... No Opt. Call A1 $ 559,030
750,000 6.500%, 12/01/06.......................................... 12/05 at 102 A1 846,473
1,000,000 Massachusetts State Water Pollution, Tollroad Water
Pollution Abatement, Loan Program, Series A, 5.700%,
2/01/05................................................... 2/04 at 102 AA+ 1,069,630
- -------------------------------------------------------------------------------------------------------------------
MICHIGAN--8.7%
750,000 Michigan Municipal Bond Authority, State Revolving Fund,
7.000%, 10/01/04.......................................... No Opt. Call AA+ 867,345
750,000 Michigan State Hospital Finance Authority, Revenue Refunding
Hospital, Detroit Medical Center, Series B, 5.100%,
8/15/07................................................... 8/04 at 102 AAA 769,710
1,000,000 Michigan State Hospital Finance Authority, Revenue Refunding
Hospital, Gratiot Community Hospital, 6.100%, 10/01/07.... No Opt. Call BBB 1,052,840
1,000,000 Monroe County, Michigan, Pollution Control, Detroit Edison
Company Project, Series A, 6.350%, 12/01/04............... No Opt. Call AAA 1,105,040
- -------------------------------------------------------------------------------------------------------------------
MISSOURI--3.9%
1,000,000 Branson, Missouri, Tax Increment Allocation, Branson Meadows
Project, Series A, 6.400%, 11/01/05....................... No Opt. Call N/R 1,020,010
300,000 Missouri State Health & Educational Facilities Authority,
Health Facilities, Revenue Refunding, Lutheran Senior
Services, 5.550%, 2/01/09................................. 2/07 at 102 N/R 307,266
350,000 St. Louis County, Missouri, Industrial Development
Authority, Revenue Refunding, Kiel Center Multi-purpose
Arena, 7.625%, 12/01/09................................... 12/02 at 102 N/R 379,376
- -------------------------------------------------------------------------------------------------------------------
NEW JERSEY--1.2%
500,000 New Jersey Economic Development Authority, Educational
Testing Service, Series B, 5.500%, 5/15/05................ No Opt. Call AAA 527,730
- -------------------------------------------------------------------------------------------------------------------
NEW MEXICO--0.2%
80,000 New Mexico Educational Assistance Foundation, Student Loan,
Senior Series One-A, 6.300%, 12/01/02..................... No Opt. Call Aaa 83,755
- -------------------------------------------------------------------------------------------------------------------
NEW YORK--14.1%
500,000 Albany, New York, Housing Authority, Limited Obligation,
Refunding, 5.700%, 10/01/06............................... 10/05 at 102 Baa1 512,790
700,000 New York City, Series F, 6.375%, 2/15/06.................... 2/05 at 101 BBB+ 764,799
200,000 New York City, Series G, 5.750%, 2/01/06.................... No Opt. Call BBB+ 210,574
500,000 New York, New York, Series B, 5.700%, 8/15/07............... 8/06 at BBB+ 526,395
101 1/2
1,000,000 New York State Dormitory Authority, Mental Health Services
Facilities, Series A, 6.000%, 2/15/08..................... 2/07 at 102 A- 1,086,720
750,000 New York State Housing Finance Agency, Revenue Refunding,
Health Facilities, New York City, Series A, 6.000%,
5/01/06................................................... No Opt. Call BBB+ 799,815
1,000,000 Port Authority of New York & New Jersey, Special Obligation
Revenue, 3rd Installment, Special Project, 7.000%,
10/01/07.................................................. No Opt. Call N/R 1,126,880
1,000,000 Port Authority of New York & New Jersey, Special Obligation
Revenue, Special Project, JFK International Air Terminal
6, 1st Installment, 6.250%, 12/01/10...................... No Opt. Call AAA 1,125,090
- -------------------------------------------------------------------------------------------------------------------
OHIO--11.4%
Cleveland, Cuyahoga County, Ohio, Port Authority, Revenue
Refunding, Rock & Roll Hall of Fame:
360,000 5.750%, 12/01/07.......................................... No Opt. Call N/R 379,994
425,000 5.850%, 12/01/08.......................................... No Opt. Call N/R 450,900
1,000,000 Franklin County, Ohio, Hospital, Revenue Refunding &
Improvement, Children's Hospital Project, Series A,
5.550%, 11/01/07.......................................... 11/06 at 101 Aa 1,072,570
1,000,000 Hamilton County, Ohio, Hospital Facilities, Revenue
Refunding, Children's Hospital Medical Center, Series F,
5.200%, 5/15/09........................................... No Opt. Call AAA 1,040,500
900,000 Miami County, Ohio, Hospital Facilities, Revenue Refunding &
Improvement, Upper Valley Medical Center, Series C,
6.000%, 5/15/06........................................... No Opt. Call BBB 953,820
1,000,000 Ohio State Public Facilities Commission, Higher Education
Capital Facilities, Series Ii-B, 5.750%, 11/01/04......... No Opt. Call AAA 1,079,950
- -------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--5.8%
1,010,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenue Refunding Hospital, Lehigh Valley Hospital Inc.,
Series A, 5.400%, 7/01/06................................. 7/05 at 102 AAA 1,063,459
</TABLE>
D-2
<PAGE> 210
PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
NUVEEN FLAGSHIP INTERMEDIATE
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA--CONTINUED
$ 500,000 Philadelphia, Pennsylvania, Gas Works, Fourteenth Series A,
Revenue Refunding, 7.000%, 7/01/02........................ No Opt. Call Baa1 $ 549,620
1,500,000 Westmoreland County, Pennsylvania, Municipal Authority,
Municipal Service Revenue Refunding, Series A, 0.000%,
8/15/07................................................... No Opt. Call AAA 941,040
- -------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.6%
230,000 Myrtle Beach, South Carolina, Certificates of Participation,
Myrtle Beach Convention Center Project, 6.750%, 7/01/02... No Opt. Call BBB+ 244,975
- -------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA--1.3%
550,000 South Dakota Student Loan Finance Corporation, Student Loan
Revenue Refunding, Series A, 5.850%, 8/01/00.............. No Opt. Call A+ 566,022
- -------------------------------------------------------------------------------------------------------------------
TENNESSEE--3.6%
500,000 Clarksville, Tennessee, Hospital, Revenue Refunding &
Improvement, Clarksville Memorial Project, 6.000%,
7/01/03................................................... No Opt. Call Baa1 524,620
500,000 Memphis, Shelby County, Tennessee, Airport Authority,
Special Facilities & Project Revenue Refunding, Federal
Express Corporation, 5.350%, 9/01/12...................... No Opt. Call BBB 515,335
500,000 Metro Government Nashville & Davidson County, Tennessee,
Industrial Development Board, Revenue Refunding &
Improvement, Osco Treatment Inc., 6.000%, 5/01/03......... No Opt. Call BBB+ 521,665
- -------------------------------------------------------------------------------------------------------------------
TEXAS--6.2%
400,000 Brazos, Texas, Higher Education Authority, Student Loan
Revenue Refunding, Series A-1, 6.200%, 12/01/02........... No Opt. Call Aaa 422,852
3,000,000 Goose Creek, Texas, Independent School District, 0.000%,
2/15/09................................................... No Opt. Call AAA 1,714,140
535,000 Texas State Department, Housing & Community Affairs,
Multifamily Housing, NHP Foundation, Asmara Project,
Series A, 5.800%, 1/01/06................................. No Opt. Call A 560,080
- -------------------------------------------------------------------------------------------------------------------
UTAH--0.7%
290,000 Salt Lake County, Utah, Westminster College Project 5.200%,
10/01/09.................................................. 10/07 at 101 BBB 289,020
- -------------------------------------------------------------------------------------------------------------------
WYOMING--0.5%
200,000 Wyoming State Farm Loan Board, Capital Facilities, Revenue
Refunding, 6.100%, 10/01/06............................... 10/02 at 102 AA- 215,888
- -------------------------------------------------------------------------------------------------------------------
$43,520,000 Total Investments--(cost $40,594,853)--99.4%................ 43,482,853
=========== -----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--0.6%......................... 274,518
-----------------------------------------------------------------------------------------------------
Net Assets--100%............................................ $43,757,371
=====================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the
earliest optional call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R -- Investment is not rated.
(WI) Security purchased on a when-issued basis (see note 1 of the Notes
to Financial Statements).
See accompanying notes to financial statements.
D-3
<PAGE> 211
STATEMENT OF NET ASSETS (UNAUDITED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note
1)........................................................ $43,482,853
Cash........................................................ 312,697
Receivables:
Interest............................................... 767,949
Shares sold............................................ 73
Other assets................................................ 10,742
-----------
Total assets...................................... 44,574,314
-----------
LIABILITIES
Payables:
Investments purchased.................................. 520,885
Shares redeemed........................................ 50,381
Accrued expenses:
Management fees (note 6)............................... 18,592
12b-1 distribution and service fees (notes 1 and 6).... 8,620
Other.................................................. 45,954
Dividends payable........................................... 172,511
-----------
Total liabilities................................. 816,943
-----------
Net assets (note 7)......................................... $43,757,371
===========
CLASS A SHARES (note 1)
Net assets.................................................. $40,503,534
Shares outstanding.......................................... 3,713,199
Net asset value and redemption price per share.............. $ 10.91
Offering price per share (net asset value per share plus
maximum sales charge of 3.00% of offering price).......... $ 11.25
===========
CLASS C SHARES (note 1)
Net assets.................................................. $ 2,710,855
Shares outstanding.......................................... 248,370
Net asset value, offering and redemption price per share.... $ 10.91
===========
CLASS R SHARES (note 1)
Net assets.................................................. $ 542,982
Shares outstanding.......................................... 49,857
Net asset value, offering and redemption price per share.... $ 10.89
===========
</TABLE>
See accompanying notes to financial statements.
D-4
<PAGE> 212
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1)......................... $1,258,333
----------
Expenses
Management fees (note 6)............................... 112,074
12b-1 service fees -- Class A (notes 1 and 6).......... 41,562
12b-1 distribution and service fees -- Class C (notes 1
and 6)................................................ 10,308
Shareholders' servicing agent fees and expenses........ 16,429
Custodian's fees and expenses.......................... 24,961
Trustees' fees and expenses (note 6)................... 449
Professional fees...................................... 4,939
Shareholders' reports -- printing and mailing
expenses.............................................. 7,954
Federal and state registration fees.................... 22,038
Other expenses......................................... 876
----------
Total expenses before expense reimbursement....... 241,590
Expense reimbursement (note 6)......................... (67,243)
----------
Net expenses...................................... 174,347
----------
Net investment income........................ 1,083,986
----------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and
4)........................................................ 296,058
Net change in unrealized appreciation or depreciation of
investments............................................... 1,509,853
----------
Net gain from investments......................... 1,805,911
----------
Net increase in net assets from operations.................. $2,889,897
==========
</TABLE>
See accompanying notes to financial statements.
D-5
<PAGE> 213
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP FLAGSHIP
INTERMEDIATE INTERMEDIATE* INTERMEDIATE
---------------- --------------- ------------
SIX MONTHS ENDED 11 MONTHS ENDED YEAR ENDED
10/31/97 4/30/97 5/31/96
---------------- --------------- ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income................................. $ 1,083,986 $ 2,147,178 $ 2,231,236
Net realized gain from investment transactions
(notes 1 and 4)..................................... 296,058 147,832 1,178,381
Net change in unrealized appreciation or depreciation
of investments...................................... 1,509,853 801,793 (1,349,675)
----------- ------------ ------------
Net increase in net assets from operations....... 2,889,897 3,096,803 2,059,942
----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Class A.......................................... (990,610) (2,059,165) (2,230,105)
Class C**........................................ (57,706) (74,318) (15,633)
Class R.......................................... (12,780) (4,137) N/A
Decrease in net assets from distributions to
shareholders.............................. (1,061,096) (2,137,620) (2,245,738)
----------- ------------ ------------
FUND SHARE TRANSACTIONS (note 2)
Net proceeds from sale of shares...................... 2,354,856 7,641,512 16,566,991
Net proceeds from shares issued to shareholders due to
reinvestment of distributions....................... 513,310 1,250,991 1,433,834
----------- ------------ ------------
2,868,166 8,892,503 18,000,825
----------- ------------ ------------
Cost of shares redeemed............................... (4,855,081) (13,864,964) (11,954,767)
Net increase (decrease) in net assets from Fund share
transactions........................................ (1,986,915) (4,972,461) 6,046,058
----------- ------------ ------------
Net increase (decrease) in net assets................. (158,114) (4,013,278) 5,860,262
Net assets at the beginning of period................. 43,915,485 47,928,763 42,068,501
----------- ------------ ------------
Net assets at the end of period....................... $43,757,371 $ 43,915,485 $ 47,928,763
=========== ============ ============
Balance of undistributed net investment income at end
of period........................................... $ 32,448 $ 9,558 $ --
=========== ============ ============
</TABLE>
- ---------------
* Information represents eight months of Flagship Intermediate and three
months of Nuveen Flagship Intermediate (see note 1 of the Notes to
Financial Statements).
** Class C Shares commenced operations on December 1, 1995.
N/A -- Flagship Intermediate was not authorized to issue Class R Shares.
See accompanying notes to financial statements.
D-6
<PAGE> 214
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1997
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Municipal Trust (the "Trust") is an open-end
diversified investment company registered under the Investment Company Act of
1940, as amended. The Trust comprises the Nuveen Flagship Intermediate Municipal
Bond Fund ("Nuveen Flagship Intermediate") (the "Fund"), among others. The Trust
was organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co.
Incorporated and Nuveen Advisory Corp., respectively, the distributor
("Distributor") and investment advisor ("Adviser") of the Fund, entered into an
agreement under which Nuveen acquired Flagship Resources Inc. and after the
close of business on January 31, 1997, consolidated their respective mutual fund
businesses. This agreement was approved at a meeting by the shareholders of the
Flagship Funds in December 1996.
After the close of business on January 31, 1997, Flagship Intermediate Tax
Exempt Fund ("Flagship Intermediate") was reorganized into the Trust. At this
time the Fund was renamed Nuveen Flagship Intermediate Municipal Bond Fund. The
Fund had a May 31 fiscal year end prior to being reorganized into the Trust and
now has an April 30 fiscal year end.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are
provided by a pricing service approved by the Fund's Board of Trustees. When
price quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
October 31, 1997, the Fund had outstanding when-issued purchase commitments of
$520,885.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-dividend
date. The amount and timing of distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly, temporary over-distributions as a result of
these differences may occur and will be classified as either distributions in
D-7
<PAGE> 215
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
OCTOBER 31, 1997
excess of net investment income, distributions in excess of net realized gains
and/or distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently consider significant net realized capital gains and/or market discount
as amounts in excess of $.001 per share. Furthermore, the Fund intends to
satisfy conditions which will enable interest from municipal securities, which
is exempt from regular federal income tax, to retain such tax-exempt status when
distributed to the shareholders of the Fund. Net realized capital gain and
market discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class C Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class C
Shares agrees to pay a CDSC of 1% if Class C Shares are redeemed within one year
of purchase. Class R Shares are not subject to any sales charge or 12b-1
distribution or service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the six months ended October 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class
of shares are prorated among the classes based on the relative net assets of
each class. Expenses directly attributable to a class of shares, which presently
only includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
D-8
<PAGE> 216
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
OCTOBER 31, 1997
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP FLAGSHIP
INTERMEDIATE INTERMEDIATE* INTERMEDIATE
----------------------- -------------------------- --------------------------
SIX MONTHS ENDED 11 MONTHS ENDED YEAR ENDED
10/31/97 4/30/97 5/31/96
----------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
Class A................ 160,891 $ 1,720,725 539,437 $ 5,639,771 1,461,305 $ 15,332,025
Class C**.............. 54,243 581,547 145,976 1,523,605 117,137 1,234,966
Class R................ 4,884 52,584 44,829 478,136 N/A N/A
Shares issued to
shareholders due to
reinvestment of
distributions:
Class A................ 44,962 482,931 118,796 1,215,858 136,334 1,423,816
Class C**.............. 2,609 28,137 3,777 34,796 957 10,018
Class R................ 209 2,242 32 337 N/A N/A
-------- ----------- ---------- ------------ ---------- ------------
267,798 2,868,166 852,847 8,892,503 1,715,733 18,000,825
-------- ----------- ---------- ------------ ---------- ------------
Shares redeemed:
Class A................ (400,340) (4,305,060) (1,302,182) (13,627,224) (1,134,391) (11,928,052)
Class C**.............. (51,023) (548,963) (22,717) (237,740) (2,589) (26,715)
Class R................ (97) (1,058) -- -- N/A N/A
-------- ----------- ---------- ------------ ---------- ------------
(451,460) (4,855,081) (1,324,899) (13,864,964) (1,136,980) (11,954,767)
-------- ----------- ---------- ------------ ---------- ------------
Net increase
(decrease)............. (183,662) $(1,986,915) (472,052) $ (4,972,461) 578,753 $ 6,046,058
======== =========== ========== ============ ========== ============
</TABLE>
- ---------------
* Information represents eight months of Flagship Intermediate and three
months of Nuveen Flagship Intermediate (see note 1).
** Class C Shares commenced operations on December 1, 1995.
N/A -- Flagship Intermediate was not authorized to issue Class R Shares.
3. DISTRIBUTIONS TO SHAREHOLDERS
On November 7, 1997, the Fund declared dividend distributions from its
tax-exempt net investment income which were paid on December 1, 1997, to
shareholders of record on November 7, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Dividend per share:
Class A................................................... $.0430
Class C................................................... .0380
Class R................................................... .0445
</TABLE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the six months ended October
31, 1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
PURCHASES:
Investments in municipal securities......................... $3,639,596
Temporary municipal investments............................. 3,000,000
SALES:
Investments in municipal securities......................... 7,597,750
Temporary municipal investments............................. 3,000,000
----------
</TABLE>
D-9
<PAGE> 217
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
OCTOBER 31, 1997
At October 31, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At April 30, 1997, the Fund's last fiscal year end, the Fund had unused
capital loss carryforwards of $300,689, available for federal income tax
purposes to be applied against future capital gains, if any. If not applied, the
carryforwards will expire in the year 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at October 31, 1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Gross unrealized:
appreciation.............................................. $2,888,780
depreciation.............................................. (780)
----------
Net unrealized appreciation................................. $2,888,000
==========
</TABLE>
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the
Fund pays an annual management fee, payable monthly, at the rates set forth
below which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
MANAGEMENT
AVERAGE DAILY NET ASSET VALUE 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 net assets over $2 billion.............................. .4250 of 1
</TABLE>
The management fee compensates the Adviser for overall investment advisory
and administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may
be terminated at any time at its discretion.
During the six months ended October 31, 1997, the Distributor collected
sales charges on purchases of Class A Shares of approximately $32,300, of which
approximately $26,300 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the six months ended October 31, 1997, the Distributor compensated
authorized dealers directly with approximately $5,900 in commission advances at
the time of purchase. To compensate for commissions advanced to authorized
dealers all 12b-1 service and distribution fees on Class C Shares during the
first year following a purchase are retained by the Distributor. During the six
months ended October 31, 1997, the Distributor retained approximately $5,200 in
such 12b-1 fees. The remaining 12b-1 fees charged to the Fund were paid to
compensate authorized dealers for providing services to shareholders relating to
their investments. The Distributor also collected and retained approximately
$3,200 of CDSC on share redemptions during the six months ended October 31,
1997.
D-10
<PAGE> 218
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
OCTOBER 31, 1997
7. COMPOSITION OF NET ASSETS
At October 31, 1997, the Fund had an unlimited number of $.01 par value
shares authorized. Net assets consisted of:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Capital paid-in............................................. $40,841,554
Balance of undistributed net investment income.............. 32,448
Accumulated net realized gain (loss) from investment
transactions.............................................. (4,631)
Net unrealized appreciation of investments.................. 2,888,000
-----------
Net assets........................................ $43,757,371
===========
</TABLE>
8. INVESTMENT COMPOSITION
The Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At October 31, 1997, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Education and Civic Organizations........................... 5%
Forest and Paper Products................................... --
Health Care................................................. 26
Housing Multifamily......................................... 2
Industrial Other............................................ 4
Long Term Care.............................................. 4
Tax Obligation General...................................... 8
Tax Obligation Limited...................................... 17
Transportation.............................................. 13
US Guaranteed............................................... --
Utilities................................................... 10
Water and Sewer............................................. 9
Other....................................................... 2
---
100%
===
</TABLE>
30% of the long-term and intermediate-term investments owned by the Fund
are either covered by insurance issued by several private insurers or are backed
by an escrow or trust containing U.S. Government or U.S. Government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default. Such insurance or escrow, however, does not guarantee the
market value of the municipal securities or the value of any of the Fund's
shares.
For additional information regarding each investment security, refer to the
Portfolio of Investments of the Fund.
D-11
<PAGE> 219
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------------- --------------------------
CLASS (INCEPTION DATE) NET REALIZED DIVIDENDS
NUVEEN FLAGSHIP NET ASSET AND UNREALIZED FROM TAX- NET TOTAL
INTERMEDIATE++ VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS ASSET RETURN ON
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL VALUE END NET ASSET
APRIL 30, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS OF PERIOD VALUE(A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1998(g) $10.47 $.26 $ .44 $(.26) $ -- $10.91 6.72%
1997(e) 10.27 .47 .20 (.47) -- 10.47 6.64
1996(f) 10.29 .51 (.02) (.51) -- 10.27 4.84
1995(f) 10.16 .51 .13 (.51) -- 10.29 6.63
1994(f) 10.35 .52 (.13) (.52) (.06)+++ 10.16 3.72
1993(c) 9.70 .36 .64 (.35) -- 10.35 14.06+
CLASS C (12/95)
1998(g) 10.47 .23 .44 (.23) -- 10.91 6.42
1997(e) 10.28 .44 .17 (.42) -- 10.47 6.00
1996(c) 10.57 .23 (.30) (.22) -- 10.28 (1.78)+
CLASS R (2/97)
1998(g) 10.45 .27 .44 (.27) -- 10.89 6.82
1997(d) 10.60 .13 (.15) (.13) -- 10.45 (.15)
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------
CLASS (INCEPTION DATE) RATIO OF RATIO OF NET RATIO OF NET
NUVEEN FLAGSHIP NET ASSETS EXPENSES TO INVESTMENT INCOME RATIO OF EXPENSES INVESTMENT
INTERMEDIATE++ END OF AVERAGE NET TO AVERAGE NET TO AVERAGE NET INCOME TO AVERAGE PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER NET ASSETS AFTER TURNOVER
APRIL 30, THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(B) REIMBURSEMENT(B) RATE
- ---------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1998(g) $40,504 1.05%+ 4.57%+ .75%+ 4.87%+ 8%
1997(e) 40,906 1.18+ 4.46+ .68+ 4.96+ 26
1996(f) 46,742 1.17 4.31 .62 4.86 81
1995(f) 42,069 1.24 4.45 .54 5.15 102
1994(f) 35,891 1.29 4.04 .40 4.93 69
1993(c) 18,971 1.59+ 3.78+ .39+ 4.98+ 102
CLASS C (12/95)
1998(g) 2,711 1.60+ 4.02+ 1.30+ 4.32+ 8
1997(e) 2,540 1.71+ 3.90+ 1.23+ 4.38+ 26
1996(c) 1,187 1.73+ 3.68+ 1.13+ 4.28+ 81
CLASS R (2/97)
1998(g) 543 .85+ 4.76+ .55+ 5.06+ 8
1997(d) 469 .82+ 4.98+ .40+ 5.40+ 26
</TABLE>
- ---------------
+ Annualized.
++ Information included prior to the 11 months ending April 30, 1997, reflects
the financial highlights of Flagship Intermediate.
+++ The amount shown includes a distribution in excess of capital gains of $.01
per share.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted through May 31.
(d) From commencement of class operations as noted through April 30.
(e) For the 11 months ending April 30.
(f) For the year ending May 31.
(g) For the six months ending October 31, 1997.
D-12
<PAGE> 220
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP INTERMEDIATE
APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA--1.2%
$ 525,000 Pima County, Arizona Industrial Development Authority,
Single Family Mortgage Revenue Refunding, Series B,
5.850%, 5/01/09........................................... 5/07 at 102 AAA $ 526,748
- -------------------------------------------------------------------------------------------------------------------
CALIFORNIA--2.4%
1,000,000 Sacramento California Cogeneration Authority, Procter and
Gamble Cogeneration Project, 6.200%, 7/01/06.............. 7/05 at 102 BBB- 1,037,400
- -------------------------------------------------------------------------------------------------------------------
COLORADO--8.8%
2,300,000 Arapahoe County, Colorado Capital Improvement Tollroad Fund,
Highway Revenue E-470, Series C, 0.000%, 8/31/06.......... 8/05 at Baa 1,339,129
95 29/32
500,000 Colorado Health Facilities Authority, Covenant Retirement
Community Project, 6.200%, 12/01/07....................... 12/05 at 102 BBB+ 510,470
1,000,000 Denver Colorado City and County, Airport Revenue, Series B,
5.400%, 11/15/06.......................................... 11/05 at 102 AAA 1,003,520
1,000,000 Eagle County, Colorado Air Term Corporation, Airport
Terminal Project, 6.750%, 5/01/06......................... No Opt. Call N/R 1,026,210
- -------------------------------------------------------------------------------------------------------------------
CONNECTICUT--3.0%
1,000,000 Connecticut State Health and Educational Facilities
Authority, Quinnipiac College, Series D, 5.625%,
7/01/03................................................... No Opt. Call BBB- 996,570
335,000 Eastern Connecticut Resource Recovery Authority, Solid
Waste, Wheelabrator Lisbon Project, Series A, 5.150%,
1/01/05................................................... 1/03 at 102 BBB+ 330,558
- -------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--0.5%
205,000 District of Columbia, American University, 5.375%,
10/01/08.................................................. 10/06 at 101 AAA 205,250
- -------------------------------------------------------------------------------------------------------------------
FLORIDA--5.6%
275,000 Florida State Broward County Expressway Authority, 9.875%,
7/01/09................................................... No Opt. Call AA+ 387,203
1,000,000 Palm Beach County, Florida School Board, Certificates of
Participation, Series A, 5.800%, 8/01/04.................. No Opt. Call AAA 1,049,630
1,000,000 Sanford Florida Airport Authority, Industrial Development,
Central Florida Terminals Inc. Project, Series A, 7.500%,
5/01/06................................................... No Opt. Call N/R 1,016,780
- -------------------------------------------------------------------------------------------------------------------
GUAM--0.6%
275,000 Guam Government, Series A, 4.900%, 11/15/04................. 11/03 at 102 BBB 260,079
- -------------------------------------------------------------------------------------------------------------------
ILLINOIS--2.3%
1,000,000 Illinois Health Facilities Authority, Mercy Hospital and
Medical Center, 6.000%, 1/01/06........................... No Opt. Call A- 1,020,200
- -------------------------------------------------------------------------------------------------------------------
INDIANA--1.1%
500,000 Indiana Bond Special Program, Hendricks Redevelopment,
Series B, 5.750%, 2/01/08 (WI)............................ 2/07 at 102 AA- 503,135
- -------------------------------------------------------------------------------------------------------------------
KANSAS--1.0%
420,000 Lenexa, Kansas, Multifamily Housing Revenue Refunding,
Barrington Park Apartments Project, Series A, 6.200%,
2/01/08................................................... 2/03 at 102 AA 434,830
- -------------------------------------------------------------------------------------------------------------------
KENTUCKY--7.5%
1,165,000 Kentucky Infrastructure Authority, Revenue Refunding
Governmental Agencies Program, Series H, 5.600%,
8/01/06................................................... 8/05 at 102 A 1,197,923
1,000,000 Louisville and Jefferson County, Kentucky, Regional Airport
Authority, Series A, 5.750%, 7/01/01...................... No Opt. Call AAA 1,027,830
1,000,000 McCracken County, Kentucky, Revenue Refunding, Mercy Health
System, Series A, 6.100%, 11/01/04........................ No Opt. Call AAA 1,063,620
- -------------------------------------------------------------------------------------------------------------------
LOUISIANA--0.8%
345,000 Louisiana Public Facilities Authority, Revenue Refunding,
Student Loan Senior, Series A-2, 6.600%, 3/01/03.......... No Opt. Call Aaa 361,381
- -------------------------------------------------------------------------------------------------------------------
MARYLAND--1.1%
500,000 Maryland State Health and Higher Educational Facilities
Authority, Revenue Refunding, Pickersgill Issue, Series A,
5.750%, 1/01/08........................................... 1/07 at 102 A- 505,520
- -------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--5.4%
Massachusetts State Health and Educational Facilities
Authority, Dana Farber Cancer Project, Series G - 1:
500,000 6.500%, 12/01/05.......................................... No Opt. Call A1 538,785
750,000 6.500%, 12/01/06.......................................... 12/05 at 102 A1 817,215
1,000,000 Massachusetts State Water Pollution Abatement, Tollroad
Water Pollution Abatement Revenue Loan Program, Series A,
5.700%, 2/01/05........................................... 2/04 at 102 AA+ 1,038,260
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
D-13
<PAGE> 221
PORTFOLIO OF INVESTMENTS -- CONTINUED
NUVEEN FLAGSHIP INTERMEDIATE
APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MICHIGAN--8.4%
$ 750,000 Michigan Municipal Bond Authority, State Revolving Fund,
7.000%, 10/01/04.......................................... No Opt. Call Aa1 $ 842,730
750,000 Michigan State Hospital Finance Authority, Revenue
Refunding, Detroit Medical Center, Series B, 5.100%,
8/15/07................................................... 8/04 at 102 AAA 740,498
1,000,000 Michigan State Hospital Finance Authority, Revenue
Refunding, Gratiot Community Hospital, 6.100%, 10/01/07... No Opt. Call BBB 1,023,000
1,000,000 Monroe County, Michigan, Pollution Control, Detroit Edison
Company Project, Series A, 6.350%, 12/01/04............... No Opt. Call AAA 1,071,280
- -------------------------------------------------------------------------------------------------------------------
MISSOURI--3.8%
1,000,000 Branson, Missouri, Tax Increment Allocation, Branson Meadows
Project, Series A, 6.400%, 11/01/05....................... No Opt. Call N/R 993,860
350,000 St. Louis County, Missouri, Industrial Development
Authority, Revenue Refunding, Kiel Center Multipurpose
Arena, 7.625%, 12/01/09................................... 12/02 at 102 N/R 372,747
300,000 St. Louis, Missouri, Airport Revenue Refunding, Lambert, St.
Louis International, 5.900%, 7/01/03...................... 7/02 at 102 AAA 311,898
- -------------------------------------------------------------------------------------------------------------------
NEVADA--2.3%
1,000,000 Las Vegas, Nevada, Downtown Redevelopment Agency, Tax
Increment Revenue Refunding, Parity Lien, Series A,
5.300%, 6/01/06........................................... 6/05 at 101 AAA 1,001,380
- -------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--2.2%
1,000,000 New Hampshire State Turnpike System Revenue, 4.800%,
2/01/07................................................... 2/04 at 102 A 956,640
- -------------------------------------------------------------------------------------------------------------------
NEW JERSEY--1.2%
500,000 New Jersey Economic Development Authority, Educational
Testing Service, Series B, 5.500%, 5/15/05................ No Opt. Call AAA 512,715
- -------------------------------------------------------------------------------------------------------------------
NEW MEXICO--0.2%
100,000 New Mexico Educational Assistance Foundation, Student Loan,
Series One - A, 6.300%, 12/01/02.......................... No Opt. Call Aaa 105,021
- -------------------------------------------------------------------------------------------------------------------
NEW YORK--12.7%
500,000 Albany New York Housing Authority, Limited Obligation
Refunding, 5.700%, 10/01/06............................... 10/05 at 102 Baa1 499,035
700,000 New York City, Series F, 6.375%, 2/15/06.................... 2/05 at 101 BBB+ 733,726
200,000 New York City, Series G, 5.750%, 2/01/06.................... BBB+ 201,072
500,000 New York City, New York, Series B, 5.700%, 8/15/07.......... 8/06 at BBB+ 498,030
101 1/2
250,000 New York State Energy Resh and Development Authority, State
Service Contract, Western New York Nuclear Service Center,
Series B, 5.500%, 4/01/05................................. No Opt. Call Baa1 248,405
750,000 New York State Housing Finance Agency, Revenue Refunding,
Health Facilities, New York City, Series A, 6.000%,
5/01/06................................................... No Opt. Call BBB+ 761,190
500,000 New York State Tollway Authority, Service Contract Revenue,
Local Highway and Bridge, 5.750%, 4/01/06................. 4/05 at 102 Baa1 506,935
1,000,000 Port Authority of New York and New Jersey, Special
Obligation Revenue, 3rd Installment, Special Project -
Kiac-4, 7.000%, 10/01/07.................................. No Opt. Call N/R 1,079,560
1,000,000 Port Authority of New York and New Jersey, Special
Obligation Revenue, JFK International Air Terminal 1st
Installment, 6.250%, 12/01/10(WI)......................... No Opt. Call AAA 1,073,040
- -------------------------------------------------------------------------------------------------------------------
OHIO--13.4%
Cleveland - Cuyahoga County Ohio Port Authority, Revenue
Refunding, Rock and Roll Hall of Fame:
360,000 5.750%, 12/01/07.......................................... No Opt. Call N/R 359,132
425,000 5.850%, 12/01/08.......................................... No Opt. Call N/R 424,269
1,000,000 Franklin County, Ohio Hospital, Revenue Refunding and
Improvement, Children's Hospital Project, Series A,
5.550%, 11/01/07.......................................... 11/06 at 101 Aa 1,028,050
1,000,000 Hamilton County, Ohio, Hospital Facilities, Revenue
Refunding, Children's Hospital Medical Center, Series F,
5.200%, 5/15/09........................................... No Opt. Call AAA 994,410
900,000 Miami County Ohio Hospital Facilities, Revenue Refunding and
Improvement, Upper Valley Medical Center, Series C,
6.000%, 5/15/06........................................... No Opt. Call BBB 927,234
1,000,000 Ohio State Building Authority, State Facilities,
Administration Building Fund, Series A, 5.650%,
10/01/05.................................................. 10/04 at 102 AAA 1,039,650
1,000,000 Ohio State Public Facilities Commission, Higher Education
Capital Facilities, Series B, 5.750%, 11/01/04............ No Opt. Call AAA 1,045,490
- -------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--7.7%
1,010,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenues Refunding, Lehigh Valley Hospital Inc., Series A,
5.400%, 7/01/06........................................... 7/05 at 102 AAA 1,023,039
1,000,000 Philadelphia, Pennsylvania, 4.900%, 5/15/06................. No Opt. Call AAA 975,530
</TABLE>
D-14
<PAGE> 222
PORTFOLIO OF INVESTMENTS -- CONTINUED
NUVEEN FLAGSHIP INTERMEDIATE
APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA--CONTINUED
$ 500,000 Philadelphia, Pennsylvania Gas Works, Revenue Refunding,
Fourteenth Series A, Refunding, 7.000%, 7/01/02........... No Opt. Call Baa1 $ 535,385
1,500,000 Westmoreland County Pennsylvania Municipal Authority,
Municipal Service Revenue Refunding, Series A, 0.000%,
8/15/07................................................... No Opt. Call AAA 868,560
- -------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.6%
240,000 Myrtle Beach South Carolina, Certificates of Participation,
Myrtle Beach Convention Center Project, 6.750%, 7/01/02... No Opt. Call BBB+ 252,216
- -------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA--1.3%
550,000 South Dakota Student Loan Finance Corporation, Series A,
Refunding, 5.850%, 8/01/00................................ No Opt. Call A+ 562,881
- -------------------------------------------------------------------------------------------------------------------
TENNESSEE--2.3%
500,000 Clarksville, Tennessee, Hospital, Revenue Refunding and
Improvement, Clarksville Memorial Project, 6.000%,
7/01/03................................................... No Opt. Call Baa1 502,760
500,000 Metro Government Nashville and Davidson County Tennessee
Industrial Development Board, Revenue Refunding and
Improvement, Osco Treatment Inc., 6.000%, 5/01/03......... No Opt. Call BBB+ 509,515
- -------------------------------------------------------------------------------------------------------------------
TEXAS--5.7%
400,000 Brazos Texas Higher Education Authority Inc., Student Loan
Revenue Refunding, Series A - 1, 6.200%, 12/01/02......... No Opt. Call Aaa 418,172
3,000,000 Goose Creek Texas Independent School District Refunding,
0.000%, 2/15/09........................................... No Opt. Call AAA 1,567,770
535,000 Texas State Department Housing and Community Affairs,
Multi-Family Revenue Housing, NHP Foundation, Asmara
Project, Series A, 5.800%, 1/01/06........................ No Opt. Call A 542,586
- -------------------------------------------------------------------------------------------------------------------
WYOMING--0.5%
200,000 Wyoming State Farm Loan Board, Capital Facilities Revenue
Refunding, 6.100%, 10/01/06............................... 10/02 at 102 AA- 210,073
- -------------------------------------------------------------------------------------------------------------------
$47,365,000 Total Investments--(cost $44,139,584)--103.6%............... 45,517,730
=========== -----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--(3.6%)....................... (1,602,245)
-----------------------------------------------------------------------------------------------------
Net Assets--100%............................................ $43,915,485
=====================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices
at later dates.
** Ratings (not covered by the report of independent auditors): Using the
higher of Standard & Poor's or Moody's rating.
N/R -- Investment is not rated.
(WI) Security purchased on a when-issued basis (see note 1 of the Notes to
Financial Statements).
See accompanying notes to financial statements.
D-15
<PAGE> 223
STATEMENT OF NET ASSETS
APRIL 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note
1)........................................................ $45,517,730
Receivables:
Interest............................................... 762,193
Shares sold............................................ 280,896
Other assets................................................ 2,419
-----------
Total assets...................................... 46,563,238
-----------
LIABILITIES
Cash overdraft.............................................. 596,800
Payables:
Investments purchased.................................. 1,561,582
Shares redeemed........................................ 241,955
Accrued expenses:
Management fees (note 6)............................... 2,331
12b-1 distribution and service fees (notes 1 and 6).... 8,316
Other.................................................. 55,738
Dividends payable........................................... 181,031
-----------
Total liabilities................................. 2,647,753
-----------
Net assets (note 7)......................................... $43,915,485
===========
CLASS A SHARES (note 1)
Net assets.................................................. $40,906,348
Shares outstanding.......................................... 3,907,686
Net asset value and redemption price per share.............. $ 10.47
Offering price per share (net asset value per share plus
maximum sales charge of 4.20%, 3.00% and 2.50%,
respectively, of offering price).......................... $ 10.79
===========
CLASS C SHARES (note 1)
Net assets.................................................. $ 2,540,357
Shares outstanding.......................................... 242,541
Net asset value, offering and redemption price per share.... $ 10.47
===========
CLASS R SHARES (note 1)
Net assets.................................................. $ 468,780
Shares outstanding.......................................... 44,861
Net asset value, offering and redemption price per share.... $ 10.45
===========
</TABLE>
- ---------------
N/A -- Nuveen Flagship Intermediate was not authorized to issue Class B Shares.
See accompanying notes to financial statements.
D-16
<PAGE> 224
STATEMENT OF OPERATIONS
11 MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
NUVEEN
FLAGSHIP
INTERMEDIATE*
-------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1)......................... $2,452,796
----------
EXPENSES
Management fees (note 6)............................... 217,495
12b-1 service fees -- Class A (notes 1 and 6).......... 145,606
12b-1 distribution and service fees -- Class C (notes 1
and 6)................................................ 16,039
Shareholders' servicing agent fees and expenses........ 41,323
Custodian's fees and expenses.......................... 49,178
Trustees' fees and expenses (note 6)................... 1,202
Professional fees...................................... 12,931
Shareholders' reports -- printing and mailing
expenses.............................................. 4,759
Federal and state registration fees.................... 25,160
Organization expenses (note 1)......................... 6,546
Other expenses......................................... 2,093
----------
Total expenses before reimbursement............... 522,332
Expense reimbursement (note 6)......................... (216,714)
----------
Net expenses...................................... 305,618
----------
Net investment income........................ 2,147,178
----------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and
4)........................................................ 147,832
Net change in unrealized appreciation or depreciation of
investments............................................... 801,793
----------
Net gain from investments......................... 949,625
----------
Net increase in net assets from operations.................. $3,096,803
==========
</TABLE>
- ---------------
* Information represents eight months of Flagship Intermediate and three months
of Nuveen Flagship Intermediate (see note 1 of the Notes to Financial
Statements).
See accompanying notes to financial statements.
D-17
<PAGE> 225
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
INTERMEDIATE* INTERMEDIATE
--------------- ------------
11 MONTHS YEAR ENDED
ENDED 4/30/97 5/31/96
--------------- ------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 2,147,178 $ 2,231,236
Net realized gain from investment transactions (notes 1 and
4)........................................................ 147,832 1,178,381
Net change in unrealized appreciation or depreciation of
investments............................................... 801,793 (1,349,675)
----------- -----------
Net increase in net assets from operations............. 3,096,803 2,059,942
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Class A................................................ (2,059,165) (2,230,105)
Class C**.............................................. (74,318) (15,633)
Class R................................................ (4,137) N/A
----------- -----------
Decrease in net assets from distributions to
shareholders.................................... (2,137,620) (2,245,738)
----------- -----------
FUND SHARE TRANSACTIONS (note 2)
Net proceeds from sale of shares............................ 7,641,512 16,566,991
Net proceeds from shares issued to shareholders due to
reinvestment of distributions............................. 1,250,991 1,433,834
----------- -----------
8,892,503 18,000,825
----------- -----------
Cost of shares redeemed..................................... (13,864,964) (11,954,767)
----------- -----------
Net increase (decrease) in net assets from Fund share
transactions.......................................... (4,972,461) 6,046,058
----------- -----------
Net increase (decrease) in net assets............. (4,013,278) 5,860,262
Net assets at the beginning of period....................... 47,928,763 42,068,501
----------- -----------
Net assets at the end of period............................. $43,915,485 $47,928,763
=========== ===========
Balance of undistributed net investment income at end of
period.................................................... $ 9,558 $ --
=========== ===========
</TABLE>
- ---------------
* Information represents eight months of Flagship Intermediate and three
months of Nuveen Flagship Intermediate (see note 1 of the Notes to
Financial Statements).
** Class C Shares commenced operations on December 1, 1995.
N/A -- Nuveen Flagship Intermediate was not authorized to issue Class R Shares
prior to February 1, 1997.
See accompanying notes to financial statements.
D-18
<PAGE> 226
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Municipal Trust (the "Trust") is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Trust comprises the Nuveen Flagship
Intermediate Municipal Bond Fund ("Nuveen Flagship Intermediate") (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Fund, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, the Flagship Intermediate
Tax Exempt Fund ("Flagship Intermediate") was reorganized into the Trust. At
this time the Fund was renamed Nuveen Flagship Intermediate Municipal Bond Fund.
The Fund had a May 31 fiscal year end prior to being reorganized into the Trust
and now has an April 30 fiscal year end.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are
provided by a pricing service approved by the Fund's Board of Trustees. When
price quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
April 30, 1997, the Fund had such outstanding purchase commitments of
$1,561,582.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities as required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions are distributed to shareholders not less frequently
than annually. Furthermore, capital gains are distributed only to the extent
they exceed available capital loss carryovers. Prior to the reorganization,
tax-exempt net investment income for Flagship Intermediate was declared as a
dividend daily and payment was made on the last business day of each month.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-dividend
date. The amount and timing of distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly,
D-19
<PAGE> 227
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
APRIL 30, 1997
temporary over-distributions as a result of these differences may occur and will
be classified as either distributions in excess of net investment income,
distributions in excess of net realized gains and/or distributions in excess of
ordinary taxable income from investment transactions, where applicable.
Federal Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal income tax, to retain such tax-exempt
status when distributed to the shareholders of the Fund. All income dividends
paid during the 11 months ended April 30, 1997, have been designated Exempt
Interest Dividends. Net realized capital gain and market discount distributions
are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, Class C and Class R Shares. Class A Shares incur a
sales charge on purchases and an annual 12b-1 service fee. Class C Shares are
sold without a sales charge on purchases but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within 12 months of purchase. Class R Shares,
which were first offered for sale on February 1, 1997, are not subject to any
sales charge on purchases or 12b-1 distribution or service fees. Class R Shares
are available for purchases of over $1 million and in other limited
circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the 11 months ended April 30, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class
of shares are prorated among the classes based on the relative net assets of
each class. Expenses directly attributable to a class of shares, which presently
only includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$35,700) will be reimbursed to the Advisor on a straight-line basis over a
period of five years. As of April 30, 1997, $20,874 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.
D-20
<PAGE> 228
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
APRIL 30, 1997
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP INTERMEDIATE* FLAGSHIP INTERMEDIATE
----------------------------- -------------------------
11 MONTHS ENDED 4/30/97 YEAR ENDED 5/31/96
----------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold
Class A...................................... 539,437 $ 5,639,771 1,461,305 $ 15,332,025
Class C**.................................... 145,976 1,523,605 117,137 1,234,966
Class R...................................... 44,829 478,136 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions
Class A...................................... 118,796 1,215,858 136,334 1,423,816
Class C**.................................... 3,777 34,796 957 10,018
Class R...................................... 32 337 N/A N/A
---------- ------------ ---------- ------------
852,847 8,892,503 1,715,733 18,000,825
---------- ------------ ---------- ------------
Shares redeemed
Class A...................................... (1,302,182) (13,627,224) (1,134,391) (11,928,052)
Class C**.................................... (22,717) (237,740) (2,589) (26,715)
Class R...................................... -- -- N/A N/A
---------- ------------ ---------- ------------
(1,324,899) (13,864,964) (1,136,980) (11,954,767)
---------- ------------ ---------- ------------
Net increase (decrease)........................ (472,052) $ (4,972,461) 578,753 $ 6,046,058
========== ============ ========== ============
</TABLE>
- ---------------
* Information represents eight months of Flagship Intermediate and three
months of Nuveen Flagship Intermediate (see note 1 of the Notes to
Financial Statements).
** Class C Shares for Flagship Intermediate commenced operations on December
1, 1995.
N/A -- Nuveen Flagship Intermediate was not authorized to issue Class R Shares
prior to February 1, 1997.
3. DISTRIBUTIONS TO SHAREHOLDERS
On May 9, 1997, the Fund declared dividend distributions from their
tax-exempt net investment income which were paid on June 2, 1997, to
shareholders of record on May 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE*
---------------
<S> <C>
Dividend per share:
Class A................................................... $.0428
Class C................................................... .0380
Class R................................................... .0446
</TABLE>
D-21
<PAGE> 229
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
APRIL 30, 1997
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the 11 months ended April 30,
1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE*
---------------
<S> <C>
PURCHASES
Investments in municipal securities......................... $12,599,350
Temporary municipal investments............................. --
SALES
Investments in municipal securities......................... 16,827,164
Temporary municipal investments............................. --
===========
</TABLE>
- ---------------
* Information represents eight months of Flagship Intermediate and three months
of Nuveen Flagship Intermediate (see note 1 of the Notes to Financial
Statements).
At April 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At April 30, 1997, the Fund had unused capital loss carryforwards of
$300,689 available for federal income tax purposes to be applied against future
capital gains, if any. If not applied, the carryovers will expire in the year
2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at April 30, 1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Gross unrealized:
appreciation.............................................. $1,398,812
depreciation.............................................. (20,666)
----------
Net unrealized appreciation................................. $1,378,146
==========
</TABLE>
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the
Fund pays an annual management fee, payable monthly, at the rates set forth
below which are based upon the average daily net asset value of the Fund as
follows:
<TABLE>
<CAPTION>
MANAGEMENT
AVERAGE DAILY NET ASSET VALUE 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 net assets over $2 billion.............................. .4250 of 1
</TABLE>
Prior to the reorganization (see note 1) the Fund paid a management fee of
.5 of 1%.
The management fee compensates the Adviser for overall investment advisory
and administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may
be terminated at any time at its discretion.
D-22
<PAGE> 230
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
APRIL 30, 1997
During the eleven months ended April 30, 1997, the Distributor and its
predecessor (Flagship Funds Inc., a wholly-owned subsidiary of Flagship
Resources Inc.) collected sales charges on purchases of Class A Shares, the
majority of which were paid out as concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Gross sales charges collected............................... $73,400
Paid to authorized dealers.................................. $57,700
</TABLE>
During the period ended April 30, 1997, the Distributor and its predecessor
compensated authorized dealers directly with approximately $12,800 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers all 12b-1 service and distribution fees on Class C shares
during the first year following a purchase are retained by the Distributor.
During the period ended April 30, 1997, the Distributor and its predecessor
collected and retained approximately $3,400 of CDSC on share redemptions.
7. COMPOSITION OF NET ASSETS
At April 30, 1997, the Fund had an unlimited number of $.01 par value
shares authorized. Net assets consisted of:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Capital paid-in............................................. $42,828,470
Balance of undistributed net investment income.............. 9,558
Accumulated net realized gain (loss) from investment
transactions.............................................. (300,689)
Net unrealized appreciation of investments.................. 1,378,146
-----------
Net assets.................................................. $43,915,485
===========
</TABLE>
8. INVESTMENT COMPOSITION
The Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At April 30, 1997, the revenue sources by municipal
purpose for these investments, expressed as a percent of total investments, were
as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
INTERMEDIATE
---------------
<S> <C>
Revenue Bonds:
Health Care Facilities.................................... 23%
Pollution Control......................................... 7
Transportation............................................ 17
Lease Rental Facilities................................... 11
Educational Facilities.................................... 6
Water/Sewer Facilities.................................... 9
Electric Utilities........................................ 3
Housing Facilities........................................ 3
Other..................................................... 9
General Obligation Bonds.................................... 12
Escrowed Bonds.............................................. --
---
100%
===
</TABLE>
36% of the long-term and intermediate-term investments owned by the Fund
are either covered by insurance issued by several private insurers or are backed
by an escrow or trust containing U.S. Government or U.S. Government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default. Such insurance or escrow, however, does not guarantee the
market value of the municipal securities or the value of any of the Fund's
shares.
For additional information regarding each investment security, refer to the
Portfolio of Investments of the Fund.
D-23
<PAGE> 231
FINANCIAL HIGHLIGHTS
Selected data for a common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------------- --------------------------
NET REALIZED DIVIDENDS TOTAL
NUVEEN FLAGSHIP NET ASSET AND UNREALIZED FROM TAX- NET RETURN
INTERMEDIATE++ VALUE NET GAIN (LOSS) EXEMPT DISTRIBUTIONS ASSET ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL VALUE END ASSET
APRIL 30, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS OF PERIOD VALUE(A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(e) $10.27 $.47 $ .20 $(.47) $ -- $10.47 6.64%
1996(f) 10.29 .51 (.02) (.51) -- 10.27 4.84
1995(f) 10.16 .51 .13 (.51) -- 10.29 6.63
1994(f) 10.35 .52 (.13) (.52) (.06)+++ 10.16 3.72
1993(c) 9.70 .36 .64 (.35) -- 10.35 14.06+
CLASS C (12/95)
1997(e) 10.28 .44 .17 (.42) -- 10.47 6.00
1996(c) 10.57 .23 (.30) (.22) -- 10.28 (1.78)+
CLASS R (2/97)
1997(d) 10.60 .13 (.15) (.13) -- 10.45 (.15)
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------
RATIO OF RATIO OF NET RATIO OF NET
NUVEEN FLAGSHIP NET ASSETS EXPENSES TO INVESTMENT INCOME RATIO OF EXPENSES INVESTMENT
INTERMEDIATE++ END OF AVERAGE NET TO AVERAGE NET TO AVERAGE NET INCOME TO AVERAGE PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER NET ASSETS AFTER TURNOVER
APRIL 30, THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(B) REIMBURSEMENT(B) RATE
- --------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(e) $40,906 1.18%+ 4.46%+ .68%+ 4.96%+ 26%
1996(f) 46,742 1.17 4.31 .62 4.86 81
1995(f) 42,069 1.24 4.45 .54 5.15 102
1994(f) 35,891 1.29 4.04 .40 4.93 69
1993(c) 18,971 1.59+ 3.78+ .39+ 4.98+ 102
CLASS C (12/95)
1997(e) 2,540 1.71+ 3.90+ 1.23+ 4.38+ 26
1996(c) 1,187 1.73+ 3.68+ 1.13+ 4.28+ 81
CLASS R (2/97)
1997(d) 469 .82+ 4.98+ .40+ 5.40+ 26
</TABLE>
- ---------------
+ Annualized.
++ Information included prior to the period ending April 30, 1997, reflects the
financial highlights of Flagship Intermediate.
+++ The amount shown reflects a distribution in excess of capital gains of $.01
per share.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted through May 31.
(d) From commencement of class operations as noted through April 30.
(e) For the 11 months ending April 30.
(f) For the year ending May 31.
D-24
<PAGE> 232
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Nuveen Flagship Intermediate Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Flagship
Intermediate Municipal Bond Fund, including the portfolio of investments, as of
April 30, 1997, the related statement of operations for the period then ended
and the statement of changes in net assets and the financial highlights for each
of the periods presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1997, by correspondence with the Fund's custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Nuveen Flagship
Intermediate Municipal Bond Fund at April 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
June 13, 1997
D-25
<PAGE> 233
EXHIBIT E
FINANCIAL STATEMENTS FOR THE FLORIDA INTERMEDIATE FUND
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREST AND PAPER PRODUCTS--1.8%
$ 200,000 Escambia County, Florida, Pollution Control Revenue
Refunding, Champion International Corporation Project,
6.950%, 11/01/07.......................................... 11/02 at 102 Baa1 $ 219,414
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE--7.3%
200,000 Alachua County, Florida, Health Facilities Authority, Health
Facilities Revenue, Shands Teaching Hospital, Series A,
5.300%, 12/01/08.......................................... 12/06 at 102 AAA 210,748
200,000 Halifax Hospital Medical Center, Florida, Hospital Revenue,
Formerly Halifax Hospital District, Florida, Refunding and
Improvement, Series A, 5.000%, 10/01/08................... 10/07 at 102 AAA 204,698
250,000 Lee County, Florida, Hospital Board of Directors, Hospital
Revenue, Lee Memorial Health System, Series A, 5.400%,
4/01/09................................................... 4/07 at 102 AAA 263,208
200,000 Leesburg, Florida, Hospital Revenue Refunding, Leesburg
Regional Medical Center Project, Series A, 5.600%,
7/01/08................................................... 7/06 at 102 A- 210,758
- --------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY--7.0%
300,000 Brevard County, Florida, Housing Finance Authority,
Multifamily Housing Revenue Refunding, Windover Oaks,
Series A, 6.900%, 2/01/27................................. 2/06 at 101 AAA 339,798
500,000 Polk County, Florida, Housing Finance Authority, Multifamily
Housing Revenue Refunding, Winter Oaks Apartments Project,
Series A, 5.250%, 7/01/22................................. 7/05 at 101 AAA 512,835
- --------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY--6.5%
250,000 Escambia County, Florida, Housing Finance Authority, Single
Family Mortgage Revenue, Multi-County Program, Series A,
5.500%, 4/01/08........................................... 4/07 at 102 Aaa 258,043
180,000 Florida Housing Finance Agency, Refunding, Single Family
Mortgage, Series A, 6.000%, 1/01/04....................... No Opt. Call AAA 185,110
345,000 Orange County, Florida, Housing Finance Authority, Single
Family Mortgage Revenue Refunding, Mortgage Backed
Securities, Series B, 5.400%, 9/01/09..................... 9/07 at 102 AAA 353,211
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL/OTHER--2.1%
250,000 Sanford, Florida, Airport Authority, Industrial Development
Revenue, Central Florida Terminals Inc. Project, Series C,
6.750%, 5/01/05........................................... No Opt. Call N/R 262,765
- --------------------------------------------------------------------------------------------------------------------
LONG TERM CARE--3.1%
165,000 Jacksonville, Florida, Health Facilities Authority,
Industrial Development Revenue, National Benevolent,
Cypress Village, Series A, 5.850%, 12/01/06............... No Opt. Call Baa1 175,441
200,000 Sarasota County, Florida, Health Facility Authority, Revenue
Refunding, Health Facilities, Sunnyside Properties,
5.500%, 5/15/05........................................... No Opt. Call N/R 206,538
- --------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL--17.1%
200,000 Dade County, Florida, School District, Refunding, 4.500%,
7/15/08................................................... 7/06 at 101 AAA 195,528
500,000 Duval County, Florida, School District, Refunding, 6.300%,
8/01/08................................................... 8/02 at 102 AAA 547,645
225,000 Florida State, Broward County Expressway Authority, 9.875%,
7/01/09................................................... No Opt. Call AA+ 318,870
Florida State Board of Education Capital Outlay, Refunding,
Public Education, Series A:
100,000 6.000%, 6/01/07........................................... 6/02 at 101 AA+ 107,046
85,000 5.000%, 6/01/08........................................... No Opt. Call AA+ 87,879
325,000 Guam Government, Series A, 4.900%, 11/15/04................. 11/03 at 102 BBB 324,994
275,000 New York City, Refunding, Series A, 6.250%, 8/01/08......... 8/06 at BBB+ 299,833
101 1/2
200,000 Puerto Rico Commonwealth, Refunding and Improvement, 5.375%,
7/01/05................................................... No Opt. Call A 210,286
- --------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED--27.9%
200,000 Broward County, Florida, Professional Sports Facilities Tax
Revenue, Civic Arena Project, Series A, 5.200%, 9/01/07... 9/06 at 101 AAA 209,816
100,000 Dade County, Florida, School Board Certificates of
Participation, Series A, 5.375%, 5/01/04.................. No Opt. Call AAA 105,631
335,000 Dade County, Florida, Special Obligation, Refunding, Series
B, 0.000%, 10/01/09....................................... 10/08 at AAA 184,736
98 7/32
325,000 Florida Ports Financing Commission, State Transportation
Tollroad Fund, 5.000%, 6/01/07............................ No Opt. Call AAA 333,661
250,000 Florida State Division of Bond Finance, Department General
Services Revenues, Department Environmental of
Preservation 2000, Series A, 5.500%, 7/01/06.............. 7/05 at 101 AAA 268,008
405,000 Gulf Breeze, Florida, Local Government Loan Program, Series
B, 5.600%, 12/01/15....................................... 12/07 at 100 AAA 434,840
100,000 Gulf County, Florida, Gas Tax Revenue Refunding and
Improvement, 5.000%, 10/01/07............................. 10/05 at 102 AAA 103,372
</TABLE>
E-1
<PAGE> 234
PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX OBLIGATION/LIMITED--CONTINUED
$ 145,000 Gulf County, Florida, School District Sales Tax Revenue,
5.200%, 6/01/08........................................... 6/07 at 101 AA $ 149,815
200,000 Hillsborough County, Florida, Capital Improvement Program
Revenue Refunding, 4.800%, 8/01/08........................ No Opt. Call AAA 201,316
150,000 Indian Trace Community Development District, Florida,
Refunding, Water Management, Special Benefit, Series A,
5.500%, 5/01/06........................................... 5/05 at 102 AAA 160,634
400,000 Lee County, Florida, Capital Revenue Refunding, Series A,
5.750%, 10/01/11.......................................... No Opt. Call AAA 437,228
290,000 Levy County, Florida, School Board Certificates of
Participation, 5.500%, 7/01/06............................ 7/05 at 102 AA 308,128
125,000 Lynn Haven, Florida, Special Project Revenue, 5.250%,
10/01/05.................................................. No Opt. Call AAA 129,499
250,000 Martin County, Florida, Special Assessment Revenue, Tropical
Farms Water, 5.600%, 11/01/05............................. No Opt. Call A2 264,820
125,000 Pembroke Pines, Florida, Special Assessment, No. 94, 1,
5.750%, 11/01/05.......................................... No Opt. Call Baa1 132,240
- --------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--14.7%
350,000 Dade County, Florida, Aviation Revenue Refunding, Series A,
6.250%, 10/01/02.......................................... No Opt. Call AAA 379,999
500,000 Dade County, Florida, Seaport Revenue Refunding, Series 95,
6.200%, 10/01/10.......................................... No Opt. Call AAA 567,000
200,000 Greater Orlando Aviation Authority, Orlando, Florida,
Airport Facilities Revenue, 5.750%, 10/01/10 (WI)......... No Opt. Call AAA 215,254
200,000 Hillsborough County, Florida, Aviation Authority, Revenue
Refunding, Tampa International Airport, Series A, 5.750%,
10/01/07 (WI)............................................. 10/06 at 101 AAA 215,156
200,000 Pensacola, Florida, Airport Revenue, Series B, 5.400%,
10/01/07.................................................. No Opt. Call AAA 211,078
200,000 Sarasota, Manatee Airport Authority, Florida, Airport
Revenue Refunding, 5.250%, 8/01/08........................ 8/06 at 102 AAA 209,650
- --------------------------------------------------------------------------------------------------------------------
UTILITIES--5.0%
120,000 Jacksonville, Florida, Electric Authority, Revenue
Refunding, St. Johns River Power Park System, Issue 2,
4.750%, 10/01/07.......................................... 4/06 at 101 Aa1 121,256
375,000 Pasco County, Florida, Solid Waste Disposal and Resource
Recovery System Revenue, Series B, 5.250%, 4/01/09........ 4/07 at 101 AAA 387,060
100,000 Port St. Lucie, Florida, Utility Revenue, 5.500%, 9/01/04... No Opt. Call AAA 106,574
- --------------------------------------------------------------------------------------------------------------------
WATER AND SEWER--8.5%
485,000 Auburndale, Florida, Water and Sewer Revenue Refunding,
5.375%, 12/01/08.......................................... 12/05 at 102 AAA 512,086
250,000 Lee County, Florida, Industrial Development Authority,
Utilities Revenue Refunding, Bonita Springs Utilities
Project, 5.450%, 11/01/07................................. 11/06 at 101 AAA 266,155
250,000 Plant City, Florida, Utility System Revenue Refunding and
Improvement, 5.400%, 10/01/06............................. 10/04 at 101 AAA 265,052
- --------------------------------------------------------------------------------------------------------------------
$ 11,780,000 Total Investments--(cost $11,759,334)--101.0%............... 12,374,712
============ -----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--(1.0%)....................... (120,267)
-----------------------------------------------------------------------------------------------------
Net Assets--100%............................................ $12,254,445
=====================================================================================================
* Optional Call Provisions: Dates (month and year) and prices of the
earliest optional call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
(WI) Security purchased on a when-issued basis (see note 1).
N/R -- Investment is not rated.
See accompanying notes to financial statements.
E-2
</TABLE>
<PAGE> 235
STATEMENT OF NET ASSETS (UNAUDITED)
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA
INTERMEDIATE
---------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note
1)........................................................ $12,374,712
Cash........................................................ 20,827
Receivables:
Fund Manager (note 6).................................. 803
Interest............................................... 184,325
Investments sold....................................... 169,589
Other assets................................................ 89
-----------
Total assets...................................... 12,750,345
-----------
LIABILITIES
Payable for investments purchased........................... 428,170
Accrued expenses:
12b-1 distribution and service fees (notes 1 and 6).... 3,630
Other.................................................. 19,877
Dividends payable........................................... 44,223
-----------
Total liabilities................................. 495,900
-----------
Net assets (note 7)......................................... $12,254,445
===========
CLASS A SHARES (note 1)
Net assets.................................................. $ 8,464,746
Shares outstanding.......................................... 814,656
Net asset value and redemption price per share.............. $ 10.39
Offering price per share (net asset value per share plus
maximum sales charge of 3.00% of offering price).......... $ 10.71
===========
CLASS C SHARES (note 1)
Net assets.................................................. $ 3,670,785
Shares outstanding.......................................... 353,544
Net asset value, offering and redemption price per share.... $ 10.38
===========
CLASS R SHARES (note 1)
Net assets.................................................. $ 118,914
Shares outstanding.......................................... 11,422
Net asset value, offering and redemption price per share.... $ 10.41
===========
</TABLE>
See accompanying notes to financial statements.
E-3
<PAGE> 236
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA
INTERMEDIATE
---------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1)......................... $326,932
--------
EXPENSES
Management fees (note 6)............................... 34,228
12b-1 service fees--Class A (notes 1 and 6)............ 8,853
12b-1 distribution and service fees--Class C (notes 1
and 6)................................................ 13,118
Shareholders' servicing agent fees and expenses........ 6,542
Custodian's fees and expenses.......................... 20,904
Trustees' fees and expenses (note 6)................... 115
Professional fees...................................... 7,496
Shareholders' reports--printing and mailing expenses... 410
Federal and state registration fees.................... 1,034
Organizational expenses (note 1)....................... 4,575
Other expenses......................................... 211
--------
Total expenses before expense reimbursement....... 97,486
Expense reimbursement (note 6) (38,638)
--------
Net expenses...................................... 58,848
Net investment income........................ 268,084
--------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and
4)........................................................ 81,668
Net change in unrealized appreciation or depreciation of
investments............................................... 300,108
--------
Net gain from investments......................... 381,776
--------
Net increase in net assets from operations.................. $649,860
========
</TABLE>
See accompanying notes to financial statements.
E-4
<PAGE> 237
STATEMENT OF CHANGES IN NET ASSET (UNAUDITED)
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLORIDA
INTERMEDIATE
-------------------------------
SIX MONTHS ENDED YEAR ENDED
11/30/97 5/31/97*
---------------- -----------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 268,084 $ 424,132
Net realized gain (loss) from investment transactions (notes
1 and 4).................................................. 81,668 (26,511)
Net change in unrealized appreciation or depreciation of
investments............................................... 300,108 223,395
----------- -----------
Net increase in net assets from operations............. 649,860 621,016
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Class A................................................ (197,519) (312,115)
Class C................................................ (70,120) (123,497)
Class R................................................ (2,165) (406)
From accumulated net realized gains from investment
transactions:
Class A................................................ -- (11,177)
Class C................................................ -- (5,494)
Class R................................................ -- --
----------- -----------
Decrease in net assets from distributions to
shareholders.................................... (269,804) (452,689)
----------- -----------
FUND SHARE TRANSACTIONS (note 2)
Net proceeds from sale of shares............................ 1,324,009 13,641,821
Net proceeds from shares issued to shareholders due to
reinvestment of distributions............................. 154,651 160,751
----------- -----------
1,478,660 13,802,572
----------- -----------
Cost of shares redeemed..................................... (5,801,979) (5,846,919)
----------- -----------
Net increase (decrease) in net assets from Fund share
transactions.......................................... (4,323,319) 7,955,653
----------- -----------
Net increase (decrease) in net assets............. (3,943,263) 8,123,980
Net assets at the beginning of period....................... 16,197,708 8,073,728
----------- -----------
Net assets at the end of period............................. $12,254,445 $16,197,708
=========== ===========
Balance of undistributed net investment income at end of
period.................................................... $ 9,174 $ 10,894
=========== ===========
</TABLE>
- ---------------
* Information represents eight months of Flagship Florida Intermediate and four
months of Nuveen Flagship Florida Intermediate (see note 1).
See accompanying notes to financial statements.
E-5
<PAGE> 238
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1997
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end
investment company registered under the Investment Company Act of 1940, as
amended. The Trust comprises the Nuveen Flagship Florida Intermediate Municipal
Bond Fund (the "Fund"), among others. The Trust was organized as a Massachusetts
business trust on July 1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co.
Incorporated and Nuveen Advisory Corp., respectively, the distributor
("Distributor") and investment advisor ("Adviser") of the Fund, entered into an
agreement under which Nuveen acquired Flagship Resources Inc. and after the
close of business on January 31, 1997, consolidated their respective mutual fund
businesses. This agreement was approved at a meeting by the shareholders of the
Flagship Funds in December, 1996.
After the close of business on January 31, 1997, Flagship Florida
Intermediate Tax Exempt Fund ("Flagship Florida Intermediate") was reorganized
into the Trust and renamed Nuveen Flagship Florida Intermediate Municipal Bond
Fund ("Nuveen Flagship Florida Intermediate"). Prior to this reorganization,
Flagship Florida Intermediate was a sub-trust of the Flagship Tax Exempt Funds
Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are
provided by a pricing service approved by the Fund's Board of Trustees. When
price quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
November 30, 1997, the Fund had outstanding when-issued purchase commitments of
$428,170.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-dividend
date. The amount and timing of distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly, temporary over-distributions as a result of
these differences may occur and will be classified as either distributions in
E-6
<PAGE> 239
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
NOVEMBER 30, 1997
excess of net investment income, distributions in excess of net realized gains
and/or distributions in excess of ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal income taxes, to retain such tax-exempt
status when distributed to the shareholders of the Fund. Net realized capital
gains and market discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The fund offers Class A, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class C Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class C
Shares agrees to pay a CDSC of 1% if Class C Shares are redeemed within one year
of purchase. Class R Shares are not subject to any sales charge or 12b-1
distribution or service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the six months ended November 30, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class
of shares are prorated among the classes based on the relative net assets of
each class. Expenses directly attributable to a class of shares, which presently
only includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$27,400) will be reimbursed to the Adviser on a straight-line basis over a
period of three years. As of November 30, 1997, $13,696 has been reimbursed.
E-7
<PAGE> 240
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
NOVEMBER 30, 1997
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
-----------------------------------------------------
SIX MONTHS ENDED 11/30/97 YEAR ENDED 5/31/97*
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Class A......................................... 56,443 $ 583,625 1,278,167 $12,883,393
Class C......................................... 68,155 702,985 65,754 657,819
Class R......................................... 3,620 37,399 10,011 100,609
Shares issued to shareholders due to reinvestment
of distributions:
Class A......................................... 9,904 101,194 11,064 110,935
Class C......................................... 5,008 51,180 4,973 49,816
Class R......................................... 221 2,277 -- --
-------- ----------- ---------- -----------
143,351 1,478,660 1,369,969 13,802,572
-------- ----------- ---------- -----------
Shares redeemed:
Class A......................................... (549,298) (5,593,955) (496,941) (5,002,329)
Class C......................................... (17,875) (183,024) (83,942) (844,590)
Class R......................................... (2,430) (25,000) -- --
-------- ----------- ---------- -----------
(569,603) (5,801,979) (580,883) (5,846,919)
-------- ----------- ---------- -----------
Net increase (decrease)........................... (426,252) $(4,323,319) 789,086 $ 7,955,653
======== =========== ========== ===========
</TABLE>
- ---------------
* Information represents eight months of Flagship Florida Intermediate and four
months of Nuveen Flagship Florida Intermediate (see note 1).
3. DISTRIBUTIONS TO SHAREHOLDERS
On December 9, 1997, the Fund declared dividend distributions from its
tax-exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
Dividend per share:
Class A................................................... $.0390
Class C................................................... .0345
Class R................................................... .0410
</TABLE>
At the same time, the Fund also declared taxable distributions, which
includes capital gains and/or taxable market discount, of $.0405 per share.
4. SECURITIES TRANSACTION
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the six months ended November
30, 1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
PURCHASES:
Investments in municipal securities......................... $3,738,020
Temporary municipal investments............................. 3,500,000
SALES:
Investments in municipal securities......................... 4,582,526
Temporary municipal investments............................. 3,500,000
</TABLE>
E-8
<PAGE> 241
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
NOVEMBER 30, 1997
At November 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At May 31, 1997, the Fund's last fiscal year end, the Fund had unused
capital loss carryforwards of $4,069 available for federal income tax purposes
to be applied against future capital gains, if any. If not applied, the
carryforwards will expire in the year 2005.
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at November 30, 1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
Gross unrealized:
Appreciation.............................................. $615,378
Depreciation.............................................. --
--------
Net unrealized appreciation................................. $615,378
========
</TABLE>
6. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the
Fund pays an annual management fee, payable monthly, at the rates set forth
below which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- ----------------------------------------------------------------------------
<S> <C>
For the first $125 million.................................. .5500 of 1%
For the next $125 million................................... .5375 of 1
For the next $250 million................................... .5250 of 1
For the next $500 million................................... .5125 of 1
For the next $1 billion..................................... .5000 of 1
For net assets over $2 billion.............................. .4750 of 1
</TABLE>
The management fee compensates the Adviser for overall investment advisory
and administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may
be terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor collected
sales charges on purchases of Class A Shares of approximately $11,200 of which
approximately $9,200 was paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the six months ended November 30, 1997, the Distributor compensated
authorized dealers directly with approximately $6,800 in commission advances at
the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service and distribution fees on Class C Shares during the
first year following a purchase are retained by the Distributor. During the six
months ended November 30, 1997, the Distributor retained approximately $4,600 in
such 12b-1 fees. The remaining 12b-1 fees charged to the Fund were paid to
compensate authorized dealers for providing services to shareholders relating to
their investments.
E-9
<PAGE> 242
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
NOVEMBER 30, 1997
7. COMPOSITION OF NET ASSETS
At November 30, 1997, the Fund had an unlimited number of $.01 par value
shares authorized. Net assets consisted of:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
Capital paid-in............................................. $11,574,736
Balance of undistributed net investment income.............. 9,174
Accumulated net realized gain from investment transaction... 55,157
Net unrealized appreciation of investments.................. 615,378
-----------
Net assets.................................................. $12,254,445
===========
</TABLE>
E-10
<PAGE> 243
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) --------------------------- --------------------------
NUVEEN FLAGSHIP NET REALIZED DIVIDENDS
FLORIDA NET ASSET AND UNREALIZED FROM TAX- NET TOTAL
INTERMEDIATE** VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS ASSET RETURN ON
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL VALUE END NET ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS OF PERIOD VALUE(A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1998(d) $10.09 $.23 $ .30 $(.23) $ -- $10.39 5.33%
1997 9.88 .45 .25 (.47) (.02) 10.09 7.16
1996 10.05 .46 (.12) (.46) (.05) 9.88 3.41
1995 9.66 .46 .33 (.40) -- 10.05 8.42
1994(c) 9.70 .12 (.04) (.12) -- 9.66 1.75*
CLASS C (2/94)
1998(d) 10.08 .20 .31 (.21) -- 10.38 5.06
1997 9.88 .40 .23 (.41) (.02) 10.08 6.47
1996 10.05 .40 (.11) (.41) (.05) 9.88 2.88
1995 9.66 .40 .33 (.34) -- 10.05 7.80
1994(c) 9.70 .11 (.06) (.09) -- 9.66 1.33*
CLASS R (2/97)
1988(d) 10.11 .24 .31 (.25) -- 10.41 5.43
1997(c) 10.20 .12 (.09) (.12) -- 10.11 .32
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) --------------------------------------------------------------------------------------------------
NUVEEN FLAGSHIP RATIO OF RATIO OF NET RATIO OF NET
FLORIDA NET ASSETS EXPENSES TO INVESTMENT INCOME RATIO OF EXPENSES INVESTMENT
INTERMEDIATE** END OF AVERAGE NET TO AVERAGE NET TO AVERAGE NET INCOME TO AVERAGE PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER NET ASSETS AFTER TURNOVER
MAY 31, THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(B) REIMBURSEMENT(B) RATE
- ---------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1998(d) $ 8,465 1.41%* 3.84%* .79%* 4.46%* 30%
1997 13,089 1.80 3.42 .73 4.49 35
1996 4,995 1.67 3.57 .76 4.48 66
1995 3,898 3.54 1.87 .67 4.74 105
1994(c) 964 6.70* (2.62)* .29* 3.79* 28
CLASS C (2/94)
1998(d) 3,671 1.97* 3.29* 1.34* 3.92* 30
1997 3,008 2.56 2.71 1.28 3.99 35
1996 3,079 2.25 2.97 1.34 3.88 66
1995 1,765 4.53 .85 1.19 4.19 105
1994(c) 1,058 7.38* (3.28)* .68* 3.42* 28
CLASS R (2/97)
1988(d) 119 1.22* 4.07* .60* 4.69* 30
1997(c) 101 1.21* 3.82* .56* 4.47* 35
</TABLE>
- ---------------
* Annualized.
** Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Florida Intermediate.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
E-11
<PAGE> 244
FINANCIAL STATEMENTS FOR THE FLORIDA INTERMEDIATE FUND
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
MAY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HEALTH CARE--2.3%
$ 165,000 Jacksonville, Florida, Health Facilities Authority,
Industrial Development, Revenue, National Benevolent,
Cypress Village, Series A, 5.850%, 12/01/06............... No Opt. Call Baa1 $ 168,863
200,000 Sarasota County, Florida, Health Facility Authority, Revenue
Refunding, Health Facilities, Sunnyside Properties,
5.500%, 5/15/05........................................... No Opt. Call N/R 198,218
- -------------------------------------------------------------------------------------------------------------------
HOSPITALS--4.1%
200,000 Alachua County, Florida, Health Facilities Authority, Health
Facilities Revenue, Shands Teaching Hospital, Series A,
5.300%, 12/01/08.......................................... 12/06 at 102 AAA 204,234
250,000 Lee County, Florida, Hospital Board of Directors, Hospital
Revenue, Lee Memorial Health System, Series A, 5.400%,
4/01/09................................................... 4/07 at 102 AAA 252,333
200,000 Leesburg, Florida, Hospital Revenue Refunding, Leesburg
Regional Medical Center Project, Series A, 5.600%,
7/01/08................................................... 7/06 at 102 A- 204,130
- -------------------------------------------------------------------------------------------------------------------
HOUSING/MULTI FAMILY--3.6%
300,000 Brevard County, Florida, Housing Finance Authority,
Multifamily Housing, Revenue Refunding, Windover Oaks,
Series A, 6.900%, 2/01/27................................. 2/06 at 101 AAA 330,933
250,000 Indianapolis, Indiana, Economic Development, Multifamily
Housing, Mortgage Revenue Castle Dore Project, Series A,
5.125%, 4/01/37 (Mandatory put 4/01/98)................... 6/97 at 100 N/R 250,003
- -------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY--2.7%
250,000 Escambia County, Florida, Housing Finance Authority, Single
Family Mortgage Revenue, Multi County Program, Series A,
5.500%, 4/01/08........................................... 4/07 at 102 Aaa 252,010
180,000 Florida, Housing Finance Agency, Single Family Mortgage,
Series A, 6.000%, 1/01/04................................. No Opt. Call AAA 183,217
- -------------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL--1.3%
200,000 Escambia County, Florida, Pollution Control, Revenue
Refunding, Champion International Corporation Project,
6.950%, 11/01/07.......................................... 11/02 at 102 Baa1 217,994
- -------------------------------------------------------------------------------------------------------------------
MUNICIPAL APPROPRIATION OBLIGATIONS--2.5%
100,000 Dade County, Florida, School Board, Certificates of
Participation, Series A, 5.375%, 5/01/04.................. No Opt. Call AAA 103,021
290,000 Levy County, Florida, School Board, Certificates of
Participation, 5.500%, 7/01/06............................ 7/05 at 102 AA 299,402
- -------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/OTHER--2.6%
405,000 Gulf Breeze, Florida, Revenue, Local Government Loan
Program, Series B, 5.600%, 12/01/15 (Mandatory put
12/01/07)................................................. 12/06 at 101 AAA 415,016
- -------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/TRANSPORTATION--9.1%
350,000 Dade County, Florida, Aviation Revenue Refunding, Series A,
6.250%, 10/01/02.......................................... No Opt. Call AAA 374,633
325,000 Florida, Ports Financing Commission, Revenue, State
Transportation Tollroad Fund, 5.000%, 6/01/07............. No Opt. Call AAA 323,482
100,000 Palm Beach County, Florida, Airport System, Revenue
Refunding, 7.625%, 10/01/04............................... 10/01 at 102 AAA 113,254
200,000 Pensacola, Florida, Airport Revenue, Series B, 5.400%,
10/01/07.................................................. No Opt. Call AAA 204,760
250,000 Sanford, Florida, Airport Authority, Industrial Development
Revenue, Central Florida Terminals Inc. Project, Series C,
6.750%, 5/01/05........................................... No Opt. Call N/R 250,893
200,000 Sarasota, Manatee Airport Authority, Florida Airport Revenue
Refunding, 5.250%, 8/01/08................................ 8/06 at 102 AAA 203,282
- -------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/UTILITY--2.3%
120,000 Jacksonville, Florida, Electric Authority, Revenue
Refunding, St. Johns River Power Park System, Issue 2, 15,
4.750%, 10/01/07.......................................... 4/06 at 101 Aa1 117,830
250,000 Plant City, Florida, Utility System Revenue Refunding and
Improvement, 5.400%, 10/01/06............................. 10/04 at 101 AAA 259,405
- -------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/WATER AND SEWER--7.8%
485,000 Auburndale, Florida, Water and Sewer, Revenue Refunding,
5.375%, 12/01/08.......................................... 12/05 at 102 AAA 498,323
250,000 Lee County, Florida, Industrial Development Authority,
Utilities Revenue Refunding, Bonita Springs Utilities
Project, 5.450%, 11/01/07................................. 11/06 at 101 AAA 259,143
Ocoee, Florida, Water and Sewer System, Revenue:
100,000 4.900%, 10/01/06.......................................... No Opt. Call AAA 100,209
150,000 5.000%, 10/01/07.......................................... 10/06 at 102 AAA 151,014
155,000 5.100%, 10/01/08.......................................... 10/06 at 102 AAA 155,984
100,000 Port St. Lucie, Florida, Utility Revenue, 5.500%, 9/01/04... No Opt. Call AAA 104,580
- -------------------------------------------------------------------------------------------------------------------
NON-STATE GENERAL OBLIGATIONS--6.3%
200,000 Dade County, Florida, School District, 4.500%, 7/15/08...... 7/06 at 101 AAA 188,034
500,000 Duval County, Florida, School District, 6.300%, 8/01/08..... 8/02 at 102 AAA 536,400
275,000 New York City, Refunding, Series A, 6.250%, 8/01/08.........8/06 at 101 1/2 BBB+ 290,840
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
E-12
<PAGE> 245
PORTFOLIO OF INVESTMENTS -- CONTINUED
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
MAY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRE-REFUNDED--10.6%
$ 1,000,000 Florida State Municipal Power Agency, Revenue, All
Requirements Power Supply Project, 6.250%, 10/01/21....... 10/02 at 102 AAA $ 1,092,160
570,000 Florida State Turnpike Authority, Turnpike Revenue, Series
A, 6.350%, 7/01/22........................................ 7/02 at 101 AAA 618,872
- -------------------------------------------------------------------------------------------------------------------
SPECIAL TAX REVENUE--15.0%
200,000 Broward County, Florida, Professional Sports Facilities, Tax
Revenue, Civic Arena Project, Series A, 5.200%, 9/01/07... 9/06 at 101 AAA 203,886
335,000 Dade County, Florida, Special Obligation, Refunding Bond,
Series B, 0.000%, 10/01/09................................ 10/08 at AAA 171,332
98 7/32
250,000 Florida, State Division of Bond Finance, Department of
General Services, Revenue, Department of Environmental
Preservation 2000, Series A, 5.500%, 7/01/06.............. 7/05 at 101 AAA 260,975
100,000 Gulf County, Florida, Gas Tax, Revenue Refunding and
Improvement, 5.000%, 10/01/07............................. 10/05 at 102 AAA 100,676
200,000 Hillsborough County, Florida, Capital Improvement Program,
Revenue Refunding, 4.800%, 8/01/08........................ 8/06 at 102 AAA 194,742
150,000 Indian Trace Community Development District, Florida, Water
Management, Special Benefit, Series A, 5.500%, 5/01/06.... 5/05 at 102 AAA 156,710
100,000 Jacksonville, Florida, Excise Taxes Revenue, Series B,
5.050%, 10/01/03.......................................... 10/01 at 101 AAA 101,318
125,000 Lynn Haven, Florida, Special Project Revenue, 5.250%,
10/01/05.................................................. No Opt. Call AAA 126,166
250,000 Martin County, Florida, Special Assessment Revenue, Tropical
Farms Water, 5.600%, 11/01/05............................. No Opt. Call A2 258,285
500,000 Palm Beach County, Florida, Criminal Justice Facilities,
Revenue Refunding, 5.300%, 6/01/05........................ No Opt. Call AAA 518,300
125,000 Pembroke Pines, Florida, Special Assessment, Number 94,
Series 1, 5.750%, 11/01/05................................ No Opt. Call Baa1 127,668
200,000 Puerto Rico Commonwealth, Highway and Transportation
Authority, Highway Revenue, Series X, 5.200%, 7/01/03..... No Opt. Call A 202,692
- -------------------------------------------------------------------------------------------------------------------
STATE/TERRITORIAL GENERAL OBLIGATIONS--9.1%
225,000 Florida, Broward County, Expressway Authority, 9.875%,
7/01/09................................................... No Opt. Call AA+ 316,364
Florida State Board of Education, Capital Outlay, Refunding,
Public Education, Series A:
100,000 6.000%, 6/01/07........................................... 6/02 at 101 AA+ 105,545
250,000 5.000%, 6/01/08........................................... AA+ 250,105
325,000 Guam Government, Series A, 4.900%, 11/15/04................. 11/03 at 102 BBB 310,931
500,000 Puerto Rico Commonwealth, Refunding Improvement, 5.375%,
7/01/05................................................... A 509,990
- -------------------------------------------------------------------------------------------------------------------
$12,505,000 Total Investments--(cost $12,522,887)--79.3%................ 12,838,157
=========== -----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--20.7%........................ 3,359,551
-----------------------------------------------------------------------------------------------------
Net Assets--100% $16,197,708
=====================================================================================================
</TABLE>
* Optional Call Provisions (Not covered by the report of independent
auditors): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices
at later dates.
** Ratings (Not covered by the report of independent auditors): Using the
higher of Standard & Poor's or Moody's rating.
N/R -- Investment is not rated.
See accompanying notes to financial statements.
E-13
<PAGE> 246
STATEMENT OF NET ASSETS
MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA
INTERMEDIATE
---------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note
1)........................................................ $12,838,157
Receivables:
Interest............................................... 200,662
Shares sold............................................ 6,999,999
Other assets................................................ 1,693
-----------
Total assets...................................... 20,040,511
-----------
LIABILITIES
Cash overdraft.............................................. 24,381
Payables:
Investments purchased.................................. 1,611,884
Shares redeemed........................................ 2,122,214
Accrued expenses:
Management fees (note 6)............................... 633
12b-1 distribution and service fees (notes 1 and 6).... 3,444
Other.................................................. 34,447
Dividends payable........................................... 45,800
-----------
Total liabilities................................. 3,842,803
-----------
Net assets (note 7)......................................... $16,197,708
===========
CLASS A SHARES (note 1)
Net assets.................................................. $13,088,902
Shares outstanding.......................................... 1,297,607
Net asset value and redemption price per share.............. $ 10.09
Offering price per share (net asset value per share plus
maximum sales charge of 3.00% of offering price).......... $ 10.40
===========
CLASS C SHARES (note 1)
Net assets.................................................. $ 3,007,561
Shares outstanding.......................................... 298,256
Net asset value, offering and redemption price per share.... $ 10.08
===========
CLASS R SHARES (note 1)
Net assets.................................................. $ 101,245
Shares outstanding.......................................... 10,011
Net asset value, offering and redemption price per share.... $ 10.11
===========
</TABLE>
See accompanying notes to financial statements.
E-14
<PAGE> 247
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE*
----------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1)......................... $ 512,118
---------
EXPENSES
Management fees (note 6)............................... 50,874
12b-1 service fees -- Class A (notes 1 and 6).......... 21,227
12b-1 distribution and service fees -- Class C (notes 1
and 6)................................................ 26,833
Shareholders' servicing agent fees and expenses........ 27,935
Custodian's fees and expenses.......................... 47,450
Trustees' fees and expenses (note 6)................... 199
Professional fees...................................... 11,923
Shareholders' reports -- printing and mailing
expenses.............................................. 1,301
Federal and state registration fees.................... 803
Organizational expenses (note 1)....................... 9,121
Other expenses......................................... 1,203
---------
Total expenses before reimbursement............... 198,869
Expense reimbursement from investment adviser (note
6).................................................... (110,883)
---------
Net expenses...................................... 87,986
---------
Net investment income........................ 424,132
---------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions (notes
1 and 4).................................................. (26,511)
Net change in unrealized appreciation or depreciation of
investments............................................... 223,395
---------
Net gain from investments......................... 196,884
---------
Net increase in net assets from operations.................. $ 621,016
=========
</TABLE>
- ---------------
* Information represents eight months of Flagship Florida Intermediate and four
months of Nuveen Flagship Intermediate (see note 1 of the Notes to Financial
Statements).
See accompanying notes to financial statements.
E-15
<PAGE> 248
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FLAGSHIP
NUVEEN FLAGSHIP FLORIDA
FLORIDA INTERMEDIATE INTERMEDIATE
YEAR ENDED YEAR ENDED
5/31/97* 5/31/96
-------------------- -------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 424,132 $ 331,742
Net realized gain (loss) from investment transactions (notes
1 and 4).................................................. (26,511) 38,343
Net change in unrealized appreciation or depreciation of
investments............................................... 223,395 (149,369)
----------- -----------
Net increase in net assets from operations............. 621,016 220,716
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (note 1)
From undistributed net investment income:
Class A................................................ (312,115) (235,102)
Class C................................................ (123,497) (100,151)
Class R................................................ (406) N/A
From accumulated net realized gains from investment
transactions:
Class A................................................ (11,177) (22,352)
Class C................................................ (5,494) (11,661)
Class R................................................ -- N/A
----------- -----------
Decrease in net assets from distributions to
shareholders.................................... (452,689) (369,266)
----------- -----------
FUND SHARE TRANSACTIONS (note 2)
Net proceeds from sale of shares............................ 13,641,821 5,685,452
Net proceeds from shares issued to shareholders due to
reinvestment of distributions............................. 160,751 185,193
----------- -----------
13,802,572 5,870,645
----------- -----------
Cost of shares redeemed..................................... (5,846,919) (3,310,832)
----------- -----------
Net increase in net assets from Fund share
transactions......................................... 7,955,653 2,559,813
----------- -----------
Net increase in net assets........................ 8,123,980 2,411,263
Net assets at the beginning of year......................... 8,073,728 5,662,465
----------- -----------
Net assets at the end of year............................... $16,197,708 $ 8,073,728
----------- -----------
Balance of undistributed net investment income at end of
year...................................................... $ 10,894 $ 22,780
=========== ===========
</TABLE>
- ---------------
* Information represents eight months of Flagship Florida Intermediate
and four months of Nuveen Flagship Florida Intermediate (see note 1 of
the Notes to Financial Statements).
N/A -- Flagship Florida Intermediate was not authorized to issue Class R Shares.
See accompanying notes to financial statements.
E-16
<PAGE> 249
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end
investment company registered under the Investment Company Act of 1940, as
amended. The Trust comprises Nuveen Flagship Florida Intermediate Municipal Bond
Fund (the "Fund"), among others. The Trust was organized as a Massachusetts
business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Fund, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, Flagship Florida
Intermediate Tax Exempt Fund ("Flagship Florida Intermediate") was reorganized
into the Trust and renamed Nuveen Flagship Florida Intermediate Municipal Bond
Fund ("Nuveen Flagship Florida Intermediate"). Prior to this reorganization,
Flagship Florida Intermediate was a sub-trust of Flagship Tax Exempt Funds
Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are
provided by a pricing service approved by the Fund's Board of Trustees. When
price quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1997, the Fund had no such commitments.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship Florida
Intermediate was declared as a dividend daily and payment was made on the last
business day of each month.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-dividend
date. The amount and timing of distributions are determined in accordance with
federal income tax regulations, which may differ from generally accepted
accounting principles. Accordingly,
E-17
<PAGE> 250
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
MAY 31, 1997
temporary over-distributions as a result of these differences may occur and will
be classified as either distributions in excess of net investment income,
distributions in excess of net realized gains and/or distributions in excess of
net ordinary taxable income from investment transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal income taxes, to retain such tax-exempt
status when distributed to the shareholders of the Fund. All income dividends
paid during the fiscal year ended May 31, 1997, for the Fund have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Effective February 1, 1997, the Fund offers Class A, C and R Shares. Class
A Shares are sold with a sales charge and incur an annual 12b-1 service fee.
Class C Shares are sold without a sales charge but incur annual 12b-1
distribution and service fees. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% if Class C Shares are redeemed within 12 months of purchase.
Class R Shares, are not subject to any sales charge or 12b-1 distribution or
service fees. Class R Shares are available for purchases of over $1 million and
in other limited circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the fiscal year ended May 31, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class
of shares are prorated among the classes based on the relative net assets of
each class. Expenses directly attributable to a class of shares, which presently
only includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$27,400) will be reimbursed to the Adviser on a straight-line basis over a
period of three years beginning June 1, 1996. As of May 31, 1997, $9,121 has
been reimbursed. In the event that the Adviser's current investment in the Trust
falls below $100,000 prior to the full reimbursement of the organizational
expenses, then it will forego any further reimbursement.
E-18
<PAGE> 251
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
MAY 31, 1997
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
FLORIDA INTERMEDIATE* FLORIDA INTERMEDIATE
----------------------- ----------------------
YEAR ENDED 5/31/97 YEAR ENDED 5/31/96
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Class A.......................................... 1,278,167 $12,883,393 366,520 $ 3,698,170
Class C.......................................... 65,754 657,819 195,954 1,987,282
Class R.......................................... 10,011 100,609 N/A N/A
Shares issued to shareholders due to reinvestment
of distributions:
Class A.......................................... 11,064 110,935 12,299 124,575
Class C.......................................... 4,973 49,816 5,977 60,618
Class R.......................................... -- -- N/A N/A
--------- ----------- -------- -----------
1,369,969 13,802,572 580,750 5,870,645
--------- ----------- -------- -----------
Shares redeemed:
Class A.......................................... (496,941) (5,002,329) (261,357) (2,643,760)
Class C.......................................... (83,942) (844,590) (66,052) (667,072)
Class R.......................................... -- -- N/A N/A
--------- ----------- -------- -----------
(580,883) (5,846,919) (327,409) (3,310,832)
--------- ----------- -------- -----------
Net increase..................................... 789,086 $ 7,955,653 253,341 $ 2,559,813
========= =========== ======== ===========
</TABLE>
- ---------------
* Information represents eight months of Flagship Florida Intermediate
and four months of Nuveen Flagship Florida Intermediate (see note 1).
N/A -- Flagship Florida Intermediate was not authorized to issue Class R
Shares.
3. DISTRIBUTIONS TO SHAREHOLDERS
On June 9, 1997, the Fund declared dividend distributions from its
tax-exempt net investment income which were paid on July 1, 1997, to
shareholders of record on June 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
----------------------
<S> <C>
Dividend per share:
Class A................................................... $.0390
Class C................................................... .0345
Class R................................................... .0405
</TABLE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended May 31,
1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE*
---------------------
<S> <C>
PURCHASES
Investments in municipal securities......................... $7,996,047
Temporary municipal investments 600,000
SALES
Investments in municipal securities......................... 3,372,192
Temporary municipal investments............................. 600,000
==========
</TABLE>
- ---------------
* Information represents eight months of Flagship Florida Intermediate and four
months of Nuveen Flagship Florida Intermediate (see note 1).
At May 31, 1997, the identified cost of investments owned for federal
income tax purposes may differ from the cost for financial reporting purposes.
E-19
<PAGE> 252
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
MAY 31, 1997
At May 31, 1997, the Fund had an unused capital loss carryforward of $4,069
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryover will expire in the year 2005.
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of
investments at May 31, 1997, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
Gross unrealized:
Appreciation.............................................. $315,378
Depreciation.............................................. (108)
--------
Net unrealized appreciation................................. $315,270
========
</TABLE>
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the
Fund pays an annual management fee, payable monthly, at the rates set forth
below which are based upon the average daily net asset value of the Fund as
follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- ------------------------------------------------------------------------------
<S> <C>
For the first $125 million.................................. .5500 of 1%
For the next $125 million................................... .5375 of 1
For the next $250 million................................... .5250 of 1
For the next $500 million................................... .5125 of 1
For the next $1 billion..................................... .5000 of 1
For net assets over $2 billion.............................. .4750 of 1
</TABLE>
Prior to the reorganization (see note 1) the Fund paid a management fee of
.5 of 1%. The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office facilities. The Trust
pays no compensation directly to its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may
be terminated at any time at its discretion.
During the fiscal year ended May 31, 1997, the Distributor and its
predecessor (Flagship Funds Inc., a wholly-owned subsidiary of Flagship
Resources Inc.) collected gross sales charges on purchases of Class A Shares,
the majority of which were paid out as concessions to authorized dealers as
follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
Gross sales charges collected............................... $12,200
Paid to authorized dealers.................................. 9,600
</TABLE>
The Distributor and its predecessor also received 12b-1 service fees on
Class A Shares, approximately one-half of which was paid to compensate
authorized dealers for providing services to shareholders relating to their
investments.
During the fiscal year ended May 31, 1997, the Distributor and its
predecessor compensated authorized dealers directly with approximately $12,700
in commission advances at the time of purchase. To compensate for commissions
advanced to authorized dealers and all 12b-1 service and distribution fees on
Class C Shares during the first year following a purchase are retained by the
Distributor. The remaining 12b-1 fees charged to the Fund were paid to
compensate authorized dealers for providing services to shareholders relating to
its investments. The Distributor and its predecessor also collected and retained
CDSC on share redemptions of approximately $300 for during the fiscal year ended
May 31, 1997.
E-20
<PAGE> 253
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
MAY 31, 1997
7. COMPOSITION OF NET ASSETS
At May 31, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
FLORIDA INTERMEDIATE
--------------------
<S> <C>
Capital paid-in............................................. $15,898,055
Balance of undistributed net investment income.............. 10,894
Accumulated net realized gain (loss) from investment
transactions.............................................. (26,511)
Net unrealized appreciation of investments.................. 315,270
-----------
Net assets.................................................. $16,197,708
===========
</TABLE>
E-21
<PAGE> 254
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) --------------------------- --------------------------
NUVEEN FLAGSHIP NET REALIZED DIVIDENDS TOTAL
FLORIDA NET ASSET AND UNREALIZED FROM TAX- NET RETURN
INTERMEDIATE VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS ASSET ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL VALUE END ASSET
MAY 31, OF PERIOD INCOME(b) INVESTMENTS INCOME GAINS OF PERIOD VALUE(a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (2/94)
1997 $ 9.88 $.45 $ .25 $(.47) $(.02) $10.09 7.16%
1996 10.05 .46 (.12) (.46) (.05) 9.88 3.41
1995 9.66 .46 .33 (.40) -- 10.05 8.42
1994(c) 9.70 .12 (.04) (.12) -- 9.66 1.75+
CLASS C (2/94)
1997 9.88 .40 .23 (.41) (.02) 10.08 6.47
1996 10.05 .40 (.11) (.41) (.05) 9.88 2.88
1995 9.66 .40 .33 (.34) -- 10.05 7.80
1994(c) 9.70 .11 (.06) (.09) -- 9.66 1.33+
CLASS R (2/97)
1997(c) 10.20 .12 (.09) (.12) -- 10.11 .32
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) --------------------------------------------------------------------------------------------------
NUVEEN FLAGSHIP RATIO OF RATIO OF NET RATIO OF NET
FLORIDA NET ASSETS EXPENSES TO INVESTMENT INCOME RATIO OF EXPENSES INVESTMENT
INTERMEDIATE END OF AVERAGE NET TO AVERAGE NET TO AVERAGE NET INCOME TO AVERAGE PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS BEFORE ASSETS BEFORE ASSETS AFTER NET ASSETS AFTER TURNOVER
MAY 31, THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT(b) REIMBURSEMENT(b) RATE
- ---------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (2/94)
1997 $13,089 1.80% 3.42% .73% 4.49% 35%
1996 4,995 1.67 3.57 .76 4.48 66
1995 3,898 3.54 1.87 .67 4.74 105
1994(c) 964 6.70+ (2.62)+ .29+ 3.79+ 28
CLASS C (2/94)
1997 3,008 2.56 2.71 1.28 3.99 35
1996 3,079 2.25 2.97 1.34 3.88 66
1995 1,765 4.53 .85 1.19 4.19 105
1994(c) 1,058 7.38+ (3.28)+ .68+ 3.42+ 28
CLASS R (2/97)
1997(c) 101 1.21+ 3.82 + .56+ 4.47+ 35
</TABLE>
- ---------------
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Florida Intermediate.
(a) Total returns are calculated on net asset value without any sales charge.
(b) After the waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(c) From commencement of class operations as noted.
E-22
<PAGE> 255
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Nuveen Flagship Florida Intermediate Municipal Bond Fund:
We have audited the accompanying statement of net assets of the Nuveen
Flagship Florida Intermediate Municipal Bond Fund, including the portfolio of
investments, as of May 31, 1997, the related statement of operations for the
period then ended and the statement of changes in net assets, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the Fund's custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Nuveen Flagship
Florida Intermediate Municipal Bond Fund at May 31, 1997, the results of its
operations, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
July 11, 1997
E-23
<PAGE> 256
EXHIBIT F
PRO FORMA CAPITALIZATION AS OF APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FLORIDA
INTERMEDIATE INTERMEDIATE INTERMEDIATE
(ACTUAL) (ACTUAL) (AS ADJUSTED)(1)
------------ ------------ ----------------
<S> <C> <C> <C>
Capital paid-in.......................................... $43,702,538 $12,640,151 $56,292,689(2)
Balance of undistributed net investment income........... 10,595 1,981 10,595(3)
Accumulated net realized gain (loss) from investment
transactions........................................... 148,675 32,911 148,675(4)
Net unrealized appreciation or depreciation of
investments............................................ 2,612,613 551,924 3,164,537
----------- ----------- -----------
Net assets............................................. $46,474,421 $13,226,967 $59,616,496
=========== =========== ===========
</TABLE>
- ---------------
(1) The adjusted balances are presented as if the Reorganization was effective
as of April 30, 1998 for information purposes only. The actual Effective
Time of the Reorganization is expected to be August 21, 1998 at which time
the results would be reflective of the actual composition of shareholder's
equity at that date.
(2) Assumes the issuance of 759,988 Class A shares, 436,469 Class C shares and
11,074 Class R shares of Intermediate in exchange for the net assets of
Classes A, C and R of Florida Intermediate. These numbers are based on the
net assets of each class of Florida Intermediate and the net asset values of
each respective class of Intermediate, as of April 30, 1998, after
adjustment for the distributions and payment of estimated Reorganization
costs referred to in (3), (4) and (5) below. The issuance of such number of
Intermediate shares would result in the distribution of .9428039 Class A
shares, .9410357 Class C shares and .9460563 Class R shares for each share
of each respective class of Florida Intermediate upon liquidation of each
respective class of Florida Intermediate.
(3) Assumes Florida Intermediate distributes all of its undistributed net
investment income to shareholders.
(4) Assumes Florida Intermediate distributes all of its net realized gains from
investment transactions to shareholders.
(5) Includes the impact of estimated Reorganization costs of $50,000 of Florida
Intermediate, none of which are recurring expenses.
F-1
<PAGE> 257
PRO FORMA CONDENSED BALANCE SHEET AS OF APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
FLORIDA
INTERMEDIATE INTERMEDIATE PRO FORMA INTERMEDIATE
(ACTUAL) (ACTUAL) (ADJUSTMENTS) (AS ADJUSTED)(1)
------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Investments in municipal securities, at
market value.............................. $45,227,308 $12,624,567 $ -- $57,851,875
Temporary investments in short-term
municipal securities, at amortized cost... -- 100,000 -- 100,000
Cash........................................ 256,854 317,931 (84,892)(2) 489,893
Other assets less liabilities............... 990,259 184,469 -- 1,174,728
----------- ----------- -------- -----------
Net assets.................................. $46,474,421 $13,226,967 $(84,892) $59,616,496
=========== =========== ======== ===========
CLASS A SHARES:
Net Assets.................................. $42,338,910 $ 8,322,077 $(53,412) $50,607,575
=========== =========== ======== ===========
Shares Outstanding.......................... 3,891,691 806,093 (46,105)(3) 4,651,679
=========== =========== ===========
Net asset value and redemption price per
share..................................... $ 10.88 $ 10.32 $ 10.88
=========== =========== ===========
Offering price per share (net asset value
per share plus maximum sales charge of
3.00% of offering price).................. $ 11.22 $ 10.64 $ 11.22
=========== =========== ===========
CLASS C SHARES:
Net Assets.................................. $ 3,533,134 $ 4,783,854 $(30,703) $ 8,286,285
=========== =========== ======== ===========
Shares Outstanding.......................... 324,552 463,818 (27,349)(3) 761,021
=========== =========== ======== ===========
Net asset value, offering and redemption
price per share........................... $ 10.89 $ 10.31 $ 10.89
=========== =========== ===========
CLASS R SHARES:
Net Assets.................................. $ 602,377 $ 121,036 $ (777) $ 722,636
=========== =========== ======== ===========
Shares Outstanding.......................... 55,451 11,705 (631)(3) 66,525
=========== =========== ======== ===========
Net asset value and redemption price per
share..................................... $ 10.86 $ 10.34 $ 10.86
=========== =========== ===========
</TABLE>
- ---------------
(1) See note (1) to Pro Forma Capitalization table above as to the Effective
Time of the Reorganization.
(2) Net effect on cash after payment of estimated Reorganization costs and
distribution of net investment income and net realized gains of Florida
Intermediate.
(3) See note (1) to Pro Forma Capitalization table. Based on the issuance of
759,988 Class A shares, 436,469 Class C shares and 11,074 Class R shares of
Intermediate and the cancellation of all shares of each class of Florida
Intermediate.
F-2
<PAGE> 258
PRO FORMA CONDENSED INCOME STATEMENT FOR THE TWELVE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FLORIDA
INTERMEDIATE INTERMEDIATE PRO FORMA INTERMEDIATE
(ACTUAL) (ACTUAL) (ADJUSTMENTS) (AS ADJUSTED)
------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Tax exempt interest income.................... $2,482,982 $ 649,092 $ -- $3,132,074
---------- ---------- ------- ----------
EXPENSES:
Management fees(1)....................... 223,656 68,754 (6,570) 285,840
12b-1 fees(2)............................ 104,597 44,441 -- 149,038
Other expenses........................... 149,471 82,618 (64,261)(3) 167,828
---------- ---------- ------- ----------
Total expenses......................... 477,724 195,813 (70,831) 602,706
Expense waiver/reimbursement from
investment adviser(4).................. (109,859) (77,240) (11,940) (199,039)
---------- ---------- ------- ----------
Net expenses........................... 367,865 118,573 (82,771) 403,667
---------- ---------- ------- ----------
Net investment income............... 2,115,117 530,519 82,771 2,728,407
---------- ---------- ------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS
Net realized gain (loss) from investment
transactions, net of taxes.................. 445,080 102,013 -- 547,093
Net change in unrealized appreciation or
depreciation of investments................. 1,234,467 383,599 -- 1,618,066
---------- ---------- ------- ----------
Net gain (loss) from investments.... 1,679,547 485,612 -- 2,165,159
---------- ---------- ------- ----------
Net increase in net assets from operations.... $3,794,664 $1,016,131 $82,771 $4,893,566
========== ========== ======= ==========
</TABLE>
- ---------------
(1) Reflects a management fee of .50% of net assets for the first $125 million
for Intermediate and Intermediate (As Adjusted) and .55% of net assets for
the first $125 million for Florida Intermediate.
(2) Reflects a 12b-1 service fee of .20% of net assets for Classes A and C and a
12b-1 distribution fee of .55% of net assets for Class C for each fund
presented. Class R of either Fund is not subject to a 12b-1 service or
distribution fee.
(3) Represents estimated reduction in operating expenses, including audit,
legal, custodian, transfer agency and report printing. Intermediate (As
Adjusted) would have a much larger asset base than either Fund currently
has. Certain operating expenses would have been reduced had they been
applied to the larger asset base for one Fund, rather than to two smaller
separate Funds.
(4) Reflects an expense waiver/reimbursement of .24% of net assets of
Intermediate and .63% of net assets of Florida Intermediate. Intermediate
(As Adjusted) reflects an expense waiver/reimbursement of .26% of net
assets.
F-3
<PAGE> 259
EXHIBIT F
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED)
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA--0.9%
$ 520,000 The Industrial Development Authority of the County of Pima,
Single Family Mortgage Revenue Refunding Bonds, Series
1997B, 5.850%, 5/01/09.................................... 5/07 at 102 AAA $ 538,918
- ----------------------------------------------------------------------------------------------------------------------
CALIFORNIA--1.8%
1,000,000 Sacramento Cogeneration Authority Cogeneration Project
Revenue Bonds (Procter & Gamble Project), 1995 Series,
6.200%, 7/01/06........................................... 7/05 at 102 BBB- 1,085,170
- ----------------------------------------------------------------------------------------------------------------------
COLORADO--6.9%
2,300,000 E-470 Public Highway Authority, Capital Improvement Trust
Fund Highway Revenue Bonds (E-470 Project), Senior Bonds,
0.000%, 8/31/06 (Pre-refunded to 8/31/05)................. 8/05 at 95 29/32 Aaa 1,572,027
500,000 Colorado Health Facilities Authority Revenue Bonds, Series
1995 (Covenant Retirement Communities Inc.), 6.200%,
12/01/07.................................................. 12/05 at 102 A- 540,545
1,000,000 City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1996B, 5.400%, 11/15/06..................... 11/05 at 102 AAA 1,044,820
900,000 Eagle County Air Terminal Corporation, Airport Terminal
Project Revenue Bonds, Series 1996, 6.750%, 5/01/06....... No Opt. Call N/R 956,727
- ----------------------------------------------------------------------------------------------------------------------
CONNECTICUT--0.6%
335,000 Eastern Connecticut Resource Recovery Authority Solid Waste
Revenue Bonds (Wheelbrator Lisbon Project), Series 1993A,
5.150%, 1/01/05........................................... 1/03 at 102 BBB 338,554
- ----------------------------------------------------------------------------------------------------------------------
DELAWARE--0.9%
500,000 Delaware Economic Development Authority, First Mortgage
Revenue Bonds (Peninsula United Methodist Homes, Inc.
Issue), Series 1997A, 6.100%,
5/01/10................................................... 5/07 at 102 BBB 527,055
- ----------------------------------------------------------------------------------------------------------------------
FLORIDA--25.3%
200,000 Escambia County, Florida, Pollution Control Refunding
Revenue Bonds (Champion International Project), Series
1992, 6.950%, 11/01/07.................................... 11/02 at 102 Baa1 218,414
200,000 Alachua County Health Facilities Authority, Florida, Health
Facilities Revenue Bonds, Series 1996A (Shands Teaching
Hospital and Clinics, Inc. Project), 5.300%, 12/01/08..... 12/06 at 102 AAA 210,764
200,000 Halifax Hospital Medical Center (Daytona Beach, Florida),
Health Care Facilities Revenue Bonds (Halifax Management
System, Inc. Project), 1998 Series A, 4.600%, 4/01/08..... No Opt. Call A 193,446
200,000 Halifax Hospital Medical Center (Daytona Beach, Florida),
Hospital Revenue Refunding and Improvement Bonds, 1997
Series A, 5.000%, 10/01/08................................ 10/07 at 102 AAA 204,890
250,000 Hospital Board of Directors of Lee County, Florida, Hospital
Revenue Bonds (Lee Memorial Health System), Fixed Rate
Hospital Revenue Bonds, 1997 Series A, 5.400%, 4/01/09.... 4/07 at 102 AAA 263,710
200,000 Leesburg, Florida, Hospital Revenue Refunding, Leesburg
Regional Medical Center Project, Series A, 5.600%,
7/01/08................................................... 7/06 at 102 A- 210,520
250,000 City of Tampa, Florida, Health System Revenue Bonds,
Catholic Health East Issue, Series 1998A-1, 5.500%,
11/15/12.................................................. No Opt. Call AAA 262,273
300,000 Brevard County Housing Finance Authority (Florida),
Multi-Family Housing Revenue Refunding Bonds (Windover
Oaks and Windover Health Club Apartments Projects), Series
1996A, 6.900%, 2/01/27.................................... 2/06 at 101 AAA 339,516
500,000 Housing Finance Authority of Polk County (Florida),
Multifamily Housing Revenue Bonds (Winter Oaks Apartments
Project), Series 1997A, 5.250%, 7/01/22................... 7/05 at 101 AAA 518,445
190,000 Escambia County Housing Finance Authority (Florida), Single
Family Mortgage Revenue Bonds, Series 1997A (Multi-County
Program), 5.500%, 4/01/08................................. 4/07 at 102 Aaa 196,523
180,000 Florida Housing Finance Agency, Single Family Mortgage,
Alternative Minimum Tax, 6.000%, 1/01/04.................. No Opt. Call AAA 186,485
315,000 Orange County Housing Finance Authority, Single Family
Mortgage Revenue Bonds (GNMA and Fannie Mae Mortgage
Backed Securities Program), Series 1997B, 5.400%,
9/01/09................................................... 9/07 at 102 AAA 323,502
165,000 Jacksonville Health Facilities Authority (Florida), Tax
Exempt Industrial Development Revenue Bonds (National
Benevolent Association -- Cypress Village Florida
Project), Series 1996A, 5.850%, 12/01/06.................. No Opt. Call Aa3 175,633
</TABLE>
F-4
<PAGE> 260
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA--CONTINUED
$ 200,000 Sarasota County, Florida, Health Facility Authority, Revenue
Refunding, Health Facilities, Sunnyside Properties,
5.500%, 5/15/05........................................... No Opt. Call N/R $ 206,348
200,000 The School District of Dade County, Florida, General
Obligation Refunding School Bonds, Series 1996, 4.500%,
7/15/08................................................... 7/06 at 101 AAA 196,932
500,000 Duval County School District, Florida, General Obligation
Refunding Bonds, Series 1992, 6.300%, 8/01/08............. 8/02 at 102 AAA 532,880
225,000 State of Florida, Full Faith and Credit, Broward County
Expressway Authority Bonds, Series 1984, 9.875%,
7/01/09................................................... No Opt. Call AA+ 318,218
100,000 State of Florida, Full Faith and Credit, State Board of
Education, Public Education Capital Outlay Bonds, Series
1992A, 6.000%, 6/01/07.................................... 6/02 at 101 AA+ 106,537
325,000 Government of Guam, General Obligation Bonds, Series 1993A,
4.900%, 11/15/04.......................................... 11/03 at 102 BBB 325,715
275,000 The City of New York, General Obligation Bonds, Fiscal 1997
Series A, Fixed Rate Tax-Exempt Bonds, 6.250%, 8/01/08.... 8/06 at 101 1/2 A3 301,122
200,000 Commonwealth of Puerto Rico, Public Improvement Refunding
Bonds, Series 1993 (General Obligation Bonds), 5.375%,
7/01/05................................................... No Opt. Call A 208,928
200,000 Broward County, Florida, Professional Sports Facilities Tax
and Revenue Bonds, Series 1996A (Broward County Civic
Arena Project), 5.200%, 9/01/07........................... 9/06 at 101 AAA 209,012
100,000 Dade County, Florida, School Board, Certificates of
Participation, Series 1994A, 5.375%, 5/01/04.............. No Opt. Call AAA 104,987
190,000 Dade County, Florida, Special Obligation and Refunding
Bonds, Series 1996B, 0.000%, 10/01/09..................... 10/08 at 98 7/32 AAA 110,415
325,000 Florida Ports Financing Commission, Revenue Bonds (State
Transportation Trust Fund), Series 1996, 5.000%,
6/01/07................................................... No Opt. Call AAA 331,406
250,000 State of Florida, Department of Environmental Protection,
Preservation 2000 Revenue Bonds, Series 1995A, 5.500%,
7/01/06................................................... 7/05 at 101 AAA 266,038
405,000 Gulf Breeze Local Government Loan Program Bonds, Remarketed
Series 1985-B, 5.600%, 12/01/15........................... 12/06 at 101 AAA 435,444
100,000 Gulf County, Florida, Gas Tax Refunding and Improvement
Revenue Bonds, Series 1995, 5.000%, 10/01/07.............. 10/05 at 102 AAA 103,026
145,000 School District of Gulf County, Florida Sales Tax Revenue
Bonds, Series 1997, 5.200%, 6/01/08....................... 6/07 at 101 AA 149,354
200,000 Hillsborough County, Florida, Capital Improvement Program
Refunding Revenue Bonds, Series 1996, 4.800%, 8/01/08..... 8/06 and 102 AAA 201,826
150,000 Indian Trace Community Development District (Broward County,
Florida), Water Management Special Benefit Refunding
Bonds, Series 1995A, 5.500%, 5/01/06...................... 5/05 at 102 AAA 159,470
400,000 Lee County, Florida, Capital Revenue Refunding, Series A,
5.750%, 10/01/11.......................................... No Opt. Call AAA 434,572
290,000 Levy County, Florida, School Board, Certificates of
Participation, 5.500%, 7/1/06............................. 7/05 at 102 AA 305,167
125,000 Lynn Haven, Florida, Special Project Revenue, 5.250%,
10/01/05.................................................. No Opt. Call AAA 129,379
250,000 Martin County, Florida, Special Assessment Revenue, Tropical
Farms Water, 5.600%, 11/1/05.............................. No Opt. Call A2 264,330
125,000 Pembroke Pines, Florida, Special Assessment, Number 94,
Series 1, 5.750%, 11/01/05................................ No Opt. Call Baa1 132,005
350,000 Dade County, Florida, Aviation Revenue Refunding Bonds,
Series 1994A, Miami International Airport, 6.250%,
10/01/02.................................................. No Opt. Call AAA 375,736
500,000 Dade County, Florida, Seaport Revenue Refunding Bonds,
Series 1995, 6.200%, 10/01/10............................. No Opt. Call AAA 564,145
200,000 Greater Orlando Aviation Authority, Airport Facilities
Revenue Bonds, City of Orlando, Florida, Series 1997,
5.750%, 10/01/10.......................................... No Opt. Call AAA 214,222
200,000 Hillborough County Aviation Authority, Florida, Tampa
International Airport Revenue Refunding Bonds, Series 1997
A, Series 1997 B, 5.750%, 10/01/07........................ 10/06 at 101 AAA 214,882
200,000 Pensacola, Florida, Airport Revenue, Series B, 5.400%,
10/01/07.................................................. No Opt. Call AAA 209,462
250,000 Sanford Airport Authority (Florida), Industrial Development
Revenue Bonds (Central Florida Terminals Inc. Project),
Series 1997C, 6.750%, 5/01/05............................. No Opt. Call N/R 262,630
200,000 Sarasota-Manatee Airport Authority, Airport System Revenue
Refunding Bonds, Series 1996, 5.250%, 8/01/08............. 8/06 at 102 AAA 209,684
145,000 Dade County, Florida, Special Obligation and Refunding
Bonds, Series 1996B, 0.000%, 10/01/09..................... 10/08 at 98 7/32 AAA 84,973
120,000 Jacksonville Electric Authority (Jacksonville, Florida), St.
Johns River Power Park System, Refunding Revenue Bonds,
Issue Two, Series 15, 4.750%, 10/01/07.................... 4/06 at 101 AA 121,213
375,000 Pasco County, Florida, Solid Waste Disposal and Resource
Recovery System Revenue, Series B, 5.250%, 4/01/09........ 4/07 at 101 AAA 384,458
</TABLE>
F-5
<PAGE> 261
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA--CONTINUED
$ 100,000 City of St. Lucie, Florida, Utility System Revenue Bonds,
Series 1994, 5.500%, 9/01/04.............................. No Opt. Call AAA $ 105,934
485,000 City of Auburndale, Florida, Water and Sewer Revenue Bonds,
Series 1995, 5.375%, 12/01/08............................. 12/05 at 102 AAA 511,927
250,000 Lee County, Florida, Industrial Development Authority,
Utilities Revenue Refunding, Bonita Springs Utilities
Project, 5.450%, 11/01/07................................. 11/06 at 101 AAA 264,826
250,000 City of Plant City, Florida, Utility System Refunding and
Improvement Revenue Bonds, Series 1995, 5.400%,
10/01/06.................................................. 10/04 at 101 AAA 263,243
275,000 State of Florida, Full Faith and Credit, Broward County
Expressway Authority Bonds, Series of 1984, 9.875%,
7/01/09................................................... No Opt. Call AA+ 388,933
1,000,000 Palm Beach County, Florida School Board, Certificates of
Participation, Series A, 5.800%, 8/01/04.................. No Opt. Call AAA 1,075,620
1,000,000 Sanford, Florida, Airport Authority Industrial Development
Revenue, Central Florida Terminals Inc. Project, Series A,
7.500%, 5/01/06........................................... No Opt. Call N/R 1,066,450
- ----------------------------------------------------------------------------------------------------------------------
ILLINOIS--4.4%
1,000,000 Illinois Health Facilities Authority Revenue Bonds, Series
1996 (Mercy Hospital and Medical Center Project), 6.000%,
1/01/06................................................... No Opt. Call A- 1,068,230
Illinois Health Facilities Authority Revenue Bonds, Series
1998 (Centegra Health System):
500,000 5.500%, 9/01/09............................................. 9/08 at 101 A- 513,765
500,000 5.500%, 9/01/10............................................. 9/08 at 101 A- 511,435
500,000 Illinois Health Facilities Authority Revenue Bonds (Victory
Health Service), Series 1997A, 5.750%, 8/15/08............ 8/07 at 101 A- 524,710
- ----------------------------------------------------------------------------------------------------------------------
INDIANA--1.7%
500,000 Indiana Bond Bank Special Program Bonds, Series 1997 B
(Hendricks County Redevelopment Authority, Pittboro
Project), 5.750%, 2/01/08................................. 2/07 at 102 AA- 530,405
500,000 Indiana Health Facility Financing Authority, Variable Rate
Hospital Revenue Bonds (Charity Obligated Group --
Daughters of Charity National Health System), Series
1997D, 5.000%, 11/01/26................................... No Opt. Call AA+ 504,895
- ----------------------------------------------------------------------------------------------------------------------
KANSAS--0.7%
420,000 Lenexa Kansas Multifamily Housing Revenue, Refunding,
Barrington Park Apartments Project, 6.450%, 2/01/18,
Series 1993A, 6.200%, 2/01/08............................. 2/03 at 102 AA 441,668
- ----------------------------------------------------------------------------------------------------------------------
KENTUCKY--3.9%
1,165,000 Kentucky Infrastructure Authority, Governmental Agencies
Program Revenue and Revenue Refunding Bonds, 1995 Series
H, 5.600%, 8/01/06........................................ 8/05 at 102 A 1,236,764
1,000,000 MC Cracken County, Kentucky, Hospital Revenue Refunding,
Mercy Health System, Series A, 6.100%, 11/01/04........... No Opt. Call AAA 1,088,750
- ----------------------------------------------------------------------------------------------------------------------
LOUISIANA--0.5%
265,000 Louisiana Public Facilities Authority, Student Loan Revenue
Bonds, 6.600%, 3/01/03.................................... 9/02 at 102 Aaa 280,775
- ----------------------------------------------------------------------------------------------------------------------
MARYLAND--0.9%
500,000 Maryland Health and Higher Educational Facilities Authority,
Refunding Revenue Bonds, Pickersgill Issue, Series 1997A,
5.750%, 1/01/08........................................... 1/07 at 102 A- 528,635
- ----------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--4.1%
Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Dana-Farber Cancer Institute Issue, Series
G-1:
500,000 6.500%, 12/01/05............................................ No Opt. Call A1 556,005
750,000 6.500%, 12/01/06............................................ 12/05 at 102 A1 848,970
1,000,000 Massachusetts Water Pollution Abatement Trust, Water
Pollution Abatement Revenue Bonds (SESD Loan Program),
1994 Series A, 5.700%, 2/01/05............................ 2/04 at 102 AA+ 1,064,350
- ----------------------------------------------------------------------------------------------------------------------
MICHIGAN--6.8%
750,000 Michigan Municipal Bond Authority, State Revolving Fund
Revenue Bonds, Series 1994, 7.000%, 10/01/04.............. No Opt. Call AA+ 853,275
1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Gratiot Community Hospital, Alma,
Michigan), Series 1995, 6.100%, 10/01/07.................. No Opt. Call BBB 1,068,000
1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
and Refunding Bonds (Genesys Regional Medical Center
Obligated Group), Series 1998A, 5.500%, 10/01/08.......... No Opt. Call BBB 1,022,240
1,000,000 County of Monroe, Michigan, Pollution Control Revenue Bonds
(The Detroit Edison Company Project), Series A-1994,
6.350%, 12/01/04.......................................... No Opt. Call AAA 1,095,510
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE> 262
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI--1.2%
$ 300,000 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding, Lutheran Senior
Services, 5.550%, 2/01/09................................. 2/07 at 102 N/R $ 309,912
350,000 The Industrial Development Authority of the City of St.
Louis, Missouri, Industrial Revenue Refunding Bonds (Kiel
Center Multipurpose Arena Project), Series 1992, 7.625%,
12/01/09.................................................. 12/02 at 102 N/R 379,992
- ----------------------------------------------------------------------------------------------------------------------
NEBRASKA--1.6%
1,000,000 Energy America Natural Gas Revenue Note (Metropolitan
Utility District Project), Series 1997B, 5.700%,
7/01/08................................................... No Opt. Call N/R 979,460
- ----------------------------------------------------------------------------------------------------------------------
NEW JERSEY--0.9%
500,000 New Jersey Economic Development Authority, Insured Revenue
Bonds (Educational Testing Service Issue), Series 1995B,
5.500%, 5/15/05........................................... No Opt. Call AAA 525,570
- ----------------------------------------------------------------------------------------------------------------------
NEW MEXICO--0.1%
80,000 New Mexico Educational Assistance Foundation Student Loan
Revenue, Senior, Series One, 6.300%, 12/01/02............. No Opt. Call Aaa 84,947
- ----------------------------------------------------------------------------------------------------------------------
NEW YORK--10.3%
500,000 Albany Housing Authority, City of Albany, New York, Limited
Obligation Bonds, Series 1995, 5.700%, 10/01/06........... 10/05 at 102 Baa1 516,260
200,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series G, 5.750%, 2/01/06................................. No Opt. Call A3 211,104
500,000 The City of New York, General Obligation Bonds, Fiscal 1997
Series B, 5.700%, 8/15/07................................. 8/06 at 101 A3 528,380
35,000 The City of New York (New York), General Obligation Bonds,
Fiscal 1993 Series F, 6.375%, 2/15/06 (Pre-refunded to
2/15/05).................................................. 2/05 at 101 A3*** 38,940
665,000 The City of New York, General Obligation Bonds, Fiscal 1995
Series F, 6.375%, 2/15/06................................. 2/05 at 101 A3 728,641
1,000,000 Dormitory Authority of the State of New York, Mental Health
Services Facilities Improvement Revenue Bonds, Series
1997A, 6.000%, 2/15/08.................................... 2/07 at 102 A- 1,078,600
750,000 New York State Housing Finance Agency, Health Facilities
Revenue Refunding Bonds (New York City), 1996 Series A,
6.000%, 5/01/06........................................... No Opt. Call BBB+ 795,923
1,000,000 The Port Authority of New York and New Jersey, Special
Project Bonds, Series 4, KIAC Partners Project, 7.000%,
10/01/07.................................................. No Opt. Call N/R 1,124,730
1,000,000 The Port Authority of New York and New Jersey, Special
Project Bonds, Series 6, JFK International Air Terminal
LLC Project, 6.250%, 12/01/10............................. No Opt. Call AAA 1,122,140
- ----------------------------------------------------------------------------------------------------------------------
OHIO--8.3%
Cleveland-Cuyahoga County Port Authority, Subordinate
Refunding Revenue Bonds, Series 1997 (Rock and Roll Hall
of Fame and Museum Project):
360,000 5.750%, 12/01/07............................................ No Opt. Call N/R 381,190
425,000 5.850%, 12/01/08............................................ No Opt. Call N/R 453,675
1,000,000 County of Franklin, Ohio, Hospital Refunding and Improvement
Revenue Bonds, 1996 Series A (The Childrens Hospital
Project), 5.550%, 11/01/07................................ 11/06 at 101 Aa 1,062,580
1,000,000 County of Hamilton, Ohio, Hospital Facilities Revenue Bonds,
Series 1993 (Childrens Hospital Medical Center), 5.200%,
5/15/09................................................... No Opt. Call AAA 1,042,230
900,000 Miami County, Ohio, Hospital Facilities Revenue Refunding &
Improvement, Upper Valley Medical Center, Series C,
6.000%, 5/15/06........................................... No Opt. Call BBB 966,051
1,000,000 State of Ohio (Ohio Public Facilities Commission), Higher
Education Capital Facilities Bonds, Series II-1994B,
5.750%, 11/01/04.......................................... No Opt. Call AAA 1,073,290
- ----------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--4.1%
Pennsylvania Higher Educational Facilities Authority
(Commonwealth of Pennsylvania), Geneva College Revenue
Bonds, Series of 1998:
470,000 4.900%, 4/01/07............................................. No Opt. Call BBB- 460,741
495,000 4.950%, 4/01/08............................................. No Opt. Call BBB- 484,580
500,000 City of Philadelphia, Pennsylvania Gas Works Revenue Bonds,
Fourteenth Series: 7.000%, 7/01/02........................ No Opt. Call Baa1 544,225
1,500,000 Municipal Authority of Westmoreland County (Westmoreland
County, Pennsylvania), Municipal Service Revenue Bonds,
Series of 1995A, 0.000%, 8/15/07.......................... No Opt. Call AAA 961,845
- ----------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.4%
230,000 City of Myrtle Beach, South Carolina, Myrtle Beach Public
Facilities Corporation, Certificates of Participation
(City of Myrtle Beach Convention Center Project), Series
1992, 6.750%, 7/01/02..................................... No Opt. Call A3 242,599
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 263
PRO FORMA PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH DAKOTA--1.0%
$ 550,000 Student Loan Finance Corporation (South Dakota), Student
Loan Revenue Bonds, Series 1994A, 5.850%, 8/01/00......... No Opt. Call A+ $ 569,151
- ----------------------------------------------------------------------------------------------------------------------
TENNESSEE--2.6%
500,000 City of Clarksville, Tennessee, Hospital Revenue Refunding
and Improvement Bonds, Series 1993 (Clarksville Memorial
Hospital Project), 6.000%, 7/01/03........................ No Opt. Call Baa1 525,740
500,000 Memphis-Shelby County Airport Authority, Special Facilities
Revenue Refunding Bonds, Series 1997 (Federal Express
Corporation), 5.350%, 9/01/12............................. No Opt. Call BBB 500,955
500,000 The Industrial Development Board of the Metropolitan
Government of Nashville and Davidson County, Industrial
Development Revenue Refunding and Improvement Bonds (Osco
Treatment), 6.000%, 5/01/03............................... No Opt. Call BBB+ 522,180
- ----------------------------------------------------------------------------------------------------------------------
TEXAS--4.5%
345,000 Brazos Higher Education Authority, Inc. Student Loan Revenue
Refunding Bonds, Series 1993A-1, 6.200%, 12/01/02......... No Opt. Call Aaa 365,076
3,000,000 Goose Creek Consolidated Independent School District, Texas,
Unlimited Tax Refunding Bonds, Series 1993, 0.000%,
2/15/09................................................... No Opt. Call AAA 1,768,050
535,000 Texas Department of Housing and Community Affairs,
Multifamily Housing Revenue Bonds (NHP- Foundation --
Asmara Project), Series 1996A, 5.800%, 1/01/06............ No Opt. Call A 560,905
- ----------------------------------------------------------------------------------------------------------------------
UTAH--0.5%
290,000 Salt Lake County, Utah, College Revenue Bonds (Westminster
College of Salt Lake City Project), Series 1997, 5.200%,
10/01/09.................................................. 10/07 at 101 BBB 283,065
- ----------------------------------------------------------------------------------------------------------------------
WASHINGTON D.C.--0.4%
205,000 District of Columbia, University Revenue Bonds (American
University Issue), Series 1996, 5.375%, 10/01/08.......... 10/06 at 101 AAA 212,610
- ----------------------------------------------------------------------------------------------------------------------
WISCONSIN--1.2%
750,000 Wisconsin Health and Educational Facilities Authority,
Revenue Bonds, Series 1998 (Carroll College, Inc.
Project), 5.000%, 10/01/09................................ 10/07 at 101 BBB 732,757
- ----------------------------------------------------------------------------------------------------------------------
WYOMING--0.4%
200,000 State of Wyoming, Farm Loan Board, Capital Facilities
Refunding Revenue Bonds, Series 1992, 6.100%, 10/01/06.... 10/02 at 102 AA- 216,013
- ----------------------------------------------------------------------------------------------------------------------
$57,370,000 Total Investments--(cost $54,687,338)--96.9%................ 57,851,875
=========== --------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENT IN SHORT-TERM MUNICIPAL
SECURITIES--0.2%
$ 100,000
===========
Ascension Parish, Louisiana, Pollution Control Revenue
Bonds, Variable Rate Demand Bonds, 4.250%, 12/01/05.......
Aa3 100,000
--------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--2.9%......................... 1,749,513
--------------------------------------------------------------------------------------------------------
Net Assets--100%............................................ $59,701,388
========================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and the prices of the
earliest optional call or redemption. There may be other call provisions
at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, which ensures the timely
payment of principal and interest. Securities are normally considered to
be equivalent to AAA rated securities.
N/R -- Investment is not rated.
F-8
<PAGE> 264
PORTFOLIO OF INVESTMENTS (UNAUDITED)
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATING** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA--1.2%
$ 520,000 The Industrial Development Authority of the County of Pima,
Single Family Mortgage Revenue Refunding Bonds, Series
1997B, 5.850%, 5/01/09.................................... 5/07 at 102 AAA $ 538,918
- ---------------------------------------------------------------------------------------------------------------------
CALIFORNIA--2.3%
1,000,000 Sacramento Cogeneration Authority Cogeneration Project
Revenue Bonds (Procter & Gamble Project), 1995 Series,
6.200%, 7/01/06........................................... 7/05 at 102 BBB- 1,085,170
- ---------------------------------------------------------------------------------------------------------------------
COLORADO--8.9%
2,300,000 E-470 Public Highway Authority, Capital Improvement Trust
Fund Highway Revenue Bonds (E-470 Project), Senior Bonds,
0.000%, 8/31/06 (Pre-refunded to 8/31/05)................. 8/05 at 95 29/32 Aaa 1,572,027
500,000 Colorado Health Facilities Authority Revenue Bonds, Series
1995 (Covenant Retirement Communities Inc.), 6.200%,
12/01/07.................................................. 12/05 at 102 A- 540,545
1,000,000 City and County of Denver, Colorado, Airport System Revenue
Bonds, Series 1996B, 5.400%, 11/15/06..................... 11/05 at 102 AAA 1,044,820
900,000 Eagle County Air Terminal Corporation, Airport Terminal
Project Revenue Bonds, Series 1996, 6.750%, 5/01/06....... No Opt. Call N/R 956,727
- ---------------------------------------------------------------------------------------------------------------------
CONNECTICUT--0.7%
335,000 Eastern Connecticut Resource Recovery Authority Solid Waste
Revenue Bonds (Wheelbrator Lisbon Project), Series 1993A,
5.150%, 1/01/05........................................... 1/03 at 102 BBB 338,554
- ---------------------------------------------------------------------------------------------------------------------
DELAWARE--1.1%
500,000 Delaware Economic Development Authority, First Mortgage
Revenue Bonds (Peninsula United Methodist Homes, Inc.
Issue), Series 1997A, 6.100%, 5/01/10..................... 5/07 at 102 BBB 527,055
- ---------------------------------------------------------------------------------------------------------------------
FLORIDA--5.4%
275,000 State of Florida, Full Faith and Credit, Broward County
Expressway Authority Bonds, Series of 1984, 9.875%,
7/01/09................................................... No Opt. Call AA+ 388,933
1,000,000 Palm Beach County, Florida School Board, Certificates of
Participation, Series A, 5.800%, 8/01/04.................. No Opt. Call AAA 1,075,620
1,000,000 Sanford, Florida, Airport Authority Industrial Development
Revenue, Central Florida Terminals Inc. Project, Series A,
7.500%, 5/01/06........................................... No Opt. Call N/R 1,066,450
- ---------------------------------------------------------------------------------------------------------------------
ILLINOIS--5.6%
1,000,000 Illinois Health Facilities Authority Revenue Bonds, Series
1996 (Mercy Hospital and Medical Center Project), 6.000%,
1/01/06................................................... No Opt. Call A- 1,068,230
Illinois Health Facilities Authority Revenue Bonds, Series
1998 (Centegra Health System):
500,000 5.500%, 9/01/09............................................. 9/08 at 101 A- 513,765
500,000 5.500%, 9/01/10............................................. 9/08 at 101 A- 511,435
500,000 Illinois Health Facilities Authority Revenue Bonds (Victory
Health Service), Series 1997A, 5.750%, 8/15/08............ 8/07 at 101 A- 524,710
- ---------------------------------------------------------------------------------------------------------------------
INDIANA--2.2%
500,000 Indiana Bond Bank Special Program Bonds, Series 1997 B
(Hendricks County Redevelopment Authority, Pittboro
Project), 5.750%, 2/01/08................................. 2/07 at 102 AA- 530,405
500,000 Indiana Health Facility Financing Authority, Variable Rate
Hospital Revenue Bonds (Charity Obligated Group--Daughters
of Charity National Health System), Series 1997D, 5.000%,
11/01/26.................................................. No Opt. Call AA+ 504,895
- ---------------------------------------------------------------------------------------------------------------------
KANSAS--1.0%
420,000 Lenexa Kansas Multifamily Housing Revenue, Refunding,
Barrington Park Apartments Project, 6.450%, 2/01/18,
Series 1993A, 6.200%, 2/01/08............................. 2/03 at 102 AA 441,668
- ---------------------------------------------------------------------------------------------------------------------
KENTUCKY--5.0%
1,165,000 Kentucky Infrastructure Authority, Governmental Agencies
Program Revenue and Revenue Refunding Bonds, 1995 Series
H, 5.600%, 8/01/06........................................ 8/05 at 102 A 1,236,764
1,000,000 MC Cracken County, Kentucky, Hospital Revenue Refunding,
Mercy Health System, Series A, 6.100%, 11/01/04........... No Opt. Call AAA 1,088,750
- ---------------------------------------------------------------------------------------------------------------------
LOUISIANA--0.6%
265,000 Louisiana Public Facilities Authority, Student Loan Revenue
Bonds, 6.600%, 3/01/03.................................... 9/02 at 102 Aaa 280,775
- ---------------------------------------------------------------------------------------------------------------------
MARYLAND--1.1%
500,000 Maryland Health and Higher Educational Facilities Authority,
Refunding Revenue Bonds, Pickersgill Issue, Series 1997A,
5.750%, 1/01/08........................................... 1/07 at 102 A- 528,635
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE> 265
PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATING** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS--5.3%
Massachusetts Health and Educational Facilities Authority,
Revenue Bonds, Dana-Farber Cancer Institute Issue, Series
G-1:
$ 500,000 6.500%, 12/01/05............................................ No Opt. Call A1 $ 556,005
750,000 6.500%, 12/01/06............................................ 12/05 at 102 A1 848,970
1,000,000 Massachusetts Water Pollution Abatement Trust, Water
Pollution Abatement Revenue Bonds (SESD Loan Program),
1994 Series A, 5.700%, 2/01/05............................ 2/04 at 102 AA+ 1,064,350
- ---------------------------------------------------------------------------------------------------------------------
MICHIGAN--8.7%
750,000 Michigan Municipal Bond Authority, State Revolving Fund
Revenue Bonds, Series 1994, 7.000%, 10/01/04.............. No Opt. Call AA+ 853,275
1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Gratiot Community Hospital, Alma,
Michigan), Series 1995, 6.100%, 10/01/07.................. No Opt. Call BBB 1,068,000
1,000,000 Michigan State Hospital Finance Authority, Hospital Revenue
and Refunding Bonds (Genesys Regional Medical Center
Obligated Group), Series 1998A, 5.500%, 10/01/08.......... No Opt. Call BBB 1,022,240
1,000,000 County of Monroe, Michigan, Pollution Control Revenue Bonds
(The Detroit Edison Company Project), Series A-1994,
6.350%, 12/01/04.......................................... No Opt. Call AAA 1,095,510
- ---------------------------------------------------------------------------------------------------------------------
MISSOURI--1.5%
300,000 Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue Refunding, Lutheran Senior
Services, 5.550%, 2/01/09................................. 2/07 at 102 N/R 309,912
350,000 The Industrial Development Authority of the City of St.
Louis, Missouri, Industrial Revenue Refunding Bonds (Kiel
Center Multipurpose Arena Project), Series 1992, 7.625%,
12/01/09.................................................. 12/02 at 102 N/R 379,992
- ---------------------------------------------------------------------------------------------------------------------
NEBRASKA--2.1%
1,000,000 Energy America Natural Gas Revenue Note (Metropolitan
Utility District Project), Series 1997B, 5.700%,
7/01/08................................................... No Opt. Call N/R 979,460
- ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY--1.1%
500,000 New Jersey Economic Development Authority, Insured Revenue
Bonds (Educational Testing Service Issue), Series 1995B,
5.500%, 5/15/05........................................... No Opt. Call AAA 525,570
- ---------------------------------------------------------------------------------------------------------------------
NEW MEXICO--0.2%
80,000 New Mexico Educational Assistance Foundation Student Loan
Revenue, Senior, Series One, 6.300%, 12/01/02............. No Opt. Call Aaa 84,947
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK--13.3%
500,000 Albany Housing Authority, City of Albany, New York, Limited
Obligation Bonds, Series 1995, 5.700%, 10/01/06........... 10/05 at 102 Baa1 516,260
200,000 The City of New York, General Obligation Bonds, Fiscal 1996
Series G, 5.750%, 2/01/06................................. No Opt. Call A3 211,104
500,000 The City of New York, General Obligation Bonds, Fiscal 1997
Series B, 5.700%, 8/15/07................................. 8/06 at 101 A3 528,380
35,000 The City of New York (New York), General Obligation Bonds,
Fiscal 1993 Series F, 6.375%, 2/15/06 (Pre-refunded to
2/15/05).................................................. 2/05 at 101 A3*** 38,940
665,000 The City of New York, General Obligation Bonds, Fiscal 1995
Series F, 6.375%, 2/15/06................................. 2/05 at 101 A3 728,641
1,000,000 Dormitory Authority of the State of New York, Mental Health
Services Facilities Improvement Revenue Bonds, Series
1997A, 6.000%, 2/15/08.................................... 2/07 at 102 A- 1,078,600
750,000 New York State Housing Finance Agency, Health Facilities
Revenue Refunding Bonds (New York City), 1996 Series A ,
6.000%, 5/01/06........................................... No Opt. Call BBB+ 795,923
1,000,000 The Port Authority of New York and New Jersey, Special
Project Bonds, Series 4, KIAC Partners Project, 7.000%,
10/01/07.................................................. No Opt. Call N/R 1,124,730
1,000,000 The Port Authority of New York and New Jersey, Special
Project Bonds, Series 6, JFK International Air Terminal
LLC Project, 6.250%, 12/01/10............................. No Opt. Call AAA 1,122,140
- ---------------------------------------------------------------------------------------------------------------------
OHIO--10.7%
Cleveland-Cuyahoga County Port Authority, Subordinate
Refunding Revenue Bonds, Series 1997 (Rock and Roll Hall
of Fame and Museum Project):
360,000 5.750%, 12/01/07............................................ No Opt. Call N/R 381,190
425,000 5.850%, 12/01/08............................................ No Opt. Call N/R 453,675
1,000,000 County of Franklin, Ohio, Hospital Refunding and Improvement
Revenue Bonds, 1996 Series A (The Childrens Hospital
Project), 5.550%, 11/01/07................................ 11/06 at 101 Aa 1,062,580
1,000,000 County of Hamilton, Ohio, Hospital Facilities Revenue Bonds,
Series 1993 (Childrens Hospital Medical Center), 5.200%,
5/15/09................................................... No Opt. Call AAA 1,042,230
900,000 Miami County, Ohio, Hospital Facilities Revenue Refunding &
Improvement, Upper Valley Medical Center, Series C,
6.000%, 5/15/06........................................... No Opt. Call BBB 966,051
</TABLE>
F-10
<PAGE> 266
PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPT. CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATING** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO--CONTINUED
$ 1,000,000 State of Ohio (Ohio Public Facilities Commission), Higher
Education Capital Facilities Bonds, Series II-1994B,
5.750%, 11/01/04.......................................... No Opt. Call AAA $ 1,073,290
- ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--5.3%
Pennsylvania Higher Educational Facilities Authority
(Commonwealth of Pennsylvania), Geneva College Revenue
Bonds, Series of 1998:
470,000 4.900%, 4/01/07........................................... No Opt. Call BBB- 460,741
495,000 4.950%, 4/01/08........................................... No Opt. Call BBB- 484,580
500,000 City of Philadelphia, Pennsylvania Gas Works Revenue Bonds,
Fourteenth Series: 7.000%, 7/01/02........................ No Opt. Call Baa1 544,225
1,500,000 Municipal Authority of Westmoreland County (Westmoreland
County, Pennsylvania), Municipal Service Revenue Bonds,
Series of 1995A, 0.000%, 8/15/07.......................... No Opt. Call AAA 961,845
- ---------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.5%
230,000 City of Myrtle Beach, South Carolina, Myrtle Beach Public
Facilities Corporation, Certificates of Participation
(City of Myrtle Beach Convention Center Project), Series
1992, 6.750%, 7/01/02..................................... No Opt. Call A3 242,599
- ---------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA--1.2%
550,000 Student Loan Finance Corporation (South Dakota), Student
Loan Revenue Bonds, Series 1994A, 5.850%, 8/01/00......... No Opt. Call A+ 569,151
- ---------------------------------------------------------------------------------------------------------------------
TENNESSEE--3.3%
500,000 City of Clarksville, Tennessee, Hospital Revenue Refunding
and Improvement Bonds, Series 1993 (Clarksville Memorial
Hospital Project), 6.000%, 7/01/03........................ No Opt. Call Baa1 525,740
500,000 Memphis-Shelby County Airport Authority, Special Facilities
Revenue Refunding Bonds, Series 1997 (Federal Express
Corporation), 5.350%, 9/01/12............................. No Opt. Call BBB 500,955
500,000 The Industrial Development Board of the Metropolitan
Government of Nashville and Davidson County, Industrial
Development Revenue Refunding and Improvement Bonds (Osco
Treatment), 6.000%, 5/01/03............................... No Opt. Call BBB+ 522,180
- ---------------------------------------------------------------------------------------------------------------------
TEXAS--5.8%
345,000 Brazos Higher Education Authority, Inc. Student Loan Revenue
Refunding Bonds, Series 1993A-1, 6.200%, 12/01/02......... No Opt. Call Aaa 365,076
3,000,000 Goose Creek Consolidated Independent School District, Texas,
Unlimited Tax Refunding Bonds, Series 1993, 0.000%,
2/15/09................................................... No Opt. Call AAA 1,768,050
535,000 Texas Department of Housing and Community Affairs,
Multifamily Housing Revenue Bonds (NHP--Foundation--Asmara
Project), Series 1996A, 5.800%, 1/01/06................... No Opt. Call A 560,905
- ---------------------------------------------------------------------------------------------------------------------
UTAH--0.6%
290,000 Salt Lake County, Utah, College Revenue Bonds (Westminster
College of Salt Lake City Project), Series 1997, 5.200%,
10/01/09.................................................. 10/07 at 101 BBB 283,065
- ---------------------------------------------------------------------------------------------------------------------
WASHINGTON D.C.--0.5%
205,000 District of Columbia, University Revenue Bonds (American
University Issue), Series 1996, 5.375%, 10/01/08.......... 10/06 at 101 AAA 212,610
- ---------------------------------------------------------------------------------------------------------------------
WISCONSIN--1.6%
750,000 Wisconsin Health and Educational Facilities Authority,
Revenue Bonds, Series 1998 (Carroll College, Inc.
Project), 5.000%, 10/01/09................................ 10/07 at 101 BBB 732,757
- ---------------------------------------------------------------------------------------------------------------------
WYOMING--0.5%
200,000 State of Wyoming, Farm Loan Board, Capital Facilities
Refunding Revenue Bonds, Series 1992, 6.100%, 10/01/06.... 10/02 at 102 AA- 216,013
- ---------------------------------------------------------------------------------------------------------------------
$45,315,000 Total Investments--(cost $42,614,695)--97.3% 45,227,308
=========== -------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--2.7% 1,247,113
-------------------------------------------------------------------------------------------------------
Net Assets--100% $46,474,421
=======================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and the prices of the
earliest optional call or redemption. There may be other call provisions
at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, which ensures the timely
payment of principal and interest. Securities are normally considered to
be equivalent to AAA rated securities.
N/R -- Investment is not rated.
F-11
<PAGE> 267
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREST AND PAPER PRODUCTS--1.7%
$ 200,000 Escambia County, Florida, Pollution Control Refunding
Revenue Bonds (Champion International Project), Series
1992, 6.950%, 11/01/07.................................... 11/02 at 102 Baa1 $ 218,414
- -------------------------------------------------------------------------------------------------------------------
HEALTH CARE--10.2%
200,000 Alachua County Health Facilities Authority, Florida, Health
Facilities Revenue Bonds, Series 1996A (Shands Teaching
Hospital and Clinics, Inc. Project), 5.300%, 12/01/08..... 12/06 at 102 AAA 210,764
200,000 Halifax Hospital Medical Center (Daytona Beach, Florida),
Health Care Facilities Revenue Bonds (Halifax Management
System, Inc. Project), 1998 Series A, 4.600%, 4/01/08..... No Opt. Call A 193,446
200,000 Halifax Hospital Medical Center (Daytona Beach, Florida),
Hospital Revenue Refunding and Improvement Bonds, 1997
Series A, 5.000%, 10/01/08................................ 10/07 at 102 AAA 204,890
250,000 Hospital Board of Directors of Lee County, Florida, Hospital
Revenue Bonds (Lee Memorial Health System), Fixed Rate
Hospital Revenue Bonds, 1997 Series A, 5.400%, 4/01/09.... 4/07 at 102 AAA 263,710
200,000 Leesburg, Florida, Hospital Revenue Refunding, Leesburg
Regional Medical Center Project, Series A, 5.600%,
7/01/08................................................... 7/06 at 102 A- 210,520
250,000 City of Tampa, Florida, Health System Revenue Bonds,
Catholic Health East Issue, Series 1998A-1, 5.500%,
11/15/12.................................................. No Opt. Call AAA 262,273
- -------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY--6.5%
300,000 Brevard County Housing Finance Authority (Florida),
Multi-Family Housing Revenue Refunding Bonds (Windover
Oaks and Windover Health Club Apartments Projects), Series
1996A, 6.900%, 2/01/27.................................... 2/06 at 101 AAA 339,516
500,000 Housing Finance Authority of Polk County (Florida),
Multifamily Housing Revenue Bonds (Winter Oaks Apartments
Project), Series 1997A, 5.250%, 7/01/22................... 7/05 at 101 AAA 518,445
- -------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY--5.3%
190,000 Escambia County Housing Finance Authority (Florida), Single
Family Mortgage Revenue Bonds, Series 1997A (Multi-County
Program), 5.500%, 4/01/08................................. 4/07 at 102 Aaa 196,523
180,000 Florida Housing Finance Agency, Single Family Mortgage,
Alternative Minimum Tax, 6.000%, 1/01/04.................. No Opt. Call AAA 186,485
315,000 Orange County Housing Finance Authority, Single Family
Mortgage Revenue Bonds (GNMA and Fannie Mae Mortgage
Backed Securities Program), Series 1997B, 5.400%,
9/01/09................................................... 9/07 at 102 AAA 323,502
- -------------------------------------------------------------------------------------------------------------------
LONG TERM CARE--2.9%
165,000 Jacksonville Health Facilities Authority (Florida), Tax
Exempt Industrial Development Revenue Bonds (National
Benevolent Association--Cypress Village Florida Project),
Series 1996A, 5.850%, 12/01/06............................ No Opt. Call Aa3 175,633
200,000 Sarasota County, Florida, Health Facility Authority, Revenue
Refunding, Health Facilities, Sunnyside Properties,
5.500%, 5/15/05........................................... No Opt. Call N/R 206,348
- -------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL--15.0%
200,000 The School District of Dade County, Florida, General
Obligation Refunding School Bonds, Series 1996, 4.500%,
7/15/08................................................... 7/06 at 101 AAA 196,932
500,000 Duval County School District, Florida, General Obligation
Refunding Bonds, Series 1992, 6.300%, 8/01/08............. 8/02 at 102 AAA 532,880
225,000 State of Florida, Full Faith and Credit, Broward County
Expressway Authority Bonds, Series 1984, 9.875%,
7/01/09................................................... No Opt. Call AA+ 318,218
100,000 State of Florida, Full Faith and Credit, State Board of
Education, Public Education Capital Outlay Bonds, Series
1992A, 6.000%, 6/01/07.................................... 6/02 at 101 AA+ 106,537
325,000 Government of Guam, General Obligation Bonds, Series 1993A,
4.900%, 11/15/04.......................................... 11/03 at 102 BBB 325,715
275,000 The City of New York, General Obligation Bonds, Fiscal 1997
Series A, Fixed Rate Tax-Exempt Bonds, 6.250%, 8/01/08.... 8/06 at A3 301,122
101 1/2
200,000 Commonwealth of Puerto Rico, Public Improvement Refunding
Bonds, Series 1993 (General Obligation Bonds), 5.375%,
7/01/05................................................... No Opt. Call A 208,928
- -------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED--25.2%
200,000 Broward County, Florida, Professional Sports Facilities Tax
and Revenue Bonds, Series 1996A (Broward County Civic
Arena Project), 5.200%, 9/01/07........................... 9/06 at 101 AAA 209,012
100,000 Dade County, Florida, School Board, Certificates of
Participation, Series 1994A, 5.375%, 5/01/04.............. No Opt. Call AAA 104,987
190,000 Dade County, Florida, Special Obligation and Refunding
Bonds, Series 1996B, 0.000%, 10/01/09..................... 10/08 at AAA 110,415
98 7/32
325,000 Florida Ports Financing Commission, Revenue Bonds (State
Transportation Trust Fund), Series 1996, 5.000%,
6/01/07................................................... No Opt. Call AAA 331,406
250,000 State of Florida, Department of Environmental Protection,
Preservation 2000 Revenue Bonds, Series 1995A, 5.500%,
7/01/06................................................... 7/05 at 101 AAA 266,038
</TABLE>
F-12
<PAGE> 268
PORTFOLIO OF INVESTMENTS (UNAUDITED) -- CONTINUED
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/LIMITED--CONTINUED
$ 405,000 Gulf Breeze Local Government Loan Program Bonds, Remarketed
Series 1985-B, 5.600%, 12/01/15........................... 12/06 at 101 AAA $ 435,444
100,000 Gulf County, Florida, Gas Tax Refunding and Improvement
Revenue Bonds, Series 1995, 5.000%, 10/01/07.............. 10/05 at 102 AAA 103,026
145,000 School District of Gulf County, Florida Sales Tax Revenue
Bonds, Series 1997, 5.200%, 6/01/08....................... 6/07 at 101 AA 149,354
200,000 Hillsborough County, Florida, Capital Improvement Program
Refunding Revenue Bonds, Series 1996, 4.800%, 8/01/08..... 8/06 at 102 AAA 201,826
150,000 Indian Trace Community Development District (Broward County,
Florida), Water Management Special Benefit Refunding
Bonds, Series 1995A, 5.500%, 5/01/06...................... 5/05 at 102 AAA 159,470
400,000 Lee County, Florida, Capital Revenue Refunding, Series A,
5.750%, 10/01/11.......................................... No Opt. Call AAA 434,572
290,000 Levy County, Florida, School Board, Certificates of
Participation, 5.500%, 7/1/06............................. 7/05 at 102 AA 305,167
125,000 Lynn Haven, Florida, Special Project Revenue, 5.250%,
10/01/05.................................................. No Opt. Call AAA 129,379
250,000 Martin County, Florida, Special Assessment Revenue, Tropical
Farms Water, 5.600%, 11/1/05.............................. No Opt. Call A2 264,330
125,000 Pembroke Pines, Florida, Special Assessment, Number 94,
Series 1, 5.750%, 11/01/05................................ No Opt. Call Baa1 132,005
- -------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--15.5%
350,000 Dade County, Florida, Aviation Revenue Refunding Bonds,
Series 1994A (AMT), Miami International Airport, 6.250%,
10/01/02.................................................. No Opt. Call AAA 375,736
500,000 Dade County, Florida, Seaport Revenue Refunding Bonds,
Series 1995, 6.200%, 10/01/10............................. No Opt. Call AAA 564,145
200,000 Greater Orlando Aviation Authority, Airport Facilities
Revenue Bonds, City of Orlando, Florida, Series 1997,
5.750%, 10/01/10.......................................... No Opt. Call AAA 214,222
200,000 Hillborough County Aviation Authority, Florida, Tampa
International Airport Revenue Refunding Bonds, Series 1997
A, Series 1997 B, 5.750%, 10/01/07........................ 10/06 at 101 AAA 214,882
200,000 Pensacola, Florida, Airport Revenue, Series B, 5.400%,
10/01/07.................................................. No Opt. Call AAA 209,462
250,000 Sanford Airport Authority (Florida), Industrial Development
Revenue Bonds (Central Florida Terminals Inc. Project),
Series 1997C, 6.750%, 5/01/05............................. No Opt. Call N/R 262,630
200,000 Sarasota-Manatee Airport Authority, Airport System Revenue
Refunding Bonds, Series 1996, 5.250%, 8/01/08............. 8/06 at 102 AAA 209,684
- -------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED--0.6%
145,000 Dade County, Florida, Special Obligation and Refunding
Bonds, Series 1996B. 0.000%, 10/01/09..................... 10/08 at AAA 84,973
98 7/32
- -------------------------------------------------------------------------------------------------------------------
UTILITIES--4.6%
120,000 Jacksonville Electric Authority (Jacksonville, Florida), St.
Johns River Power Park System, Refunding Revenue Bonds,
Issue Two, Series 15, 4.750%, 10/01/07.................... 4/06 at 101 AA 121,213
375,000 Pasco County, Florida, Solid Waste Disposal and Resource
Recovery System Revenue, Series B, 5.250%, 4/01/09........ 4/07 at 101 AAA 384,458
100,000 City of St. Lucie, Florida, Utility System Revenue Bonds,
Series 1994. 5.500%, 9/01/04.............................. No Opt. Call AAA 105,934
- -------------------------------------------------------------------------------------------------------------------
WATER AND SEWER--7.9%
485,000 City of Auburndale, Florida, Water and Sewer Revenue Bonds,
Series 1995, 5.375%, 12/01/08............................. 12/05 at 102 AAA 511,927
250,000 Lee County, Florida, Industrial Development Authority,
Utilities Revenue Refunding, Bonita Springs Utilities
Project, 5.450%, 11/01/07................................. 11/06 at 101 AAA 264,826
250,000 City of Plant City, Florida, Utility System Refunding and
Improvement Revenue Bonds, Series 1995, 5.400%,
10/01/06.................................................. 10/04 at 101 AAA 263,243
- -------------------------------------------------------------------------------------------------------------------
$12,055,000 Total Investments--($12,072,643)--95.4% $12,624,567
=========== -----------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL
SECURITIES--0.8%
$ 100,000
===========
Ascension Parish, Louisiana, Pollution Control Revenue
Bonds, Variable Rate Demand Bonds, 4.250%, 12/01/05
Aa3 100,000
-----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities--3.8% 502,400
-----------------------------------------------------------------------------------------------------
Net Assets--100% $13,226,967
=====================================================================================================
* Optional Call Provisions: Dates (month and year) and the prices of the
earliest optional call or redemption. There may be other call provisions
at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, which ensures the timely
payment of principal and interest. Securities are normally considered to
be equivalent to AAA rated securities.
N/R -- Investment is not rated.
F-13
</TABLE>
<PAGE> 269
PART C -- OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 4 of Article XII of Registrant's Declaration of Trust provides as
follows:
Subject to the exceptions and limitations contained in this Section 4,
every person who is, or has been, a Trustee, officer, employee or agent of the
Trust, including persons who serve at the request of the Trust as directors,
trustees, officers, employees or agents of another organization in which the
Trust has an interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person"), shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit,
or proceeding in which he becomes involved as a party or otherwise by virtue of
his being or having been such a Trustee, director, officer, employee or agent
and against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees then
in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising
out of any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act
on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the word "liability" and "expenses" shall include without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
C-1
<PAGE> 270
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 policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1(a). Declaration of Trust of the Registrant.(2)
1(b). Amended and Restated Establishment and Designation of Series
of Shares of Beneficial Interest dated October 11, 1996.(1)
2. Bylaws of Registrant.(1)
3. Not applicable.
4. Form of Agreement and Plan of Reorganization for Nuveen
Flagship Florida Intermediate Municipal Bond Fund into
Nuveen Flagship Intermediate Municipal Bond Fund.+
5. Specimen certificates of Shares of the Fund.(2)
6. Investment Management Agreement between Registrant and
Nuveen Advisory Corp.(2)
7(a). Distribution Agreement between Registrant and John Nuveen &
Co. Incorporated.(2)
8. Not applicable.
9(a). Custodian Agreement between Registrant and Chase Manhattan
Bank.(2)
9(b). Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.(2)
9(c). Transfer Agency Agreement between Registrant and Shareholder
Services, Inc.(2)
10(a). Plan of Distribution and Service Pursuant to Rule 12b-1 for
Class A Shares, Class B Shares and Class C Shares of each
Fund.(2)
10(b). Multi-Class Plan Adopted Pursuant to Rule 18f-3.(2)
11(a). Opinion of Vedder, Price, Kaufman & Kammholz.++
11(b). Opinion of Bingham Dana LLP++
12. Tax Opinion of Vedder, Price, Kaufman & Kammholz relating to
the Reorganization.++
13. Not applicable.
14. Consent of Deloitte & Touche LLP, Independent Public
Accountants.++
15. Not applicable.
16(a). Power of Attorney of Anthony T. Dean.++
16(b). Power of Attorney of Timothy R. Schwertfeger.++
16(c). Power of Attorney of Robert P. Bremner.++
16(d). Power of Attorney of Lawrence H. Brown.++
16(e). Power of Attorney of Anne E. Impellizzeri.++
16(f). Power of Attorney of Peter R. Sawers.++
16(g). Power of Attorney of William J. Schneider.++
16(h). Power of Attorney of Judith M. Stockdale.++
</TABLE>
C-2
<PAGE> 271
<TABLE>
<C> <S>
17. Form of proxy cards.++
</TABLE>
- ---------------
+ Filed herewith as Exhibit A to the Reorganization Statement of Additional
Information contained herein.
++ Filed herewith.
(1) Incorporated herein by reference to the initial Registrant's Registration
Statement on Form N-1A, File Number 333-14725, filed on October 24, 1996.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, File Number 333-14725,
filed on January 10, 1997
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public re-offering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-3
<PAGE> 272
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940 THE REGISTRANT CERTIFIES THAT IT MEETS ALL
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT ON FORM N-14
PURSUANT TO RULE 488 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 THIS CITY OF CHICAGO AND STATE OF ILLINOIS, ON THE 27TH DAY
OF MAY 1998.
NUVEEN FLAGSHIP MUNICIPAL TRUST
BY /s/ GIFFORD R. ZIMMERMAN
--------------------------------------
GIFFORD R. ZIMMERMAN
VICE PRESIDENT AND SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM N-14 HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN D. FOY Vice President and Controller May 27, 1998
- ------------------------------------ (Principal Financial and
Accounting Officer
TRUSTEES:
Chairman of the Board and
- ------------------------------------ Trustee (Principal Executive
Timothy R. Schwertfeger* Officer)
President and Trustee
- ------------------------------------
Anthony T. Dean*
Trustee
- ------------------------------------
Robert P. Bremner*
Trustee
- ------------------------------------
Lawrence H. Brown*
Trustee
- ------------------------------------
Anne E. Impellizzeri*
Trustee
- ------------------------------------
Peter R. Sawers*
Trustee
- ------------------------------------
William J. Schneider*
Trustee
- ------------------------------------
Judith M. Stockdale*
</TABLE>
By
/s/ GIFFORD R. ZIMMERMAN
----------------------------
Gifford R. Zimmerman
Attorney-in-fact
May 27, 1998
- ---------------
* Original powers of attorney authorizing, among others, Gifford R. Zimmerman to
execute this Registration Statement on Form N-14 for each of the Trustees of
the Registrant have been executed and are filed as Exhibits to this
Registration Statement.
<PAGE> 273
EXHIBIT INDEX
<TABLE>
<C> <S>
1(a). Declaration of Trust of the Registrant.(2)
1(b). Amended and Restated Establishment and Designation of Series
of Shares of Beneficial Interest dated October 11, 1996.(1)
2. Bylaws of Registrant.(1)
3. Not applicable.
4. Form of Agreement and Plan of Reorganization for Nuveen
Flagship Florida Intermediate Municipal Bond Fund into
Nuveen Flagship Intermediate Municipal Bond Fund.+
5. Specimen certificates of shares of the Fund.(2)
6. Investment Management Agreement between Registrant and
Nuveen Advisory Corp.(2)
7(a). Distribution Agreement between Registrant and John Nuveen &
Co. Incorporated.(2)
8. Not applicable.
9(a). Custodian Agreement between Registrant and Chase Manhattan
Bank.(2)
9(b). Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.(2)
9(c). Transfer Agency Agreement between Registrant and Shareholder
Services, Inc.(2)
10(a). Plan of Distribution and Service Pursuant to Rule 12b-1 for
Class A Shares, Class B Shares and Class C Shares of each
Fund.(2)
10(b). Multi-Class Plan Adopted Pursuant to Rule 18f-3.(2)
11(a). Opinion of Vedder, Price, Kaufman & Kammholz.++
11(b). Opinion of Bingham Dana LLP++
12. Tax Opinion of Vedder, Price, Kaufman & Kammholz relating to
the Reorganization.++
13. Not applicable.
14. Consent of Deloitte & Touche LLP, Independent Public
Accountants.++
15. Not applicable.
16(a). Power of Attorney of Anthony T. Dean.++
16(b). Power of Attorney of Timothy R. Schwertfeger.++
16(c). Power of Attorney of Robert P. Bremner.++
16(d). Power of Attorney of Lawrence H. Brown.++
16(e). Power of Attorney of Anne E. Impellizzeri.++
16(f). Power of Attorney of Peter R. Sawers.++
16(g). Power of Attorney of William J. Schneider.++
16(h). Power of Attorney of Judith M. Stockdale.++
17. Form of proxy cards.++
</TABLE>
- ---------------
+ Filed herewith as Exhibit A to the Reorganization Statement of Additional
Information contained herein.
++ Filed herewith.
(1) Incorporated herein by reference to the initial Registrant's Registration
Statement on Form N-1A, File Number 333-14725, filed on October 24, 1996.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, File Number 333-14725,
filed on January 10, 1997
<PAGE> 1
EXHIBIT 11(a)
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601
(312) 609-7500
May 27, 1998
Nuveen Flagship Municipal Trust
333 West Wacker Drive
Chicago, Illinois 60606
Re: NUVEEN FLAGSHIP MUNICIPAL TRUST
REGISTRATION STATEMENT ON FORM N-14
NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND
Ladies and Gentlemen:
We are acting as counsel for Nuveen Flagship Municipal Trust, a
Massachusetts business trust (the "Trust"), in connection with the Trust's
filing of a registration statement on Form N-14 (the "Registration Statement")
with the Securities and Exchange Commission covering the registration of shares
of beneficial interest, $.01 par value per share, (the "Shares") of the Trust
designated Nuveen Flagship Intermediate Municipal Bond Fund, pursuant to the
proposed reorganization by and between the Nuveen Flagship Multistate Trust I
(an "Acquired Fund Trust"), a Massachusetts business trust, on behalf of its
series of shares designated Nuveen Flagship Florida Intermediate Municipal Bond
Fund, as described in the Registration Statement and pursuant to that certain
Agreement and Plan of Reorganization entered into between the Trust and the
Acquired Trust as of April 25, 1998 (the "Agreement").
In that capacity, we have examined such business trust records,
certificates and other documents, and have made such other factual and legal
investigations as we have deemed necessary and appropriate for the purposes of
this opinion. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified copies or
photocopies and the authenticity of the originals of such latter documents.
Insofar as this opinion pertains to matters governed by the laws of the
Commonwealth of Massachusetts, we are relying, with your consent, upon the
opinion of Bingham Dana LLP dated May 27, 1998, which opinion is satisfactory
in substance and form to us.
Based upon the foregoing, it is our opinion that:
(1) The Trust is a Massachusetts business trust duly organized and
existing under the laws of the Commonwealth of Massachusetts.
<PAGE> 2
Nuveen Flagship Municipal Trust
May 27, 1998
Page 2
(2) The Shares, when issued and sold in accordance with the
Trust's Declaration of Trust, all amendments thereto, and
By-Laws and for the consideration described in the Agreement,
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.
We hereby consent to the filing of this opinion as Exhibit 11(a) to the
Registration Statement and to the references to us under the caption "Legal
Opinions" in the Joint Proxy Statement Prospectus contained in the Registration
Statement.
Respectfully submitted,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
MLW
DAS
<PAGE> 1
EXHIBIT 11(b)
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726
May 27, 1998
Vedder, Price, Kaufman & Kammholz
222 North La Salle Street
Chicago, IL 60601-1003
Re: Nuveen Flagship Municipal Trust/Nuveen Flagship Intermediate
Municipal Bond Fund
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Nuveen Flagship
Municipal Trust, a Massachusetts business trust (the "Trust"), in connection
with the Trust's Registration Statement on Form N-14 to be filed with the
Securities and Exchange Commission on or about May 27, 1998 (the "Registration
Statement"), with respect to the shares of beneficial interest, par value $.01
per share (the "Shares") of its series Nuveen Flagship Intermediate Municipal
Bond Fund (the "Acquiring Fund") to be issued in exchange for substantially all
of the assets of Nuveen Flagship Florida Intermediate Municipal Bond Fund,
each a series of Nuveen Flagship Multistate Trust I, a Massachusetts business
trust (each, an "Acquired Fund"), as described in the Registration Statement.
You have requested that we deliver this opinion to you, as special counsel to
the Trust, for use by you in connection with your opinion to the Trust with
respect to the Shares.
In connection with the furnishing of this opinion, we have examined the
following documents:
(a) a certificate of the Secretary of State of the
Commonwealth of Massachusetts as to the existence of the Trust;
(b) a copy, as filed with the Secretary of State of the
Commonwealth of Massachusetts on July 1, 1996, of the Trust's
Declaration of Trust (the "Declaration");
(c) a copy of the Trust's Amended and Restated Establishment
and Designation of Series dated October 9, 1996 (the "Designation of
Series");
(d) a copy of the Trust's Establishment and Designation of
Classes dated July 10, 1996 (the "Designation of Classes");
<PAGE> 2
Vedder, Price, Kaufman & Kammholz
May 27, 1998
Page 2
(e) a certificate executed by an appropriate officer of the
Trust, certifying as to, and attaching copies of, the Trust's
Declaration, Designation of Series, Designation of Classes, By-Laws,
and certain resolutions adopted by the Trustees of the Trust;
(f) a printer's proof dated May 22, 1998 of the
Registration Statement; and
(g) a copy of the Agreement and Plan of Reorganization entered
into by the Trust as of April 25, 1998, on behalf of the Acquiring
Fund, providing for (a) the acquisition by the Acquiring Fund of
substantially all of the assets of each of the Acquired Funds in
exchange for the Shares and the Acquiring Fund's assumption of
substantially all of the liabilities of each of the Acquired Funds and
(b) the pro rata distribution of the Shares to the holders of the
shares of the Acquired Funds in liquidation of the Acquired Funds, in
the form included in the printer's proof referred to in paragraph (f)
above (the "Agreement and Plan of Reorganization").
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, including conformed copies, the authenticity and completeness of all
original documents reviewed by us in original or copy form and the legal
competence of each individual executing any document. 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 (f)
above, and that the Agreement and Plan of Reorganization has been duly
completed, executed and delivered by the parties thereto in substantially the
form of the copy referred to in paragraph (g) above.
This opinion is based entirely on our review of the documents listed
above and such investigation of law as we have deemed necessary or appropriate.
We have made no other review or investigation of any kind whatsoever, and we
have assumed, without independent inquiry, the accuracy of the information set
forth in such documents.
This opinion is limited solely to the internal substantive laws of the
Commonwealth of Massachusetts as applied by courts located in such Commonwealth,
to the extent the same may apply to or govern the transactions covered by this
opinion, except that we express no opinion as to any Massachusetts securities
law.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is
our opinion that:
<PAGE> 3
Vedder, Price, Kaufman & Kammholz
May 27, 1998
Page 3
1. The Trust is duly organized and existing under the Trust's
Declaration of Trust and the laws of the Commonwealth of Massachusetts as a
voluntary association with transferable shares of beneficial interest commonly
referred to as a "Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Trust's
Declaration and By-Laws and for the consideration described in the Agreement and
Plan of Reorganization, will be legally issued, fully paid and non-assessable,
except that, as set forth in the Registration Statement, shareholders of the
Acquiring Fund may under certain circumstances be held personally liable for its
obligations.
We hereby consent to your reliance on this opinion in connection with
your opinion to the Trust with respect to the Shares, to the reference to our
name in the Registration Statement under the heading "Legal Opinions" and to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
BINGHAM DANA LLP
<PAGE> 1
EXHIBIT 12
May 27, 1998
<TABLE>
<S> <C>
Nuveen Flagship Multistate Trust I Nuveen Flagship Municipal Trust
333 West Wacker Drive 333 West Wacker Drive
Chicago, IL 60606 Chicago, IL 60606
Nuveen Flagship Florida Intermediate Nuveen Flagship Intermediate Municipal
Municipal Bond Fund Bond Fund
333 West Wacker Drive 333 West Wacker Drive
Chicago, IL 60606 Chicago, IL 60606
</TABLE>
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed reorganization ("Reorganization") of Nuveen
Flagship Florida Intermediate Municipal Bond Fund ("Acquired Fund"), a separate
portfolio of Nuveen Flagship Multistate Trust I, a Massachusetts business trust
("Acquired Trust") into Nuveen Flagship Intermediate Municipal Bond Fund
("Acquiring Fund"), a separate portfolio of Nuveen Flagship Municipal Trust, a
Massachusetts business trust ("Acquiring Trust"). The Reorganization
contemplates the acquisition by the Acquiring Fund of substantially all the
assets of the Acquired Fund in exchange for voting shares of beneficial interest
("shares") of the Acquiring Fund and the assumption of the Acquired Fund's
liabilities. Thereafter, the shares of the Acquiring Fund will be distributed to
the shareholders of the Acquired Fund and the Acquired Fund will be completely
liquidated and terminated. The foregoing will be accomplished pursuant to an
Agreement and Plan of Reorganization, dated as of April 25, 1998 (the "Plan"),
entered into by the Acquired Trust, on behalf of the Acquired Fund, and the
Acquiring Trust, on behalf of the Acquiring Fund.
In rendering this opinion, we have reviewed and relied upon statements
made to us by certain of your officers. We have also examined certificates of
such officers and such other agreements, documents, and corporate records that
have been made available to us and such other matters as we have deemed relevant
for purposes of this opinion. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents
<PAGE> 2
VEDDER PRICE
Nuveen Flagship Municipal Trust
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 27, 1998
Page 2
submitted to us as originals, the conformity to originals of all documents
submitted to us as copies and the authenticity of the originals of such latter
documents.
Our opinion is based, in part, on the assumption that the proposed
Reorganization described herein will occur in accordance with the agreements and
the facts and representations set forth or referred to in this opinion letter,
and that such facts and representations are accurate as of the date hereof and
will be accurate on the effective date of the Reorganization (the "Effective
Time"). As more fully discussed below, we have also assumed in issuing our
opinion that the shareholders of the Acquired Fund do not have any plan or
intention to dispose of a certain number of the Acquiring Fund shares received
by them in the Reorganization. We have undertaken no independent investigation
of the accuracy of the facts, representations and assumptions set forth or
referred to herein.
For the purposes indicated above, and based upon the facts, assumptions
and conditions as set forth herein, and the representations made to us by duly
authorized officers on behalf of the Acquired Fund and the Acquiring Fund in a
letter dated May 27, 1998, it is our opinion that:
1. The acquisition by the Acquiring Fund of substantially all
the assets of the Acquired Fund in exchange solely for Acquiring Fund
voting shares and the assumption by the Acquiring Fund of the Acquired
Fund's liabilities, if any, followed by the distribution by the
Acquired Fund of the Acquiring Fund shares to the shareholders of the
Acquired Fund in exchange for their Acquired Fund shares in complete
liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
2. The Acquired Fund shareholders will recognize no gain or loss
upon the exchange of all of their Acquired Fund shares for Acquiring
Fund shares in complete liquidation of the Acquired Fund (Code Section
354(a)(1));
<PAGE> 3
VEDDER PRICE
Nuveen Flagship Municipal Trust
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 27, 1998
Page 3
3. No gain or loss will be recognized by the Acquired Fund upon
the transfer of substantially all its assets to the Acquiring
Fund in exchange solely for Acquiring Fund shares and the assumption
by the Acquiring Fund of the Acquired Fund's liabilities, if any, and
with respect to the subsequent distribution of those Acquiring Fund
shares to the Acquired Fund shareholders in complete liquidation of
the Acquired Fund (Code Section 361);
4. No gain or loss will be recognized by the Acquiring Fund upon
the acquisition of substantially all the Acquired Fund's assets in
exchange solely for Acquiring Fund shares and the assumption of the
Acquired Fund's liabilities, if any (Code Section 1032(a));
5. The basis of the assets acquired by the Acquiring Fund will be,
in each instance, the same as the basis of those assets immediately
before the transfer when such assets were held by the Acquired Fund,
and the holding period of such assets acquired by the Acquiring Fund
will include the holding period thereof when such assets were held by
the Acquired Fund (Code Sections 362(b) and 1223(2));
6. The basis of the Acquiring Fund shares to be received by the
Acquired Fund shareholders upon liquidation of the Acquired Fund will
be, in each instance, the same as the basis of the Acquired Fund shares
surrendered in exchange therefor (Code Section 358(a)(1)); and
7. The holding period of the Acquiring Fund shares to be received
by the Acquired Fund shareholders will include the period during which
the Acquired Fund shares to be surrendered in exchange therefor were
held, provided such Acquired Fund shares were held as capital assets by
those shareholders on the date of the exchange (Code Section 1223(1)).
FACTS
Our opinion is based upon the above referenced representations and the
following facts and assumptions, any alteration of which could adversely affect
our conclusions.
<PAGE> 4
VEDDER PRICE
Nuveen Flagship Municipal Trust
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 27, 1998
Page 4
The Acquired Fund has been registered and operated since it commenced
operations as a series of an open-end, management investment company under the
Investment Company Act of 1940, 15 U.S.C. Section 80a, et seq. (the "1940 Act").
The Acquired Fund has qualified and will qualify as a regulated investment
company under Section 851 of the Code for each of its taxable years, and has
distributed and will distribute all or substantially all its income so that it
and its shareholders have been and will be taxed in accordance with Section 852
of the Code.
The Acquiring Fund is registered, has operated, and will continue to
operate as a series of an open-end, management investment company under the 1940
Act. It has qualified as a regulated investment company under Section 851 of the
Code for each of its taxable years and anticipates so qualifying for all future
years, and has distributed and will distribute all or substantially all its
income so that it and its shareholders will be taxed in accordance with Section
852 of the Code.
Upon satisfaction of certain terms and conditions set forth in the Plan
on or before the Effective Time, the following will occur: (a) the Acquiring
Fund will acquire substantially all the assets of the Acquired Fund in exchange
for the Acquiring Fund's assumption of substantially all the liabilities of the
Acquired Fund and the issuance of Acquiring Fund shares to the Acquired Fund;
(b) the Acquiring Fund shares will be distributed to the shareholders of the
Acquired Fund in exchange for their Acquired Fund shares; and (c) the Acquired
Fund will be dissolved and liquidated. The assets of the Acquired Fund to be
acquired by the Acquiring Fund consist primarily of bonds whose interest is
exempt from federal income taxation, cash and other securities held in the
Acquired Fund's portfolio.
As soon as practicable after the Effective Time, the Acquired Fund will
be liquidated and will distribute the newly issued Acquiring Fund shares it
receives pro rata to its shareholders of record in exchange for such
shareholders' interests in the Acquired Fund. The liquidation and distribution
will be accomplished by opening accounts on the books of the Acquiring Fund in
the names of the shareholders of the Acquired Fund (on a class by class basis)
and transferring to those shareholder accounts the pro rata number of Acquiring
Fund shares of each respective class as was previously credited to the Acquired
Fund on the books.
<PAGE> 5
VEDDER PRICE
Nuveen Flagship Municipal Trust
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 27, 1998
Page 5
As a result of the Reorganization, every shareholder of the Acquired
Fund will own Acquiring Fund shares that would have an aggregate per share net
asset value immediately after the Effective Time equal to the aggregate per
share net asset value of that shareholder's Acquired Fund shares immediately
prior to the Effective Time. Since the Acquiring Fund shares issued to the
shareholders of the Acquired Fund will be issued at net asset value in exchange
for the net assets of the Acquired Fund having a value equal to the aggregate
per share net asset value of those Acquiring Fund shares so issued, the net
asset value of the Acquiring Fund shares should remain virtually unchanged by
the Reorganization.
The investment objectives of the Acquiring Fund will be substantially
similar to those of the Acquired Fund and the Acquiring Fund will continue the
historic business of the Acquired Fund or use a significant portion of the
Acquired Fund's historic assets in its business.
The management of the Acquired Fund has represented to us that, to the
best of their knowledge, there is no current plan or intention on the part of
any Acquired Fund shareholders to sell, exchange, or otherwise dispose of a
number of Acquiring Fund shares received in the Reorganization that would reduce
the ownership by shareholders of the Acquired Fund to a number of shares of
Acquiring Fund having a value, as of the Effective Time, of less than 50 percent
of all the formerly outstanding shares of the Acquired Fund as of the same time.
In issuing our opinion, we have assumed that there is, in fact, no such plan or
intention. If such assumption were inaccurate, it could adversely affect the
opinions contained herein.
In approving the Reorganization, the Board of Trustees of the Acquired
Trust identified certain benefits that are likely to result from combining the
funds, including administrative and operating efficiencies, and greater
portfolio diversity. The Board also considered the possible risks and costs of
combining the funds and determined that the Reorganization is likely to provide
benefits to the shareholders of the fund that outweigh the costs incurred.
<PAGE> 6
VEDDER PRICE
Nuveen Flagship Municipal Trust
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 27, 1998
Page 6
CONCLUSION
Based on the foregoing, it is our opinion that the acquisition by the
Acquiring Fund, pursuant to the Plan, of substantially all the assets and
liabilities of the Acquired Fund in exchange for voting shares of the Acquiring
Fund will qualify as a reorganization under Code Section 368(a)(1)(C).
Our opinions set forth above with respect to (1) the nonrecognition of
gain or loss to the Acquired Fund and the Acquiring Fund, (2) the basis and
holding period of the assets received by the Acquiring Fund, (3) the
nonrecognition of gain or loss to the Acquired Fund shareholders upon the
receipt of the Acquiring Fund shares, and (4) the basis and holding period of
the Acquiring Fund shares received by the Acquired Fund shareholders, follow as
a matter of law from the opinion that the acquisition under the Plan will
qualify as a reorganization under Code Section 368(a)(1)(C).
The opinions expressed in this letter are based on the Code, the Income
Tax Regulations promulgated by the Treasury Department thereunder and judicial
authority reported as of the date hereof. We have also considered the position
of the Internal Revenue Service (the "Service") reflected in published and
private rulings. Although we are not aware of any pending changes to these
authorities that would alter our opinions, there can be no assurances that
future legislative or administrative changes, court decisions or Service
interpretations will not significantly modify the statements or opinions
expressed herein.
Our opinions are limited to those federal income tax issues
specifically considered herein and are addressed to and are only for the benefit
of the Acquired Fund, the Acquired Trust, the Acquiring Fund, and the Acquiring
Trust. We do not express any opinion as to any other federal income tax issues,
or any state or local law issues, arising from the transactions contemplated by
the Plan. Although the discussion herein is based upon our best interpretation
of existing sources of law and expresses what we believe a court would properly
conclude if presented with these issues, no assurance can be given that such
interpretations would be followed if they were to become the subject of judicial
or administrative proceedings.
<PAGE> 7
VEDDER PRICE
Nuveen Flagship Municipal Trust
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Florida Intermediate Municipal Bond Fund
May 27, 1998
Page 7
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the captions "Proposal
No. 1 - The Proposed Reorganization - Certain Federal Income Tax Consequences"
and "Legal Matters" in the Prospectus/Proxy Statement contained in such
Registration Statement. In giving such consent, we do not thereby concede that
we are within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE> 1
EXHIBIT 14
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement on Form N-14 under the
Securities Act of 1933, of our report dated June 13, 1997, relating to Nuveen
Flagship Intermediate Municipal Bond Fund and of our reports dated July 11,
1997, relating to Nuveen Flagship Florida Intermediate Municipal Bond Fund
included in the Statement of Additional Information, which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, Ohio
May 20, 1998
<PAGE> 1
EXHIBIT 16(a)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and each of them
(with full power to each of them to act alone) his true and lawful
attorney-in-fact and agent, for him on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and affix his seal thereto
and file one or more Registration Statements on Form N-14 under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended,
including any amendment or amendments thereto, with all exhibits, and any and
all other documents required to be filed with any regulatory authority, federal
or state, relating to the reorganization, without limitation, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Anthony T. Dean
-------------------
Anthony T. Dean
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(b)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints ANTHONY T. DEAN, ALAN
G. BERKSHIRE, and GIFFORD R. ZIMMERMAN, and each of them (with full power to
each of them to act alone) his true and lawful attorney-in-fact and agent, for
him on his behalf and in his name, place and stead, in any and all capacities,
to sign, execute and affix his seal thereto and file one or more Registration
Statements on Form N-14 under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, including any amendment or
amendments thereto, with all exhibits, and any and all other documents required
to be filed with any regulatory authority, federal or state, relating to the
reorganization, without limitation, granting unto said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he might or could
do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Timothy R. Schwertfeger
----------------------------
Timothy R. Schwertfeger
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(c)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN,
and each of them (with full power to each of them to act alone) his true and
lawful attorney-in-fact and agent, for him on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute and affix his seal
thereto and file one or more Registration Statements on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including any amendment or amendments thereto, with all exhibits, and
any and all other documents required to be filed with any regulatory authority,
federal or state, relating to the reorganization, without limitation, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Robert P. Bermner
----------------------------
Robert P. Bermner
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(d)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN,
and each of them (with full power to each of them to act alone) his true and
lawful attorney-in-fact and agent, for him on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute and affix his seal
thereto and file one or more Registration Statements on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including any amendment or amendments thereto, with all exhibits, and
any and all other documents required to be filed with any regulatory authority,
federal or state, relating to the reorganization, without limitation, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Lawrence H. Brown
----------------------------
Lawrence H. Brown
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(e)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN,
and each of them (with full power to each of them to act alone) his true and
lawful attorney-in-fact and agent, for him on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute and affix his seal
thereto and file one or more Registration Statements on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including any amendment or amendments thereto, with all exhibits, and
any and all other documents required to be filed with any regulatory authority,
federal or state, relating to the reorganization, without limitation, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Anne E. Impellizzeri
----------------------------
Anne E. Impellizzeri
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(f)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN,
and each of them (with full power to each of them to act alone) his true and
lawful attorney-in-fact and agent, for him on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute and affix his seal
thereto and file one or more Registration Statements on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including any amendment or amendments thereto, with all exhibits, and
any and all other documents required to be filed with any regulatory authority,
federal or state, relating to the reorganization, without limitation, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Peter R. Sawers
----------------------------
Peter R. Sawers
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(g)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN,
and each of them (with full power to each of them to act alone) his true and
lawful attorney-in-fact and agent, for him on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute and affix his seal
thereto and file one or more Registration Statements on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including any amendment or amendments thereto, with all exhibits, and
any and all other documents required to be filed with any regulatory authority,
federal or state, relating to the reorganization, without limitation, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ William J. Schneider
----------------------------
William J. Schneider
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 16(h)
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST II
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the
above-referenced trusts, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, ALAN G. BERKSHIRE, and GIFFORD R. ZIMMERMAN,
and each of them (with full power to each of them to act alone) his true and
lawful attorney-in-fact and agent, for him on his behalf and in his name, place
and stead, in any and all capacities, to sign, execute and affix his seal
thereto and file one or more Registration Statements on Form N-14 under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, including any amendment or amendments thereto, with all exhibits, and
any and all other documents required to be filed with any regulatory authority,
federal or state, relating to the reorganization, without limitation, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced
organization has hereunto set his hand this 25th day of April, 1998.
/s/ Judith M. Stockdale
----------------------------
Judith M. Stockdale
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 25th day of April, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
"OFFICIAL SEAL"
Virginia L. Corcoran /s/ Virginia L. Corcoran
Notary Public, State of Illinois ------------------------
My Commission Expires: 10/27/01 Notary Public
<PAGE> 1
EXHIBIT 17
-Please fold and detach at perforation. Return the Proxy Ballot only.-
PROXY PROXY
PROXY SOLICITED BY THE BOARD OF TRUSTEES
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
THE NUVEEN FLAGSHIP FLORIDA
INTERMEDIATE MUNICIPAL BOND FUND
TO BE HELD ON AUGUST 13, 1998
The undersigned hereby appoints Timothy R. Schwertfeger, Anthony T. Dean, Alan
G. Berkshire and Gifford R. Zimmerman and each of them, with full powers of
substitution, Proxies for the undersigned to represent and vote the shares of
the undersigned at the Special Meeting of Shareholders of the Nuveen Florida
Intermediate Municipal Bond Fund, a series of the Nuveen Flagship Multistate
Trust I to be held on August 13, 1998, or any adjournment or adjournments
thereof as indicated on the reverse side.
PLEASE BE SURE TO SIGN YOUR PROXY BALLOT ON THE REVERSE SIDE
<PAGE> 2
PROXY SOLICITED BY THE BOARD OF TRUSTEES
FOR THE JOINT SPECIAL MEETING OF SHAREHOLDERS OF
THE NUVEEN FLAGSHIP FLORIDA INTERMEDIATE
MUNICIPAL BOND FUND
TO BE HELD ON AUGUST 13, 1998
AT THE UPCOMING SPECIAL MEETING, SHAREHOLDERS WILL BE ASKED TO APPROVE A
REORGANIZATION OF NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
INTO THE NUVEEN FLAGSHIP INTERMEDIATE MUNICIPAL BOND FUND AND OTHER MATTERS IN
CONNECTION WITH THE REORGANIZATION. PLEASE REFER TO THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND CAST YOUR VOTE ON THE PROXY BALLOT.
WHETHER OR NOT YOU PLAN TO JOIN US AT THE MEETING, PLEASE SIGN, DATE AND VOTE
THE PROXY BALLOT AND RETURN IT TO OUR PROXY TABULATOR IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. PLEASE SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE
BOX ON THE PROXY BALLOT. IF YOU DO NOT MARK ANY BOXES, YOUR PROXY WILL BE
VOTED IN ACCORDANCE WITH THE BOARD OF TRUSTEES' RECOMMENDATIONS.
<TABLE>
<S><C>
NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS
SIGNED. PLEASE SIGN EXACTLY AS YOUR NAME(S)
APPEARS ON THE PROXY BALLOT. IF SIGNING FOR
ESTATES, TRUSTS OR CORPORATIONS, TITLE OR CAPACITY
SHOULD BE STATED. IF SHARES ARE HELD JOINTLY,
EITHER HOLDER SHOULD SIGN.
</TABLE>
1. To approve an Agreement and Plan of Reorganization pursuant to which the
Nuveen Flagship Florida Intermediate Municipal Bond Fund (the "Florida
Intermediate Fund") would (i) transfer all of its assets to the
Nuveen Flagship Intermediate Municipal Bond Fund (the "Intermediate Fund")
in exchange solely for Class A, C and R shares of beneficial interest of
the Intermediate Fund and the Intermediate Fund's assumption of the
liabilities of the Florida Intermediate Fund, (ii) distribute such shares
of the Intermediate Fund to the holders of shares of the Florida
Intermediate Fund and (iii) be liquidated, dissolved and terminated as a
series of the Multistate Trust in accordance with the Trust's Declaration
of Trust
2. To ratify the selection of Arthur Andersen LLP as independent auditors
for the fiscal year ending May 31, 1999.
3. In their discretion, the Proxies indicated on the reverse side of the Proxy
Ballot are authorized to vote upon such other matters as may properly come
before the Special Meeting.
- Please fold and detach at perforation. Return the Proxy Ballot only. -
NUVEEN FLAGSHIP FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
PROXY BALLOT
FOR AGAINST ABSTAIN
1. Approval of Agreement and Plan of
Reorganization. [ ] [ ] [ ]
2. Ratification of the selection of independent
auditors. [ ] [ ] [ ]
3. In their discretion, the
Proxies are authorized to
vote on such other
business as may come
before the Meeting.
Date:__________________ 1998
Signature(s) NUV-GR
