<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997.
1933 ACT REGISTRATION NO. 333-16611
1940 ACT REGISTRATION NO. 811-07943
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
<S> <C>
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 1 [X]
</TABLE>
(Check appropriate box or boxes)
--------------
NUVEEN FLAGSHIP MULTISTATE TRUST III
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, 60606
Illinois
(Address of Principal Executive (Zip Code)
Office)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice With a copy to:
President and Assistant Secretary
333 West Wacker Drive Thomas S. Harman
Fried, Frank, Harris, Shriver &
Chicago, Illinois 60606 Jacobson
(Name and Address of Agent for 1001 Pennsylvania Ave., NW
Service) Suite 800
Washington, D.C. 20004
It is proposed that this filing will become effective (check appropriate box):
[_]
Immediately upon filing pursu- [_]
ant to paragraph (b)
on (date) pursuant to paragraph
(a)(1)
[_]
75 days after filing pursuant to
paragraph (a)(2)
[X]
on September 26, 1997 pursuant
to paragraph (b) [_]
on (date) pursuant to paragraph
(a)(2) of Rule 485.
If appropriate, check the following box:
[_]
60 days after filing pursuant
to paragraph (a)(1)
[_]
This post-effective amendment designates a new effective date for a previ-
ously filed post-effective amendment.
PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT HAS
REGISTERED AN INDEFINITE NUMBER OF SHARES (DESIGNATED AS CLASS A SHARES, CLASS
B SHARES, CLASS C SHARES AND CLASS R SHARES) OF THE FOLLOWING SERIES: NUVEEN
FLAGSHIP ALABAMA MUNICIPAL BOND FUND; NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND
FUND; NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND; NUVEEN FLAGSHIP NORTH
CAROLINA MUNICIPAL BOND FUND; NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND
FUND; AND NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND. A RULE 24F-2 NOTICE
FOR THE REGISTRANT'S FISCAL YEAR ENDED MAY 31, 1997 WAS FILED ON OR ABOUT JULY
30, 1997.
CALCULATION OF REGISTRATION FEE FOR SHARES OF
NORTH CAROLINA MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest, $.01 par value............ 616,128 $10.84 $0 $0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Registrant has elected to calculate its filing fee in the manner described in
Rule 24e-2 under the Investment Company Act of 1940. The total amount of secu-
rities redeemed during the previous fiscal year was $25,396,297. The total
amount of redeemed securities used for reduction pursuant to Rule 24f-2(c) was
$18,717,469. The amount of redeemed securities being used for reduction of the
registration fee in this Amendment is $6,678,828.
CALCULATION OF REGISTRATION FEE FOR SHARES OF
SOUTH CAROLINA MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest, $.01 par value............ 57,753 $10.11 $0 $0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Registrant has elected to calculate its filing fee in the manner described in
Rule 24e-2 under the Investment Company Act of 1940. The total amount of secu-
rities redeemed during the previous fiscal year was $3,340,985. The total
amount of redeemed securities used for reduction pursuant to Rule 24f-2(c) was
$2,757,101. The amount of redeemed securities being used for reduction of the
registration fee in this Amendment is $583,884.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-16611
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-07943
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Cross-Reference Sheet
Part A-The Prospectus
Part B-The Statement of Additional Information
Copy of Annual Reports to Shareholders (the financial
statements from which are incorporated by reference into the
Statement of Additional Information)
Part C-Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
----------------
CROSS REFERENCE SHEET
PART A--PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN
PART A
OF FORM N-
1A PROSPECTUS LOCATION
---------- -------------------
<S> <C>
1 Cover Page Cover Page
2 Synopsis Expense Information
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Fund Strategies
5 Management of the Fund General Information
5A Management's Discussion of Fund Incorporated by Reference to Annual and
Performance Semi-Annual Reports to Shareholders; Taxes
and Tax Reporting
6 Capital Stock and Other How to Select a Purchase Option; Taxes and
Securities Tax Reporting
7 Purchase of Securities Being Investing in the Funds
Offered
8 Redemption or Repurchase How to Sell Fund Shares
9 Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM IN
PART B
OF FORM N- LOCATION IN STATEMENT
1A OF ADDITIONAL INFORMATION
---------- -------------------------
<S> <C>
10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History Not Applicable
13 Investment Objectives and Investment Policies and Investment
Policies Portfolio
14 Management of the Fund Management
15 Control Persons and Principal Management
Holders of Securities
16 Investment Advisory and Other Investment Adviser and Investment
Services Management Agreement; Portfolio
Transactions Distribution and Service Plan;
Independent Public Accountants and
Custodian
17 Brokerage Allocation and Other Portfolio Transactions
Practices
18 Capital Stock and Other See "How to Select a Purchase Option" and
Securities "Taxes and Tax Reporting" in the Prospectus
19 Purchase, Redemption and Pricing Additional Information on the Purchase and
of Securities Redemption of Fund Shares; Net Asset Value
20 Tax Status Tax Matters
21 Underwriters Additional Information on the Purchase and
Redemption of Fund Shares; See "Investing
in the Funds" and "Fund Service Providers"
in the Prospectus
22 Calculation of Performance Data Performance Information
23 Financial Statements Incorporated by Reference to Annual Reports
to Shareholders
</TABLE>
<PAGE>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MULTISTATE TRUST III
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
NUVEEN
Municipal
Bond Funds
September 26, 1997
Prospectus [PHOTO APPEARS HERE]
Dependable, tax-free income
to help you keep more of
what you earn.
Alabama
Georgia
Louisiana
North Carolina
South Carolina
Tennessee
<PAGE>
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>
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
SEPTEMBER 26, 1997
PROSPECTUS
OVERVIEW
The funds listed above are part of the Nuveen Flagship
Multistate Trust III, an open-end investment company.
Each fund seeks to provide high tax-free income and
preservation of capital through investments in diver-
sified 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 pro-
spectus 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, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
CONTENTS
1 OVERVIEW DIVIDENDS AND TAXES
2 FUND SUMMARIES AND FINANCIAL HIGHLIGHTS
19 How the Funds Pay Divi-
dends
FUND STRATEGIES
20 Taxes and Tax Reporting
14 Investment Objective
21 Taxable Equivalent Yields
14 How the Funds Select Investments
15 Risk Reduction Strategies
GENERAL INFORMATION
INVESTING IN THE FUNDS
21 How to Contact Nuveen
15 How to Buy Fund Shares
21 Fund Service Providers
16 How to Select a Purchase Option
22 How the Funds Report Per-
formance
17 How to Sell Fund Shares
18 Exchanging Shares
22 How Fund Shares are Priced
18 Optional Features and Services
22 Organization
APPENDIX
22 Special State Considera-
tions
---
1
<PAGE>
NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: April 11, 1994
NET ASSETS: $5.2 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
1 Year 4.63% 9.22% 8.79% 9.00% 9.38%
Inception 5.83% 7.29% 6.74% 6.95% 7.34%
</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 incep-
tion (see "Financial Highlights" for dates) and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
(and for Class B and C, fees) between the classes. Class B total returns as-
sume an ongoing investment and do not reflect the imposition of the CDSC; your
returns for the 1 year and since inception periods would be lower if you re-
deemed 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]
Average Maturity 20.4
Average Modified Duration 8.4
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA 70%
AA 11%
A 14%
BBB/NR 5%
INDUSTRY DIVERSIFICATION (TOP 6)
LOGO
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 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other 1.48% 1.48% 1.48% 1.48%
- ----------------------------------------------------------------------------------------------
Total (Gross) 2.23% 2.98% 2.78% 2.03%
Waivers/
Reimbursements (1.84%) (1.84%) (1.84%) (1.84%)
- ----------------------------------------------------------------------------------------------
Total (Net) 0.39% 1.14% 0.94% 0.19%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $46 $51 $10 $2
3 Years $54 $69 $30 $6
5 Years $63 $74 $52 $11
10 Years $89 $118 $115 $24
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Deloitte & Touche LLP, the fund's independent
auditors. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ----------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET
ALABAMA++ 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)
- ---------------------------------------------------------------------------------------------
CLASS A (4/94)
1997 $ 9.77 $.53 $ .35 $ (.53) $ - $10.12 9.22%
1996 9.94 .53 (.17) (.53) - 9.77 3.72
1995 9.66 .52 .28 (.52) - 9.94 8.77
1994(c) 9.58 .03 .09 (.04) - 9.66 9.34+
CLASS B (2/97)
1997(c) 10.16 .11 (.02) (.11) - 10.14 .94
CLASS C (2/97)
1997(c) 10.16 .12 (.02) (.12) - 10.14 .99
CLASS R (2/97)
1997(c) 10.16 .16 (.05) (.14) - 10.13 1.08
- ---------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) -------------------------------------------------
<S> <C> <C> <C> <C>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
ALABAMA++ TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS AFTER AFTER PORTFOLIO
YEAR ENDING END OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
MAY 31, (IN THOUSANDS) MENT(B) MENT(B) RATE
- ---------------------------------------------------------------------------------------------
CLASS A (4/94)
1997 $4,446 .40% 5.29% 72%
1996 3,256 .48 5.24 42
1995 1,880 .16 5.47 120
1994(c) 357 - 2.42+ -
CLASS B (2/97)
1997(c) 591 .71+ 4.26+ 72
CLASS C (2/97)
1997(c) 205 .40+ 4.57+ 72
CLASS R (2/97)
1997(c) - - 6.17+ 72
- ---------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Alabama.
(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 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 permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. If you did not redeem
Class B shares at the end of each holding period, your expenses would have
been $12 for the one year period, $36 for the three year period, $63 for
the five year period, and $118 for the ten year period. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---
3
<PAGE>
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: March 27, 1986
NET ASSETS: $123.5 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 4.79% 9.39% 8.73% 8.80% 9.46%
5 Years 5.71% 6.62% 6.03% 6.00% 6.64%
10 Years 7.39% 7.85% 7.38% 7.24% 7.86%
</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 incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
(and for Class 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 re-
turns 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]
Average Maturity 22.6
Average Modified Duration 9.4
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 53%
AA 16%
A 19%
BBB/NR 12%
INDUSTRY DIVERSIFICATION (TOP 6)
[PIE CHART APPEARS HERE]
Housing Facilities 29%
Escrowed Bonds 14%
Hospitals 14%
Tax Revenue 12%
General Obligations 9%
Other 22%
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 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.12% 0.12% 0.12% 0.12%
- ----------------------------------------------------------------------------------------------
Total (Gross) 0.87% 1.62% 1.42% 0.67%
Waivers/
Reimbursements (0.18%) (0.18%) (0.18%) (0.18%)
- ----------------------------------------------------------------------------------------------
Total (Net) 0.69% 1.44% 1.24% 0.49%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- --------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $49 $54 $13 $5
3 Years $63 $78 $39 $16
5 Years $79 $90 $68 $27
10 Years $124 $152 $150 $62
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Deloitte & Touche LLP, the fund's independent
auditors. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ---------------------- ------------------------
NET
REALIZED
AND
NET UNREALIZED DIVIDENDS NET TOTAL
GEORGIA++ ASSET GAIN FROM TAX- ASSET RETURN
VALUE NET (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 (3/86)
1997 $10.20 $.57 $ .37 $(.57) $ - $10.57 9.39%
1996 10.46 .57 (.25) (.58) - 10.20 3.05
1995 10.23 .58 .23 (.58) - 10.46 8.31
1994 10.62 .59 (.39) (.59) - 10.23 1.83
1993 10.16 .62 .45 (.61) - 10.62 10.84
1992 9.95 .63 .21 (.63) - 10.16 8.81
1991 9.67 .64 .28 (.64) - 9.95 9.90
1990 9.88 .65 (.22) (.64) - 9.67 4.55
1989 9.30 .65 .59 (.66) - 9.88 13.77
1988 9.19 .66 .11 (.66) - 9.30 8.61
CLASS B (2/97)
1997(c) 10.66 .14 (.11) (.12) - 10.57 .31
CLASS C (1/94)
1997 10.18 .51 .37 (.51) - 10.55 8.80
1996 10.44 .51 (.25) (.52) - 10.18 2.48
1995 10.21 .52 .23 (.52) - 10.44 7.72
1994(c) 10.91 .19 (.69) (.20) - 10.21 (10.96)+
CLASS R (2/97)
1997(c) 10.65 .18 (.06) (.20) - 10.57 1.11
- ---------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) ---------------------------------------------
RATIO
RATIO OF OF NET
EXPENSES INVESTMENT
TO INCOME TO
AVERAGE AVERAGE
GEORGIA++ NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
MAY 31, THOUSANDS) MENT(B) MENT(B) RATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (3/86)
1997 $111,518 .78% 5.44% 39%
1996 107,862 .80 5.46 59
1995 113,354 .83 5.79 40
1994 123,068 .70 5.47 39
1993 101,196 .62 5.88 30
1992 70,650 .57 6.31 21
1991 44,829 .72 6.60 24
1990 36,034 .84 6.62 34
1989 35,637 .96 6.74 23
1988 29,701 .91 7.14 46
CLASS B (2/97)
1997(c) 113 1.32+ 4.80+ 39
CLASS C (1/94)
1997 11,803 1.32 4.87 39
1996 9,433 1.34 4.90 59
1995 6,973 1.38 5.18 40
1994(c) 4,348 1.27+ 4.55+ 39
CLASS R (2/97)
1997(c) 22 .38+ 5.71+ 39
- ---------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Georgia.
(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 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 permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. 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, $46 for the three year period, $79 for
the five year period, and $152 for the ten year period. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---
5
<PAGE>
NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: September 12, 1989
NET ASSETS: $84.6 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 4.78% 9.37% 8.61% 8.78% 9.33%
5 Years 6.65% 7.57% 6.96% 6.97% 7.56%
Inception 7.74% 8.34% 7.73% 7.73% 8.33%
</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 incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
(and for Class B and C, fees) between the classes. Class B total returns as-
sume 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 Share-
holder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 22.2
Average Modified Duration 8.7
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 60%
AA 9%
A 11%
BBB/NR 20%
INDUSTRY DIVERSIFICATION (TOP 6)
[PIE CHART APPEARS HERE]
Hospitals 26%
Pollution Control 22%
General Obligations 17%
Housing Facilities 9%
Escrowed Bonds 9%
Other 17%
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 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other 0.13% 0.13% 0.13% 0.13%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.88% 1.63% 1.43% 0.68%
Waivers/
Reimbursements (0.08%) (0.08%) (0.08%) (0.08%)
- -------------------------------------------------------------------------------------------------
Total (Net) 0.80% 1.55% 1.35% 0.60%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $50 $55 $14 $6
3 Years $66 $81 $43 $19
5 Years $85 $96 $74 $33
10 Years $137 $164 $162 $75
</TABLE>
---
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Deloitte & Touche LLP, the fund's independent
auditors. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ---------------------- -------------------------
NET
REALIZED
NET AND DIVIDENDS NET TOTAL
LOUISIANA++ 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 (9/89)
1997 $10.71 $.59 $ .39 $(.59) $ - $11.10 9.37%
1996 10.80 .59 (.08) (.60) - 10.71 4.77
1995 10.48 .60 .32 (.60) - 10.80 9.20
1994 10.93 .61 (.40) (.62) (.04)+++ 10.48 1.77
1993 10.30 .64 .67 (.63) (.05) 10.93 13.12
1992 10.02 .65 .35 (.65) (.07) 10.30 10.35
1991 9.63 .66 .40 (.67) - 10.02 11.47
1990(c) 9.58 .44 .04 (.43) - 9.63 6.52+
CLASS B (2/97)
1997(c) 11.10 .16 - (.17) - 11.09 1.44
CLASS C (2/94)
1997 10.70 .53 .39 (.53) - 11.09 8.78
1996 10.80 .53 (.09) (.54) - 10.70 4.12
1995 10.48 .54 .32 (.54) - 10.80 8.59
1994(c) 11.29 .16 (.81) (.16) - 10.48 (17.21)+
CLASS R (2/97)
1997(c) 11.17 .15 (.08) (.15) - 11.09 .67
- ---------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) ---------------------------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
LOUISIANA++ NET ASSETS EXPENSES TO INCOME TO
END OF AVERAGE NET AVERAGE NET PORTFOLIO
YEAR ENDING PERIOD (IN ASSETS AFTER ASSETS AFTER TURNOVER
MAY 31, THOUSANDS) REIMBURSEMENT(B) REIMBURSEMENT(B) RATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/89)
1997 $76,030 .79% 5.38% 25%
1996 72,005 .80 5.46 26
1995 68,145 .83 5.80 44
1994 66,281 .66 5.56 22
1993 54,483 .61 5.95 29
1992 38,873 .49 6.43 43
1991 27,762 .38 6.79 57
1990(c) 16,678 .44+ 6.40+ 32
CLASS B (2/97)
1997(c) 917 1.46+ 4.69+ 25
CLASS C (2/94)
1997 7,645 1.33 4.83 25
1996 5,658 1.35 4.87 26
1995 3,220 1.37 5.21 44
1994(c) 1,501 1.23+ 4.79+ 22
CLASS R (2/97)
1997(c) - .04+ 5.31+ 25
- ---------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Louisiana.
+++ 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.
(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 eliminated the 0.20% distribution fee
for 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 permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. 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, $84 for
the five year period, and $164 for the ten year period. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---
7
<PAGE>
NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: March 27, 1986
NET ASSETS: $189.3 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 3.26% 7.79% 7.14% 7.20% 7.86%
5 Years 5.40% 6.31% 5.72% 5.69% 6.33%
10 Years 7.39% 7.85% 7.38% 7.24% 7.86%
</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 incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
(and for Class 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 re-
turns 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]
Average Maturity 18.7
Average Modified Duration 7.7
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 36%
AA 29%
A 19%
BBB/NR 16%
INDUSTRY DIVERSIFICATION (TOP 6)
[PIE CHART APPEARS HERE]
Hospitals 20%
Escrowed Bonds 16%
Utility 13%
Pollution Control 12%
Housing Facilities 9%
Other 30%
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 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.11% 0.11% 0.11% 0.11%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.86% 1.61% 1.41% 0.66%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 0.86% 1.61% 1.41% 0.66%
</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 $83 $45 $21
5 Years $88 $99 $77 $37
10 Years $144 $171 $169 $82
</TABLE>
---
8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Deloitte & Touche LLP, the fund's independent
auditors. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
----------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET DIVIDENDS
NORTH CAROLINA++ NET REALIZED AND FROM TAX- NET TOTAL
ASSET UNREALIZED EXEMPT ASSET RETURN
VALUE NET GAIN (LOSS) NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS OF PERIOD VALUE(A)
- --------------------------------------------------------------------------------------------------
CLASS A (3/86)
1997 $10.05 $.54 $ .23 $(.54) $ - $10.28 7.79%
1996 10.23 .55 (.18) (.55) - 10.05 3.67
1995 10.08 .57 .15 (.57) - 10.23 7.45
1994 10.51 .57 (.42) (.58) - 10.08 1.30
1993 9.97 .58 .55 (.59) - 10.51 11.66
1992 9.70 .60 .27 (.60) - 9.97 9.30
1991 9.46 .61 .24 (.61) - 9.70 9.28
1990 9.59 .61 (.13) (.61) - 9.46 5.16
1989 8.93 .62 .66 (.62) - 9.59 14.78
1988 8.80 .62 .13 (.62) - 8.93 8.77
CLASS B (2/97)
1997(c) 10.33 .12 (.06) (.11) - 10.28 .64
CLASS C (10/93)
1997 10.03 .48 .23 (.48) - 10.26 7.20
1996 10.22 .49 (.18) (.50) - 10.03 3.01
1995 10.06 .51 .16 (.51) - 10.22 6.97
1994(c) 10.84 .32 (.78) (.32) - 10.06 (6.26)+
CLASS R (2/97)
1997(c) 10.27 .18 .01 (.18) - 10.28 1.92
- --------------------------------------------------------------------------------------------------
<CAPTION>
CLASS (INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA
---------------------------------------------
<S> <C> <C> <C> <C>
RATIO
OF NET
INVESTMENT
RATIO OF INCOME TO
NORTH CAROLINA++ EXPENSES AVERAGE
NET ASSETS TO AVERAGE NET ASSETS
END OF NET AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
MAY 31, THOUSANDS) MENT(B) MENT(B) RATE
- --------------------------------------------------------------------------------------------------
CLASS A (3/86)
1997 $181,595 .93% 5.31% 23%
1996 185,016 .90 5.32 54
1995 191,850 .91 5.73 35
1994 196,087 .89 5.41 21
1993 169,944 .95 5.70 12
1992 131,488 .98 6.10 17
1991 108,917 .99 6.36 12
1990 96,348 .94 6.40 34
1989 87,539 .92 6.66 21
1988 68,077 .83 6.93 75
CLASS B (2/97)
1997(c) 271 1.62+ 4.60+ 23
CLASS C (10/93)
1997 7,065 1.48 4.76 23
1996 6,589 1.45 4.77 54
1995 6,049 1.46 5.13 35
1994(c) 4,161 1.49+ 4.65+ 21
CLASS R (2/97)
1997(c) 405 .66+ 5.57+ 23
- --------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship North Carolina.
(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 eliminated the 0.20% distribution fee
for 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 permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. 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, $51 for the three year period, $88 for
the five year period, and $171 for the ten year period. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---
9
<PAGE>
NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: July 6, 1993
NET ASSETS: $10.2 million
TOTAL RETURN (ANNUALIZED)
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
1 Year 3.73% 8.28% 7.52% 7.73% 8.45%
Inception 4.04% 5.19% 4.57% 4.78% 5.23%
</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 incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
(and for Class B and C, fees) between the classes. Class B total returns as-
sume an ongoing investment and do not reflect the imposition of the CDSC; your
returns for the 1 year and since inception periods would be lower if you re-
deemed 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]
Average Maturity 19.0
Average Modified Duration 8.2
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA 61%
AA 18%
A 14%
BBB/NR 7%
INDUSTRY DIVERSIFICATION (TOP 6)
[PIE CHART APPEARS HERE]
Water & Sewer 22%
General Obligations 17%
Education/Student Loans 14%
Municipal Appropriations 12%
Housing Facilities 11%
Other 24%
EXPENSE INFORMATION AS OF 5/31/97
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<S> <C> <C> <C> <C>
CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
CLASS A CLASS B CLASS C CLASS R
- ----------------------------------------------------
Management Fees 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.60% 0.60% 0.60% 0.60%
- ----------------------------------------------------
Total (Gross) 1.35% 2.10% 1.90% 1.15%
Waivers/
Reimbursements (0.76%) (0.76%) (0.76%) (0.76%)
- ----------------------------------------------------
Total (Net) 0.59% 1.34% 1.14% 0.39%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $48 $53 $12 $4
3 Years $60 $75 $36 $13
5 Years $74 $85 $63 $22
10 Years $113 $141 $139 $49
</TABLE>
---
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Deloitte & Touche LLP, the fund's independent
auditors. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTH NET
CAROLINA++ NET REALIZED AND DIVIDENDS DISTRIBU- NET TOTAL
ASSET UNREALIZED FROM TAX- TIONS ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET FROM VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME(B) INVESTMENTS INCOME GAINS PERIOD VALUE(A)
- ------------------------------------------------------------------------------------------
CLASS A (7/93)
1997 $9.28 $.51 $ .24 $(.50) $ - $9.53 8.28%
1996 9.45 .48 (.15) (.50) - 9.28 3.53
1995 9.20 .50 .25 (.50) - 9.45 8.54
1994(c) 9.58 .42 (.38) (.39) (.03) 9.20 .15+
CLASS B (2/97)
1997(c) 9.61 .13 (.11) (.11) - 9.52 .20
CLASS C (2/97)
1997(c) 9.63 .13 (.13) (.11) - 9.52 .03
CLASS R (2/97)
1997(c) 9.60 .14 (.07) (.13) - 9.54 .75
- ------------------------------------------------------------------------------------------
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) -------------------------------------------------
<S> <C> <C> <C> <C>
RATIO
OF NET
RATIO OF INVESTMENT
SOUTH EXPENSES INCOME TO
CAROLINA++ TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD REIMBURSE- REIMBURSE- TURNOVER
MAY 31, (IN THOUSANDS) MENT(B) MENT(B) RATE
- ------------------------------------------------------------------------------------------
CLASS A (7/93)
1997 $ 9,629 .41% 5.36% 68%
1996 10,534 .71 4.98 76
1995 9,013 .40 5.54 87
1994(c) 6,284 .40+ 4.82+ 88
CLASS B (2/97)
1997(c) 160 1.09+ 4.87+ 68
CLASS C (2/97)
1997(c) 420 .90+ 4.86+ 68
CLASS R (2/97)
1997(c) 25 .14+ 5.73+ 68
- ------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship South Carolina.
(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 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 permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. If you did not redeem
Class B shares at the end of each holding period, your expenses would have
been $14 for the one year period, $42 for the three year period, $73 for
the five year period, and $141 for the ten year period. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---
11
<PAGE>
NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND
PERFORMANCE INFORMATION AS OF 5/31/97
INCEPTION: November 2, 1987
NET ASSETS: $273.3 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 3.18% 7.71% 7.07% 7.12% 7.58%
5 Years 5.76% 6.67% 6.08% 6.07% 6.64%
Inception 7.35% 7.83% 7.34% 7.23% 7.82%
</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 incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
(and for Class B and C, fees) between the classes. Class B total returns as-
sume 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 Share-
holder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 19.3
Average Modified Duration 7.0
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 40%
AA 24%
A 18%
BBB/NR 10%
INDUSTRY DIVERSIFICATION (TOP 6)
[PIE CHART APPEARS HERE]
Pollution Control 19%
Health Care/Hospitals 17%
General Obligations 14%
Escrowed Bonds 14%
Housing Facilities 9%
Other 27%
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 Expenses 0.10% 0.10% 0.10% 0.10%
- ----------------------------------------------------------------------------------------------
Total (Gross) 0.84% 1.59% 1.39% 0.64%
Waivers/
Reimbursements (0.04%) (0.04%) (0.04%) (0.04%)
- ----------------------------------------------------------------------------------------------
Total (Net) 0.80% 1.55% 1.35% 0.60%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $50 $55 $14 $6
3 Years $66 $81 $43 $19
5 Years $85 $96 $74 $33
10 Years $137 $164 $162 $75
</TABLE>
---
12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Deloitte & Touche LLP, the fund's independent
auditors. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ---------------------- ------------------------
NET
REALIZED
TENNESSEE++ NET 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 (11/87)
1997 $10.83 $.59 $ .23 $(.59) $ - $11.06 7.71%
1996 11.01 .59 (.18) (.59) - 10.83 3.78
1995 10.78 .60 .23 (.60) - 11.01 8.04
1994 11.23 .61 (.43) (.61) (.02) 10.78 1.55
1993 10.56 .62 .68 (.63) - 11.23 12.60
1992 10.34 .65 .22 (.65) - 10.56 8.66
1991 10.09 .67 .26 (.67) (.01) 10.34 9.73
1990 10.26 .67 (.15) (.67) (.02) 10.09 5.53
1989 9.65 .68 .60 (.67) - 10.26 13.89
1988(c) 9.58 .35 .09 (.37) - 9.65 7.50+
CLASS B (2/97)
1997(C) 11.14 .14 (.09) (.13) - 11.06 .42
CLASS C (10/93)
1997 10.82 .53 .23 (.53) - 11.05 7.12
1996 11.00 .53 (.18) (.53) - 10.82 3.22
1995 10.78 .54 .22 (.54) - 11.00 7.35
1994(c) 11.61 .35 (.83) (.34) (.01) 10.78 (5.92)+
CLASS R (2/97)
1997(C) 11.09 .20 (.05) (.20) - 11.04 1.40
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) ---------------------------------------------
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TENNESSEE++ TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDING PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
MAY 31, THOUSANDS) MENT(B) MENT(B) RATE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (11/87)
1997 $257,475 .85% 5.35% 23%
1996 250,886 .88 5.30 38
1995 241,778 .89 5.64 23
1994 236,230 .76 5.42 17
1993 191,811 .88 5.66 15
1992 126,833 .84 6.18 35
1991 92,431 .76 6.60 30
1990 73,752 .78 6.57 56
1989 62,048 .62 6.80 50
1988(c) 23,725 .47+ 6.35+ 23
CLASS B (2/97)
1997(C) 537 1.37+ 4.72+ 23
CLASS C (10/93)
1997 15,049 1.40 4.80 23
1996 15,483 1.43 4.75 38
1995 12,494 1.44 5.08 23
1994(c) 10,652 1.23+ 4.80+ 17
CLASS R (2/97)
1997(C) 248 .46+ 5.75+ 23
</TABLE>
- -------------------------------------------------------------------------------
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship Tennessee.
(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 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 permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. 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, $84 for
the five year period, and $164 for the ten year period. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---
13
<PAGE>
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital. There
is no assurance that the funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401k plan;
. Avoid fluctuations in share price.
HOW THE FUNDS SELECT INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal, state and, in
some cases, local income taxes. Income from these bonds may be subject to the
federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by
the full faith and credit, or taxing authority, of the issuer and may be re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment 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' in-
vestment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes.
The funds may 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 re-
duce 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 rat-
ings 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 mu-
nicipal 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 ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover rela-
tively 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.
---
14
<PAGE>
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 obliga-
tion to make interest and principal payments. In general, lower rated munici-
pal 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 in-
come, but are subject to greater price fluctuation due to changes in market
conditions than bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from the economic, political or regula-
tory changes that could adversely affect municipal bond issuers in that state
and therefore the value of the fund's investment portfolio. These risks may be
greater for the Alabama, Georgia, Louisiana, North Carolina and South Carolina
Funds, which as "non-diversified" funds may concentrate their investments in
municipal bonds of certain issuers to a greater extent than the Tennessee Fund
described in this prospectus, which is a diversified fund.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. Each fund may not have more than:
. 25% in any one industry sector, such as electric utilities or health care;
and
. 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Tennessee Fund also may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities
that are exempt from regular federal income tax, although the funds may invest
up to 100% as a temporary defensive measure in response to adverse market con-
ditions. 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 strate-
gies include using financial futures contracts, options on financial futures,
or options based on either an index of long-term tax-free securities or on
debt securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds" and "Risk Reduction Strategies" are funda-
mental and may not be changed without the approval of a majority of the share-
holders of each fund.
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 re-
ceive 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 ad-
visers 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 con-
tinue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
---
15
<PAGE>
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed 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 in-
crease minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of pur-
chase. 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 pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply to all funds de-
scribed in this prospectus:
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
- -------------------------------------------------------------------------------------------
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over --(1) -- --(1)
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of any
amount over $5 million. Unless the authorized dealer waived the commis-
sion, you may be assessed a contingent deferred sales charge (CDSC) of 1%
if you redeem any of your shares within 18 months of purchase. The CDSC is
calculated on the lower of your purchase price or redemption proceeds.
Nuveen periodically undertakes sales promotion programs with authorized deal-
ers and may pay them the full applicable sales charge as a commission. In ad-
dition, 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 market-
ing 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
---
16
<PAGE>
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of pur-
chase. 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% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion 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 as-
sessed 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 pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. 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% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser 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 as-
sessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
Under limited circumstances, you may purchase Class R shares at their net as-
set value on the day of purchase. In order to qualify, you must be eligible
under one of the programs described under "Other Sales Charge Discounts" above
to purchase Class A shares without a sales charge (excluding Unit Trust rein-
vestment) or meet certain other purchase size criteria. Please refer to the
statement of additional information for further information. 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 were 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 rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. 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 immedi-
ately 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 ad-
dress of record;
17---
<PAGE>
. 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 rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, 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 de-
scribed 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 no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in an-
other Nuveen national or state mutual fund. You may exchange fund shares by
calling (800) 621-7227 or by mailing your written request to Nuveen at the ad-
dress 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 ex-
changing. 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 determin-
ing any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on
fund shareholders. In order to limit excessive exchange activity and in other
circumstances where the funds' investment adviser believes doing so would be
in the best interests of the fund, each fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges, or
reject any exchange. You will be notified in the event this happens to the ex-
tent 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 sec-
tion 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." Be-
cause 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 in-
vestment regardless of fluctuating price levels, you should consider your fi-
nancial 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").
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18
<PAGE>
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
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 re-
ceive 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 concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares, 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
for the purpose of determining applicable sales charges. You may exercise this
privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of ex-
ercising your reinstatement privilege.
FUND DIRECT-ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation or the Account Update Form. If you need additional copies of these
forms, or would like assistance completing them, contact your financial ad-
viser 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 tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited service.
DIVIDENDS AND TAXES
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends on or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares 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 mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count application, contact your financial adviser or call Nuveen at (800) 621-
7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
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19
<PAGE>
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
TAXES AND TAX REPORTING
The discussion below and in the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in municipal bonds from a specific state or in mu-
nicipal bonds whose income is otherwise exempt from regular federal, state and
local income taxes. Consequently, the regular monthly dividends you receive
will be exempt from regular federal, state and, in some cases, local income
taxes. All or a portion of these dividends, however, may be subject to the
federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of
its investment income by state and the portion of its income that is subject
to AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change 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 divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be tax-
able 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 in-
come 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.
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20
<PAGE>
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
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 con-
duct 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 open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume 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 approxi-
mately 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:
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 portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, 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 ex-
ecution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Michael Davern is the portfolio manager for the Alabama and Georgia Funds. Mr.
Davern has managed these funds since 1994, first as a Vice President of Flag-
ship Financial Inc., the funds' prior investment adviser, and then as a Vice
President of Nuveen Advisory after the acquisition of Flagship Resources Inc.
by The John Nuveen Company in January 1997. Walter Parker is the portfolio
manager for the North Carolina, South Carolina, and Tennessee Funds. Mr.
Parker has managed these funds since 1995, and since 1994 had been a Vice
President of Flagship Financial Inc., the funds' prior investment adviser, un-
til becoming a Vice President of Nuveen Advisory upon the acquisition of Flag-
ship Resources Inc. by The John Nuveen Company in January 1997. Jan
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21
<PAGE>
Terbreuggen is the portfolio manager for the Louisiana Fund. Mr. Terbrueggen
has managed the fund as a Vice President of Flagship Financial Inc., the
funds' prior investment adviser, since 1992, until becoming a Vice President
of Nuveen Advisory upon the acquisition of Flagship Resources Inc. by The John
Nuveen Company in January 1997.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor
of the funds' shares. In this capacity, Nuveen manages the offering of the
funds' shares and is responsible for all sales and promotional activities. In
order to reimburse Nuveen for its costs in connection with these activities,
including compensation paid to authorized dealers, each fund has adopted a
distribution and service plan under Rule 12b-1 of the Investment Company Act
of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of each class of shares outstanding. The plan also
authorizes each fund to pay Nuveen an annual 0.75% distribution fee on the av-
erage daily net assets of Class B shares outstanding. The plan also authorizes
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 commission paid to financial advisers at the time of sale on
sales of Class B and Class C shares, Nuveen retains the first year's service
fee on sales of Class B shares and all Class B distribution fees, and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of the record. The statement
of additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
The funds have appointed Boston Financial, P.O. Box 8509, Boston, MA, 02266-
8509, as the transfer agent responsible for distributing dividend payments and
providing certain bookkeeping, data processing and other administrative serv-
ices in connection with the maintenance of shareholder accounts.
HOW THE FUNDS REPORT PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion.
You may find more information about each fund's performance in its annual re-
port. 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, sub-
tracting 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 mu-
nicipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
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.
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering
statements of these issuers and has not been independently verified by the
funds. The discussion includes general state tax information related to an in-
vestment 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 in-
formation.
ALABAMA
The industrialization of Alabama's economy over the past two decades has re-
sulted in a manufacturing sector that represents just over a quarter of the
state's gross product and 21.7% of employment. In recent years, the importance
of the service sector has grown as regional concentrations such as the medical
complex in Birmingham and the high technol -
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22
<PAGE>
ogy research center at Huntsville stimulate growth. The trade and service sec-
tors have provided 75% of job growth in recent years.
The state's unemployment rate was 4.5% in June 1997. Per capita income growth
significantly outpaced the national average during the period from 1980 to
1990. However, personal income in the state remains below the national median
at $20,055, about 82% of the U.S. per capita average.
Moody's gives Alabama general obligation bonds an Aa rating while Standard &
Poor's gives them an AA rating.
Tax Treatment.
The Alabama Fund's regular monthly dividends will not be subject to Alabama
personal income taxes to the extent they are paid out of income earned on Ala-
bama municipal bonds or U.S. government securities. You will be subject to Al-
abama personal income taxes, however, to the extent the Alabama Fund realizes
any taxable income or capital gains even if such income or gains are not dis-
tributed to you as dividends, or if you sell or exchange Alabama Fund shares
and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Alabama Fund is similar to that
described above.
GEORGIA
One of the nation's fastest growing states in terms of population, Georgia has
benefited from steady economic and employment growth as a result of the
State's stable and broad-based trade and service economy, low average cost of
living, and extensive transportation infrastructure. This economic growth as
well as the State's healthy financial position were recognized in the State's
recent rating upgrade from AA+ to AAA by Standard & Poor's.
The State's unemployment level is low at 4.4% in June, 1997, down from 5.1% in
June of 1996. Per capita income is $22,709, which is about 94% of the national
average and 104% of the region.
Georgia's tight financial policies and conservative management have resulted
in a substantial operating surplus of $476 million and an unreserved general
fund balance of $621 million in fiscal 1996. The large surplus enabled the
State to increase reserves for debt service and expand the fiscal 1997 budget.
As of July 31, 1997, Georgia's general obligation debt carries triple-A rat-
ings from Standard & Poor's, Moody's, and Fitch.
Tax Treatment.
The Georgia Fund's regular monthly dividends will not be subject to Georgia
personal income taxes to the extent they are paid out of income earned on
Georgia municipal bonds or U.S. government securities. You will be subject to
Georgia personal income taxes, however, to the extent the Georgia Fund dis-
tributes any taxable income or realized capital gains, or if you sell or ex-
change Georgia Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Georgia Fund is similar to that
described above.
LOUISIANA
Louisiana's economic base has experienced some improvement after the recession
of the 1980's. Per capita personal income has improved and was $19,824 in
1996, but remains flat at about 80% of the national average. The annual aver-
age unemployment rate for the State in 1996 was 6.7%, well above the national
average of 5.4%. Employment projections show increases of approximately 2% an-
nually, with 66,000 additional jobs expected in the next two years.
The State possesses natural resources which have played a significant role in
driving the economy. Chemicals provide the largest employment in the manufac-
turing industry. Tourism is the second largest industry in the state, adding
$6.6 billion to the economy and generating $450 million in state and local
taxes by the end of 1995. Louisiana will continue to rely on the gaming indus-
try, despite a sector employment drop of about 4% in 1996 due to the consoli-
dation and downsizing of hotels and casinos.
Financial operations have stabilized somewhat in recent years. The General
Fund ending balance increased 36% from fiscal year 1995 to fiscal year 1996.
Debt service comprises approximately 4% of State expenditures. Debt levels
have moderated, declining approximately 42% since extremely high levels in
1987. This decline is partly due to the recent retirement and defeasement of
bonds once issued by the Louisiana Recovery District to recover deficits expe-
rienced in the 1980's.
The State of Louisiana general obligation bond ratings by Standard & Poor's
and Fitch are A- and A, respectively. Moody's revised Louisiana's general ob-
ligation rating from Baa1 to A3 in March of 1997.
Tax Treatment.
The Louisiana Fund's regular monthly dividends will not be subject to Louisi-
ana personal income tax to the extent they are paid out of income earned on
Louisiana municipal obligations or U.S. government securities. You will be
subject to Louisiana personal income tax, however, to the extent the Louisiana
Fund distributes any taxable income or realized capital gains, or if you sell
or exchange Louisiana Fund shares and realize capital gain on the transaction.
The treatment of corporate shareholders of the Louisiana Fund is similar to
that described above.
NORTH CAROLINA
North Carolina's economy continues to grow and diversify. The State ranks
among the top ten states in economic growth, as measured by employment, popu-
lation, and personal income growth. While manufacturing remains the State's
major employment sector, the services and retail trade sectors also supply a
significant percentage of employment. Growth in the high-technology sector has
helped diversify the State's economy and also has helped offset recent employ-
ment losses in the textile, apparel, and tobacco industries.
The State's unemployment rate was 3.6% in June 1997, below the national aver-
age of 5.0% in June 1997 and down
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23
<PAGE>
from the State's 4.3% rate in June 1996. Per capita income grew to $22,010 in
1996 but remains below the national average of $24,731.
The State has implemented sound financial policies and maintains low debt lev-
els. Its Constitution mandates that total expenditures not exceed receipts for
the same period plus any surplus available at the start of the fiscal year.
These conservative policies, combined with the State's economic recovery, re-
sulted in budget surpluses in each fiscal year 1992-1996. In February 1997,
Moody's, Standard & Poor's, and Fitch confirmed their respective triple-A rat-
ings for the State.
Tax Treatment.
The North Carolina Fund's regular monthly dividends will not be subject to
North Carolina personal income taxes to the extent they are paid out of income
earned on North Carolina municipal bonds or obligations of the U.S. govern-
ment. You will be subject to North Carolina personal income taxes, however, to
the extent the North Carolina fund distributes any taxable income or realized
capital gains, or if you sell or exchange North Carolina Fund shares and real-
ize a capital gain on the transaction.
The treatment of corporate shareholders of the North Carolina Fund is similar
to that described above.
SOUTH CAROLINA
Though still reliant on the textile industry, South Carolina's economy has di-
versified into other areas such as trade, services, and durable goods manufac-
turing. While not a wealthy state, employment growth has outpaced the national
growth rate. Steady economic gains are expected to continue. The strength of
the job market, combined with low housing costs and the State's attractive
climate, are expected to continue to attract new residents.
The State's June 1997 unemployment rate of 5.1% stands slightly above the 5.0%
national level. Per capita income was $19,755 in 1996, equal to about 81% of
the national average with personal income growth exceeding the national growth
rate.
South Carolina's Constitution mandates a balanced budget and employs several
means to ensure its achievement. The Constitution also requires the government
to set aside 3% of general fund revenues in a General Reserve Fund and 2% in a
Capital Reserve Fund as a hedge against any year end deficit. This sound fis-
cal policy allowed South Carolina to end fiscal 1996 with a general fund bal-
ance of $285 million, $26 million over fiscal 1995. As of July 31, 1997, South
Carolina's general obligation debt carries triple-A ratings from Standard &
Poor's, Moody's and Fitch.
Tax Treatment.
The South Carolina Fund's regular monthly dividends will not be subject to
South Carolina personal income taxes to the extent they are paid out of income
earned on South Carolina municipal bonds or U.S. government securities. You
will be subject to South Carolina personal income taxes, however, to the ex-
tent the South Carolina Fund distributes any taxable income or realized capi-
tal gains, or if you sell or exchange South Carolina Fund shares and realize a
capital gain on the transaction.
The treatment of corporate shareholders of the South Carolina Fund is similar
to that described above.
TENNESSEE
Tennessee's economy has diversified over the past several years. Traditionally
a manufacturing state, Tennessee has shifted toward services and trade indus-
tries. Tennessee's average annual unemployment rate in 1996 was 5.2%, compared
to the national average rate of 5.4%. The state's population has grown stead-
ily by approximately 1% annually. Personal income grew over 87% from 1983 to
1993 to reach $18,434 per capita. The per capita average increased again to
$21,764 in 1996.
Tennessee's Constitution requires that a fiscal year's expenditures not exceed
that year's revenues and available reserves. Taxes represent the largest
source of governmental revenues, comprising 50.3% of revenues in 1996. At 1996
fiscal year end, general obligation debt in Tennessee totaled $634.7 million.
Tennessee's solid fiscal budget management is reflected in its general obliga-
tion ratings of Aaa/AA+/AAA by Moody's, Standard & Poor's and Fitch,
respectively.
Tax Treatment.
The Tennessee Fund's regular monthly dividends will not be subject to Tennes-
see personal income taxes to the extent they are paid out of income earned on
or capital gains realized from the sale of Tennessee municipal bonds or U.S.
government securities. You will be subject to Tennessee personal income taxes,
however, to the extent the Tennessee Fund distributes any taxable income or
realized capital gains on other securities. You will not be subject to Tennes-
see personal income taxes if you sell or exchange Tennessee Fund shares.
The treatment of corporate shareholders of the Tennessee fund differs from
that described above.
---
24
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety of funds designed to help you reach
your financial goals. The funds below are grouped by investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
National Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Funds
<TABLE>
<S> <C> <C>
Alabama Kentucky/3/ New York/1/
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan South Carolina
Florida/2/ Missouri Tennessee
Georgia New Jersey/2/ Virginia
Kansas New Mexico Wisconsin
</TABLE>
1. Long-term and insured long-term portfolios.
2. Long-term and intermediate-term portfolios.
3. Long-term and limited-term portfolios.
Nuveen Family of Municipal Bond Funds
[MAP APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
<PAGE>
SEPTEMBER 26, 1997
NUVEEN FLAGSHIP MULTISTATE TRUST III
NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND
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 III dated September 26, 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............................... S-2
Management................................................................. S-12
Investment Adviser and Investment Management Agreement..................... S-23
Portfolio Transactions..................................................... S-24
Net Asset Value............................................................ S-25
Tax Matters................................................................ S-25
Performance Information.................................................... S-33
Additional Information on the Purchase and Redemption of Fund Shares....... S-40
Distribution and Service Plan.............................................. S-46
Independent Public Accountants and Custodian............................... S-48
Financial Statements....................................................... S-48
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports; each is included herein by reference. The
Annual Reports accompany this Statement of Additional Information.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of that Fund:
(1) Invest in securities other than Municipal Obligations and short-term
securities, as described in the Prospectus. Municipal Obligations are
municipal bonds that pay interest that is exempt from regular federal,
state and, in some cases, local income taxes.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the Georgia Municipal Bond Fund, the
Louisiana Municipal Bond Fund, the North Carolina Municipal Bond Fund, and
the Tennessee Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
S-2
<PAGE>
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental entity or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Flagship Multistate Trust III (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 III. 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 six
series: the Nuveen Flagship Alabama Municipal Bond Fund (formerly the
S-3
<PAGE>
Flagship Alabama Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Georgia Municipal Bond Fund (formerly the
Flagship Georgia Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Louisiana Municipal Bond Fund (formerly the
Flagship Louisiana Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship North Carolina Municipal Bond Fund (formerly
the Flagship North Carolina Tax Exempt Fund, a series of the Flagship Tax
Exempt Funds Trust); the Nuveen Flagship South Carolina Municipal Bond Fund
(formerly the Flagship South Carolina Double Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); and the Nuveen Flagship Tennessee Municipal
Bond Fund (formerly the Flagship Tennessee Double Tax Exempt Fund, a series of
the Flagship Tax Exempt Funds Trust). Certain matters under the Investment
Company Act of 1940 which must be submitted to a vote of the holders of the
outstanding voting securities of a series company shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local income tax in each Fund's
respective state, which generally will be Municipal Obligations issued within
the Fund's respective state. In general, Municipal Obligations include debt
obligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public
facilities such as airports, bridges, highways, hospitals, housing, mass
transportation, schools, streets and water and sewer works. Industrial
development bonds and pollution control bonds that are issued by or on behalf
of public authorities to finance various privately-rated facilities are
included within the term Municipal Obligations if the interest paid thereon is
exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have
credit characteristics equivalent to bonds rated within the four highest grades
by Moody's, S&P or Fitch, 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.
S-4
<PAGE>
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.
The portfolio turnover rates for the Funds, for the fiscal year-end of the
Fund as a series of its predecessor entity (described above), and for the 1997
year-end, as indicated, were:
<TABLE>
<CAPTION>
FISCAL
YEAR
1996 1997
---- ----
<S> <C> <C>
Nuveen Flagship Alabama Municipal Bond Fund..................... 42% 72%
Nuveen Flagship Georgia Municipal Bond Fund..................... 59% 39%
Nuveen Flagship Louisiana Municipal Bond Fund................... 26% 25%
Nuveen Flagship North Carolina Municipal Bond Fund.............. 54% 23%
Nuveen Flagship South Carolina Municipal Bond Fund.............. 76% 68%
Nuveen Flagship Tennessee Municipal Bond Fund................... 38% 23%
</TABLE>
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the
S-5
<PAGE>
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.
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 ALABAMA
The industrialization of Alabama's economy over the past two decades has
resulted in a manufacturing sector that represents just over a quarter of the
State's gross product and 21.7% of employment. Nine consecutive years of
private sector capital investment exceeding $2 billion annually has also left
the State's manufacturing facilities modernized and more competitive in the
domestic and world markets. In recent years, the importance of the service
sector has grown as regional concentrations such as the medical complex in
Birmingham and the high technology research center at Huntsville stimulate
growth. The trade and service sectors have provided 75% of job growth in recent
years.
The State's unemployment rate fell from 8.0% in 1994 to 4.5% in June 1997.
Alabama enjoyed a 25.9% increase in per capita income from 1990-94 outstripping
the 15.4% national growth during the same period. Per capita income growth also
significantly outpaced the national average during the period from 1980 to
1990. However, personal income in the State remains below the national median
at about 82% of the U.S. per capita average.
Moody's gives Alabama general obligation bonds an Aa rating while S&P's given
them an AA rating.
S-6
<PAGE>
FACTORS PERTAINING TO GEORGIA
One of the nation's fastest growing states in terms of population, Georgia
has benefited from steady economic and employment growth as a result of the
State's stable and broad-based trade/service economy, low average cost of
living, and extensive transportation infrastructure. According to S&P, the 1996
Olympic games represented a sizable bubble on the State's economic trend line,
however, to date no significant drop-off from the State's pre-Olympic trend
line has occurred. This economic growth as well as the State's healthy
financial position were recognized in the State's recent rating upgrade from
AA+ to AAA by S&P.
The State's unemployment level is low at 4.4% in June, 1997, down from 5.1%
in June of 1996. On a per capita basis, personal income is $22,709, equal to
about 94% of the national average and 104% of the region.
Georgia's tight financial policies and conservative management have resulted
in a substantial operating surplus of $476 million and an unreserved general
fund balance of $621 million in fiscal 1996. The large surplus enabled the
State to increase reserves for debt service and expand the fiscal 1997 budget.
As of July 31, 1997, Georgia's general obligation debt carries triple-A ratings
from S&P, Moody's, and Fitch.
FACTORS PERTAINING TO LOUISIANA
Louisiana's economic base has experienced some improvement after the
recession of the 1980's. Population has increased approximately 3% since 1990
after ten years of zero growth. Per capita personal income has improved and was
$19,824 in 1996, but remains flat at about 80% of the national average. The
annual average unemployment rate for the State in 1996 was 6.7%, well above the
national average of 5.4%. Employment projections show increases of
approximately 2% annually, with 66,000 additional jobs expected in the next two
years. Single family housing construction grew approximately 1.5% in 1996.
The State possesses natural resources which have played a significant role in
driving the economy. Louisiana is the second largest petroleum refining
producer and the third largest producer of chemical products in the nation. In
the next year $700 million will be invested in three Direct Reduction Iron
facilities. Chemicals provide the largest employment in the manufacturing
industry. Tourism is the second largest industry in the State, adding $6.6
billion to the economy and generating $450 million in state and local taxes by
the end of 1995. Louisiana will continue to rely on the gaming industry,
despite a sector employment drop of about 4% in 1996 due to the consolidation
and downsizing of hotels and casinos.
Financial operations have stabilized somewhat in recent years. The General
Fund ending balance increased 36% from fiscal year 1995 to fiscal year 1996.
The State's primary revenue sources are federal grants 27%, other taxes and
revenues 16%, pension trust revenues 15%, and state sales and use taxes 13%.
Federal grants declined 9.3% due to Medicaid funding reductions. The State's
primary expenditures are for health and hospitals 32%, education 18%, colleges
and universities 14%. Debt service comprises approximately 4% of State
expenditures. Debt levels have moderated, declining approximately 42% since
extremely high levels in 1987. This decline is partly due to the recent
retirement and defeasement of bonds once issued by the Louisiana Recovery
District to recover deficits experienced in the 1980's.
The State of Louisiana general obligation bond rating by S&P and Fitch are A-
and A, respectively. Moody's revised Louisiana's general obligation rating from
Baa1 to A3 in March of 1997.
FACTORS PERTAINING TO NORTH CAROLINA
North Carolina's economy continues to grow and diversify. The State ranks
among the top ten states in terms of economic growth, as measured by
employment, population, and personal income growth. While manufacturing remains
the State's major employment sector, the services and retail trade sectors also
supply a significant percentage of employment. Growth in the high-technology
sector has helped diversify the State's economy and has also helped offset
recent employment losses in the textile, apparel, and tobacco industries.
S-7
<PAGE>
The State's unemployment rate was 3.6% in June 1997, below the national
average of 5.0% in June 1997 and down from the 4.3% rate for the State in June
1996. Per capita income grew from $13,716 in 1987 to $22,010 in 1996 but
remains below the national average of $24,231.
The State has implemented sound financial policies and maintains low debt
levels. Its Constitution mandates that total expenditures not exceed receipts
for the same period plus any surplus available at the start of the fiscal year.
These conservative policies, combined with the State's economic recovery,
resulted in budget surpluses in each fiscal year 1992-1996. In February 1997,
Moody's, S&P, and Fitch confirmed their respective triple-A ratings for the
State.
FACTORS PERTAINING TO SOUTH CAROLINA
Though still reliant on the textile industry, South Carolina's economy has
diversified into other areas such as trade, services, and durable goods
manufacturing. While not a wealthy state, employment growth has outpaced the
national growth rate. Steady economic gains are expected to continue as local
companies' expansion plans should contribute to future growth. The strength of
the job market, combined with low housing costs and the State's attractive
climate are expected to continue to attract new residents.
The State's June 1997 unemployment rate (5.1%) stands slightly above the 5.0%
national level. On a per capita basis, personal income was $19,755 in 1996,
equal to about 81% of the national average with personal income growth
exceeding the national rate.
South Carolina's Constitution mandates a balanced budget and employs several
means to ensure its achievement. Each quarter the State Budget and Control
Board must monitor revenues and lower appropriations in the event the State
projects a deficit after the first or second quarters. The Constitution also
requires the government to set aside 3% of general fund revenues in a General
Reserve Fund and 2% in a Capital Reserve Fund as a hedge against any year end
deficit. During the fiscal year, the State must fund its operating expenses
with the Capital Reserve Fund moneys before resorting to any cuts in an effort
to meet projected deficits. At the end of the year, the legislature may apply
both funds to any deficit but any moneys taken from the General Reserve must be
replaced within 3 years. This sound fiscal policy allowed South Carolina to end
fiscal 1996 with a general fund balance of $285 million, $26 million over
fiscal 1995. As of July 31, 1997, South Carolina's general obligation debt
carries triple-A ratings from S&P, Moody's, and Fitch.
The State recently revised its school bond intercept program. Under the new
legislation, the State may divert state aid funds directly to the paying agent
to pay debt service upon notification from a school district of an imminent
default. Previously, the State could divert funds only after a default had
occurred.
FACTORS PERTAINING TO TENNESSEE
Tennessee's economy has diversified over the past several years.
Traditionally a manufacturing state, Tennessee has shifted toward services and
trade industries. Tennessee's average annual unemployment rate in 1996 was
5.2%, compared to the nation's average rate of 5.4%. Tennessee's unemployment
rate has remained below the national average since 1989. The State's population
has grown steadily by approximately 1% annually. Personal income grew over 87%
from 1983 to 1993 to reach $18,434 per capita. The per capita average increased
again to $21,764 in 1996.
Tennessee's Constitution requires that a fiscal year's expenditures not
exceed that year's revenues and available reserves. Taxes represent the largest
source of governmental revenues, comprising 50.3% of revenues in 1996. Tax
collections increased 4.6% from 1995 due primarily to sales tax revenue growth.
Total governmental expenditures increased 2.2% from 1995, as education funding
was enhanced by 3.7%. Tennessee's Rainy Day Fund is stable at approximately
$101 million. Debt levels are manageable. At 1996 fiscal year end, general
obligation debt in Tennessee totaled $634.7 million. Tennessee's solid fiscal
budget management is reflected in its general obligation ratings of Aaa/AA+/AAA
by Moody's, S&P and Fitch, respectively.
S-8
<PAGE>
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.
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
S-9
<PAGE>
primarily dependent on the issuer's access to the long-term municipal bond
market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
S-10
<PAGE>
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-11
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has eight
trustees, two of whom are "interested persons" (as the term "interested
persons" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 48 Chairman and Chairman since July 1, 1996 of The John
Schwertfeger* Trustee Nuveen Company, John Nuveen & Co.
333 West Wacker Drive 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).
Anthony T. Dean* 52 President and President since July 1, 1996 of The John
333 West Wacker Drive Trustee Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.; prior
thereto, Executive Vice President and
Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory
Corp. (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
201 Michigan Avenue President of The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri 64 Trustee President and Chief Executive Officer of
3 West 29th Street Blanton-Peale Institute of Religion and
New York, NY 10001 Health.
Peter R. Sawers 64 Trustee Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct
Northfield, IL 60093 Professor, Lake Forest Graduate School of
Management, Lake Forest, Illinois;
Chartered Financial Analyst; Certified
Management Consultant.
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
William J. 53 Trustee Senior Partner, Miller-Valentine Partners,
Schneider Vice President, Miller-Valentine Group.
4000 Miller-
Valentine
Ct.
P.O. Box 744
Dayton, OH
45401
Judith M. 49 Trustee Executive Director, Gaylord and Dorothy
Stockdale Donnelley Foundation (since 1994); prior
35 E. Wacker thereto, Executive Director, Great Lakes
Drive Protection Fund (from 1990 to 1994).
Suite 2600
Chicago, IL
60601
Bruce P. 57 Executive Vice Executive Vice President of John Nuveen &
Bedford President Co. Incorporated, Nuveen Advisory Corp. and
333 West Nuveen Institutional Advisory Corp. (since
Wacker Drive January 1997); prior thereto, Chairman and
Chicago, IL CEO of Flagship Resources Inc. and Flagship
60606 Financial Inc. and the Flagship funds.
Michael S. 40 Vice President Vice President of Nuveen Advisory Corp.
Davern (since January 1997); prior thereto, Vice
One South President and Portfolio Manager of Flagship
Main Street Financial.
Dayton, OH
45402
William M. 33 Vice President Vice President of Nuveen Advisory Corp.
Fitzgerald (since December 1995); Assistant Vice
333 West President of Nuveen Advisory Corp. (from
Wacker Drive September 1992 to December 1995), prior
Chicago, IL thereto, Assistant Portfolio Manager of
60606 Nuveen Advisory Corp.
Kathleen M. 50 Vice President Vice President of John Nuveen & Co.
Flanagan Incorporated, Vice President (since June
333 West 1996) of Nuveen Advisory Corp. and Nuveen
Wacker Drive Institutional Advisory Corp.
Chicago, IL
60606
J. Thomas 42 Vice President Vice President of Nuveen Advisory Corp.
Futrell
333 West
Wacker Drive
Chicago, IL
60606
Richard A. 34 Vice President Vice President of Nuveen Advisory Corp.
Huber (since January 1997); prior thereto, Vice
One South President and Portfolio Manager of Flagship
Main Street Financial.
Dayton, OH
45402
Steven J. 39 Vice President Vice President of Nuveen Advisory Corp.
Krupa
333 West
Wacker Drive
Chicago, IL
60606
Anna R. 51 Vice President Vice President of John Nuveen & Co.
Kucinskis Incorporated.
333 West
Wacker Drive
Chicago, IL
60606
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Larry W. Martin 46 Vice President Vice President, Assistant Secretary and
333 West Assistant General Counsel of John Nuveen &
Wacker Drive Co. Incorporated; Vice President (since May
Chicago, IL 1993) and Assistant Secretary of Nuveen
60606 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. 32 Vice President Vice President (since September 1996),
Neild, IV previously Assistant Vice President (since
One South Main December 1993) of Nuveen Advisory Corp.,
Street Dayton, portfolio manager prior thereto; Vice
OH 45402 President (since September 1996),
previously Assistant Vice President (since
May 1995) of Nuveen Institutional Advisory
Corp., portfolio manager prior thereto.
Walter K. 48 Vice President Vice President of Nuveen Advisory Corp.
Parker (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager (since July
Street 1994) of Flagship Financial; Portfolio
Dayton, OH Manager and CIO Trust Investor (between
45402 1983 and June 1994) for PNC Bank.
O. Walter 58 Vice President Vice President and Controller of The John
Renfftlen Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL
60606
Thomas C. 46 Vice President Vice President of Nuveen Advisory Corp. and
Spalding, Jr. Nuveen Institutional Advisory Corp.;
333 West Chartered Financial Analyst.
Wacker Drive
Chicago, IL
60606
H. William 63 Vice President Vice President and Treasurer of The John
Stabenow Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL
60606
Jan E. 41 Vice President Vice President of Nuveen Advisory Corp.
Terbrueggen (since January 1997); prior thereto, Vice
One South Main President and Portfolio Manager of Flagship
Street Financial.
Dayton, OH
45402
Gifford R. 41 Vice President Vice President, Assistant Secretary and
Zimmerman and Assistant Associate General Counsel of John Nuveen &
333 West Secretary Co. Incorporated; Vice President (since May
Wacker Drive 1993) and Assistant Secretary of Nuveen
Chicago, IL Advisory Corp.; Vice President (since May
60606 1993) and Assistant Secretary of Nuveen
Institutional Advisory Corp; Assistant
Secretary of The John Nuveen Company (since
May 1994).
</TABLE>
S-14
<PAGE>
Anthony Dean, Peter Sawers and Timothy Schwertfeger serve as members of the
Executive Committee of the Board of Trustees. The Executive Committee, which
meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are also directors or trustees, as the case may be,
of 42 other 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. Trustees Brown, Impellizzeri, Rosenheim and Sawers
became trustees of this Trust on February 1, 1997.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- ----------------
<S> <C> <C>
Robert P. Bremner........................ $2,711(1) $25,333(1)
Lawrence H. Brown........................ $ 641 $59,500
Anne E. Impellizzeri..................... $ 641 $59,500
Margaret K. Rosenheim.................... $ 705 $67,582(2)
Peter R. Sawers.......................... $ 641 $59,500
William J. Schneider..................... $2,880(1) $26,333(1)
Judith M. Stockdale...................... $ 0(3) $ 0(3)
</TABLE>
- --------
(1) Includes compensation received as a trustee of the Flagship Funds, for the
period June 1, 1996 to January 1, 1997.
(2) Includes $1,582 in interest accrued on deferred compensation from prior
years; former trustee, retired July 1997
(3) 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 September 4, 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 Alabama
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.57%
Class A Shares............ For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Farley L. Berman 7.41
1234 Champaign Avenue
Anniston, AL 36207-4727
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Prudential Securities, Inc. FBO 5.36%
Jerry F. Wilson
P.O. Box 300
Addison, AL 35540-0300
Smith Barney Inc. 5.21
00144705397
388 Greenwich Street
New York, NY 10013-2375
Nuveen Flagship Alabama Municipal Bond Fund
Class B Shares............................ Merrill Lynch, Pierce, Fenner & Smith 98.46
For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Alabama Municipal Bond Fund
Class C Shares............................ Merrill Lynch, Pierce, Fenner & Smith 90.92
For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Alabama Municipal Bond Fund
Class R Shares............................ Boston Financial Data Services 50.83
Corp. Actions Audit Acct. #2 407
Flagship Funds
2 Heritage Dr. 8th Floor
N Quincy, MA 02171-2144
Boston Financial Data Services 49.17
Corp. Actions Audit Acct. #1 407
Flagship Funds
2 Heritage Dr. 8th Floor
N Quincy, MA 02171-2144
Nuveen Flagship Georgia Municipal Bond Fund
Class A Shares............................ Merrill Lynch, Pierce, Fenner & Smith 38.21
For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E 3rd Fl
Jacksonville, FL 32246-6484
Nuveen Flagship Georgia Municipal Bond Fund
Class B Shares............................ Merrill Lynch, Pierce, Fenner & Smith 62.71
For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Prudential Securities Inc. FBO 8.77
Gwen P. Akin
577 Lees TRCE SW
Marietta, GA 30064-3075
BHC Securities Inc. 7.55
FAO 20940232
Attn Mutual Funds Dept.
One Commerce Square
2005 Market St. Suite 1200
Philadelphia, PA 19103-7042
Prudential Securities Inc. FBO 6.81
Evelyn S. Hampton
Burney A. Sullivan
Elizabeth S Smith JT TEN
109 Sullivan Dr.
Dahlonega, GA 30533
Donaldson Lufkin Jenrette 5.71
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Nuveen Flagship Georgia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 53.57
Class C Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Georgia
Municipal Bond Fund Carolyn P. Fellows TR 50.09
Class R Shares............ Carolyn P. Fellows LVG Trust
U/A DTD 5-25-90
415 Sassafras Rd
Roswell, GA 30076-3669
Louise S. Brooks 28.84
P.O. Box 818
Valdosta, GA 31603-0818
Albert D. Cannon 9.89
1958 Overbrooke Way
Austell, GA 30001-1129
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Donaldson Lufkin Jenrette 5.66%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Nuveen Flagship Louisiana
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 44.47
Class A Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Louisiana
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 71.16
Class B Shares............ For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Louisiana
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 62.04
Class C Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Louisiana
Municipal Bond Fund Boston Financial Data Services 50.77
Class R Shares............ Corp. Actions Audit Acct. #2 886
Flagship Funds
2 Heritage Dr. 8th Floor
N Quincy, MA 02171-2144
Boston Financial Data Services 49.23
Corp. Actions Audit Acct. #1 886
Flagship Funds
2 Heritage Dr. 8th Floor
N Quincy, MA 02171-2144
Nuveen Flagship North
Carolina Municipal Bond Merrill Lynch, Pierce, Fenner & Smith 17.91
Fund Class A Shares....... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship North
Carolina Municipal Bond Gladys P. Keplinger TOD 21.70%
Fund Class B Shares....... Beulah P. Horton 30%
Gloria P. Carons 70%
9101 Hood Rd.
Charlotte, NC 28215-8763
Wheat First Securities, Inc. 19.06
A/C 3803-8880
Peter Hairston
Box 415 Peter Hairston Rd.
Advance, NC 27006-0415
NFSC FEBO #BBN-004871 10.35
William W. Smith
606 Brookwood Lane
Goldsboro, NC 27534-7510
Interstate/Johnson Lane 7.76
FBO 274-73197-19
Interstate Tower
P.O. Box 1220
Charlotte, NC 28201-1220
Fubs & Co. FEBO 6.54
John S. Smith
P.O. Box 596
Murphy, NC 28906-0596
Smith Barney Inc. 6.39
00180140333
388 Greenwich Street
New York, NY 10013-2375
Fubs & Co. FEBO 5.65
Helen M. Gibson
P.O. Box 1954
Bryson City, NC 28713-4954
Nuveen Flagship North
Carolina Municipal Bond Merrill Lynch, Pierce, Fenner & Smith 26.30
Fund Class C Shares....... for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship North
Carolina Municipal Bond James H. Ward 12.68
Fund Class R Shares....... P.O. Box 67
Plymouth, NC 27962-0067
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Maryellen D. Casler 12.22%
1726 Seabrook Ave.
Cary, NC 27511-5625
Barry W. Barrick Jr. 11.84
1900 Highland Pl.
Raleigh, NC 27607-3102
Daniel Bonadies 9.25
4 Apalousa Pl.
Pinehurst, NC 28374
Erwin Sweetman & 7.70
Shirley Sweetman
JT TEN WROS NOT TC
532 Medcalf Dr. SW
Sunset Beach, NC 28468-4501
Wayne D. Brodd 6.75
5012 Hermitage Dr.
Raleigh, NC 27612-2714
Louise S. Allen 5.81
157 Sitterson Loop
Plymouth, NC 27962-9566
Carolyn W. Harding 5.07
324 Sunnyside Dr.
Washington, NC 27889-9227
Thomas Frederick Armstrong 5.06
2608 Churchill Rd.
Raleigh, NC 27608-1906
Nuveen Flagship South
Carolina Municipal Bond Merrill Lynch, Pierce, Fenner & Smith 25.92
Fund For the sole benefit of its customers
Class A Shares............ Attn: Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Joseph F. Rice 9.21
777 Bradburn Dr.
Mt. Pleasant, SC 29464-5114
PaineWebber for the benefit of 7.50
Thomas V. Malloy &
Isabel C. Malloy JTWROS
24 Marina Village Way
Salem, SC 29676-4502
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
JC Bradford & Co., Cust. FBO 6.74%
Ruth K. Keever
330 Commerce St.
Nashville, TN 37201-1805
Nuveen Flagship South
Carolina Municipal Bond Merrill Lynch, Pierce, Fenner & Smith 97.51
Fund Class B Shares....... For the sole benefit of its customers
Attn: Fund Adminstration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship South
Carolina Municipal Bond Interstate Johnson Lane 58.44
Fund Class C Shares....... FBO 329-0071-15
Interstate Tower
P.O. Box 1320
Charlotte, NC 28201-1220
Merrill Lynch, Pierce, Fenner & Smith 31.03
For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr., E. FL 3
Jacksonville, FL 32246-6484
Interstate/Johnson Lane 10.51
FBO 272-73155-13
Interstate Tower
P.O. Box 1220
Charlotte, NC 28201-1220
Nuveen Flagship South
Carolina Municipal Bond Nancy W. Edwards 61.21
Fund Class R Shares....... 5 Nilstead Way
Greenville, SC 29615-5332
E. Chatfield Blakeman 38.54
23 New River Trce
Lake Wylie, SC 29710-8932
Nuveen Flagship Tennessee
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 21.74
Class A Shares............ For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Tennessee
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.26
Class B Shares............ For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Carl A. Zemenick 20.57%
595 St. Blaise Road
Gallatin, TN 37066-4449
BHC Securities Inc. 15.11
FAO 52197563
Attn: Mutual Funds Dept.
One Commerce Sq.
2005 Market St., Suite 1200
Philadelphia, PA 19103-7042
Don R. Osborne and 8.32
Linda L. Osborne JTWROS
P.O. Box 5495
Kingsport, TN 37663-0495
Ethel T. Maxwell TTEE 8.02
Ethel T. Maxwell Living
Trust U/A DTD 6-3-96
3636 Central Ave
Memphis, TN 38111-6004
Nuveen Flagship Tennessee
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 46.53
Class C Shares............ For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Tennessee
Municipal Bond Fund Darius A. Hensley 39.17
Class R Shares............ P.O. Box 305
Piney Flats, TN 37686-0305
J.C. Bradford & Co. Cust FBO 19.69
Jeffrey L. Cooper
330 Commerce St.
Nashville, TN 37201-1805
Henry Bartosch 15.81
Georgia J. Bartosch JT WROS
3535 Kirby Rd., Apt A121
Memphis, TN 38115-3710
Walter Wolentarski & 12.90
Patricia A. Wolentarski
JT TEN
665 Rebel Road
Old Hickory, TN 37138-1045
Georgia J. Bartosch 8.07
Henry Bartosch JTWROS
3535 Kirby Rd., Apt A121
Memphis, TN 38115-3710
</TABLE>
S-22
<PAGE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE
- --------------------------------- --------------
<S> <C>
For the first $125 million....................................... .5500 of 1%
For the next $125 million........................................ .5375 of 1%
For the next $250 million........................................ .5250 of 1%
For the next $500 million........................................ .5125 of 1%
For the next $1 billion.......................................... .5000 of 1%
For assets over $2 billion....................................... .4750 of 1%
</TABLE>
Nuveen Advisory has committed through at least 1998 to continue Flagship's
general dividend-setting practices.
For the last three fiscal years, the Funds paid net management fees to
Flagship Financial, predecessor to Nuveen Advisory, and beginning on February
1, 1997, to Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF FEE WAIVERS AND EXPENSE
EXPENSE REIMBURSEMENT PAID REIMBURSEMENTS
FOR THE YEAR ENDED FOR THE YEAR ENDED
-------------------------- -----------------------
5/31/95 5/31/96 5/31/97 5/31/95 5/31/96 5/31/97
-------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Alabama Municipal Bond Fund. $ -- -- -- 4,854 70,457 98,659
Georgia Municipal Bond Fund. $287,399 235,562 338,940 321,940 366,193 283,341
Louisiana Municipal Bond
Fund....................... $ 96,442 148,090 223,450 240,777 222,310 193,709
North Carolina Municipal
Bond Fund.................. $675,473 674,110 850,815 289,460 318,954 133,892
South Carolina Municipal
Bond Fund.................. $ -- -- -- 37,587 86,888 125,003
Tennessee Municipal Bond
Fund....................... $776,025 921,400 1,051,491 442,963 389,150 341,259
</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
S-23
<PAGE>
part of that acquisition, Flagship Financial, the adviser to the Flagship
Funds, was merged with Nuveen Advisory.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to
pay any brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price. Given the
best price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers and general economic reports) and statistical and
other services to Nuveen Advisory. It is not possible to place a dollar value
on information and statistical and other services received from dealers. Since
it is only supplementary to Nuveen Advisory's own research efforts, the receipt
of research information is not expected to reduce significantly Nuveen
Advisory's expenses. While Nuveen Advisory will be primarily responsible for
the placement of the business of the Funds, the policies and practices of
Nuveen Advisory in this regard must be consistent with the foregoing and will,
at all times, be subject to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to a Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule
S-24
<PAGE>
10f-3. The Rule sets forth requirements relating to, among other things, the
terms of an issue of Municipal Obligations purchased by a Fund, the amount of
Municipal Obligations which may be purchased in any one issue and the assets of
a Fund which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Funds' shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the Exchange is normally open for
trading. The Exchange is not open for trading on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of a class of shares of a
Fund will be computed by dividing the value of the Fund's assets attributable
to the class, less the liabilities attributable to the class, by the number of
shares of the class outstanding.
In determining net asset value for the Funds, each Fund's custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. 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,
S-25
<PAGE>
and (ii) not more than 25% of the value of the total assets is invested in the
securities of any one issuer (other than United States Government securities
and securities of other regulated investment companies) or two or more issuers
controlled by a Fund and engaged in the same, similar or related trades or
businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed capital gains included in the
shareholder's gross income. Each Fund intends to distribute at least annually
to its shareholders all or substantially all of its net tax-exempt interest and
any investment company taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will be excludable from federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the insurer representing interest on "non-appropriation" lease
obligations will be excludable from gross income for federal income tax
purposes. See "Investment Policies and Investment Portfolio; Portfolio
Securities."
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or 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
S-26
<PAGE>
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. Present law taxes both long- and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, however, (i) gain on the sale of shares
held for more than 18 months will generally be taxed at a maximum marginal rate
of 20%, (ii) gain on the sale of shares held for more than one year but not
more than 18 months will generally be taxed at a maximum marginal rate of 28%,
and (iii) gain on the sale of shares held for not more than one year and other
ordinary income will generally be taxed at a maximum marginal rate of 39.6%.
Because of the limitations on itemized deductions and the deduction for
personal exemptions applicable to higher income taxpayers, the effective tax
rate on net income may be higher in certain circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of a Fund if the shareholder purchases other shares of such Fund
(whether through
S-27
<PAGE>
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.
S-28
<PAGE>
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
STATE TAX MATTERS
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
satisfy the conditions which will cause distributions to qualify as exempt-
interest dividends to shareholders when distributed as intended, and that each
Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax 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.
ALABAMA
The following is a general, abbreviated summary of certain provisions of the
applicable Alabama tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Alabama 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 Alabama Fund transactions.
The following is based on the assumptions that the Alabama Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Alabama Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Alabama Fund's shareholders.
S-29
<PAGE>
The Alabama Fund will be subject to the Alabama corporate franchise tax and
the Alabama income tax only if it has a sufficient nexus with Alabama. If it is
subject to such taxes, it does not expect to pay a material amount of either
tax.
Distributions by the Alabama Fund that are attributable to interest on any
obligation of Alabama 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 Alabama personal income tax or the Alabama corporate
income tax. Distributions attributable to all other taxable income realized by
the Alabama Fund, including capital gains will be subject to the Alabama
personal and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Alabama
Fund will be subject to the Alabama personal and corporate income taxes.
Shares of the Alabama Fund may be subject to the Alabama inheritance tax and
the Alabama estate tax if held by an Alabama decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Alabama and local tax matters.
GEORGIA
The following is a general, abbreviated summary of certain provisions of the
applicable Georgia tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Georgia 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 Georgia Fund transactions.
The following is based on the assumptions that the Georgia Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Georgia Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Georgia Fund's shareholders.
The Georgia Fund will be subject to the Georgia corporate net worth tax and
the Georgia corporate income tax only if it has a sufficient nexus with
Georgia. If it is subject to such taxes, it does not expect to pay a material
amount of either tax.
Distributions from the Georgia Fund that are attributable to interest on any
obligation of Georgia or its political subdivisions or 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 Georgia
personal income tax or the Georgia corporate income tax. All other
distributions, including distributions attributable to capital gains, will be
subject to the Georgia personal and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Georgia
Fund will be subject to the Georgia personal and corporate income taxes.
Shares of the Georgia Fund may be subject to the Georgia estate tax if held
by a Georgia decedent at the time of death.
Shareholders should note that the Georgia intangible personal property tax
has been repealed effective January 1, 1997.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Georgia and local tax matters.
S-30
<PAGE>
LOUISIANA
The following is a general, abbreviated summary of certain provisions of the
applicable Louisiana tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Louisiana
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 Louisiana Fund transactions.
The following is based on the assumptions that the Louisiana Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Louisiana Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Louisiana Fund's
shareholders.
The Louisiana Fund will be subject to the Louisiana corporate franchise tax
and corporate income tax only if it has a sufficient nexus with Louisiana. If
it is subject to such taxes, it does not expect to pay a material amount of
either tax.
Distributions by the Louisiana Fund that are attributable to interest on any
obligation of Louisiana 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 Louisiana personal income tax or the Louisiana corporate
income tax. All other distributions, including distributions attributable to
capital gains, will be subject to the Louisiana personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Louisiana
Fund will be subject to the Louisiana personal and corporate income taxes.
Shares of the Louisiana Fund may be subject to the Louisiana inheritance tax
and the Louisiana estate tax if held by a Louisiana decedent at the time of
death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Louisiana tax matters.
NORTH CAROLINA
The following is a general, abbreviated summary of certain provisions of the
applicable North Carolina tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the North
Carolina 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 North Carolina Fund transactions.
The following is based on the assumptions that the North Carolina Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause North Carolina Fund
distributions to qualify as exempt-interest dividends to shareholders, and that
it will distribute all interest and dividends it receives to the North Carolina
Fund's shareholders.
The North Carolina Fund will be subject to the North Carolina corporation
income tax and the North Carolina franchise tax only if it has a sufficient
nexus with North Carolina. If it is subject to such taxes, it does not expect
to pay a material amount of either tax.
Distributions from North Carolina Fund that are attributable to interest on
any obligation of North Carolina 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 North
S-31
<PAGE>
Carolina personal income tax or the North Carolina corporation income tax. All
other distributions, including distributions attributable to capital gains,
will be subject to the North Carolina personal and corporation income taxes.
Gain on the sale, exchange, or other disposition of shares of the North
Carolina Fund will be subject to the North Carolina personal and corporation
income taxes.
Shares of the North Carolina Fund may be subject to the North Carolina
inheritance tax and the North Carolina estate tax if owned by a North Carolina
decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning North Carolina and local tax matters.
SOUTH CAROLINA
The following is a general, abbreviated summary of certain provisions of the
applicable South Carolina tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the South
Carolina 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 South Carolina Fund transactions.
The following is based on the assumptions that the South Carolina Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause South Carolina Fund
distributions to qualify as exempt-interest dividends to shareholders, and that
it will distribute all interest and dividends it receives to the South Carolina
Fund's shareholders.
The South Carolina Fund will be subject to the South Carolina corporation net
license fee and the South Carolina corporate income tax only if it has a
sufficient nexus with South Carolina. If it is subject to such taxes, it does
not expect to pay a material amount of either tax.
Distributions by the South Carolina Fund that are attributable to interest on
any obligations of South Carolina 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 South Carolina personal income tax or the South Carolina
corporate income tax. All other distributions, including distributions
attributable to capital gains, will be subject to the South Carolina personal
and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the South
Carolina Fund will be subject to the South Carolina personal and corporate
income taxes.
Shares of the South Carolina Fund may be subject to the South Carolina estate
tax if owned by a South Carolina decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning South Carolina and local tax matters.
TENNESSEE
The following is a general, abbreviated summary of certain provisions of the
applicable Tennessee tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Tennessee
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 Tennessee Fund transactions.
S-32
<PAGE>
The following is based on the assumptions that the Tennessee Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will invest at least 75% of its assets in obligations of Tennessee and its
political subdivisions ("Tennessee Obligations") or obligations of the United
States, its territories, possessions, or instrumentalities that are exempt from
state taxation under federal law ("Federal Obligations"), that it will satisfy
the conditions which will cause Tennessee Fund distributions to qualify as
exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Tennessee Fund's shareholders.
The Tennessee Fund is not subject to Tennessee taxes.
Distributions from the Tennessee Fund that are attributable to interest on
Tennessee Obligations or to interest on Federal Obligations will not be subject
to the Tennessee individual income tax (also known as the "Hall income tax").
In addition, under current administrative practice of the Tennessee Department
of Revenue, dividends attributable to gains realized from the sale or exchange
of Tennessee Obligations or Federal Obligations will not be subject to the
Tennessee individual income tax. All other distributions will be subject to
such tax.
All distributions from the Tennessee Fund, regardless of source, will be
subject to the Tennessee corporate excise tax.
Gain on the sale, exchange, or other disposition of shares of the Tennessee
Fund will not be subject to the Tennessee individual income tax but will be
subject to the Tennessee corporate excise tax.
Shares of the Tennessee Fund may be subject to the Tennessee inheritance tax
and the Tennessee estate tax if owned by a Tennessee decedent at the time of
death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Tennessee 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:
( a-b )6
Yield=2[(----- +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 4.20%.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
S-33
<PAGE>
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
AS OF MAY 31, 1997
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Alabama Municipal Bond Fund
Class A Shares............. 4.94% 41.5% 8.44%
Class B Shares............. 4.29% 41.5% 7.33%
Class C Shares............. 4.64% 41.5% 7.93%
Class R Shares............. 5.43% 41.5% 9.28%
Georgia Municipal Bond Fund
Class A Shares............. 4.97% 43.0% 8.72%
Class B Shares............. 4.44% 43.0% 7.79%
Class C Shares............. 4.64% 43.0% 8.14%
Class R Shares............. 5.39% 43.0% 9.46%
Louisiana Municipal Bond Fund
Class A Shares............. 4.87% 42.0% 8.40%
Class B Shares............. 4.35% 42.0% 7.50%
Class C Shares............. 4.54% 42.0% 7.83%
Class R Shares............. 5.71% 42.0% 9.84%
North Carolina Municipal Bond
Fund
Class A Shares............. 4.49% 44.5% 8.09%
Class B Shares............. 3.94% 44.5% 7.10%
Class C Shares............. 4.14% 44.5% 7.46%
Class R Shares............. 4.88% 44.5% 8.79%
South Carolina Municipal Bond
Fund
Class A Shares............. 5.12% 44.0% 9.14%
Class B Shares............. 4.60% 44.0% 8.21%
Class C Shares............. 4.82% 44.0% 8.61%
Class R Shares............. 5.55% 44.0% 9.91%
Tennessee Municipal Bond Fund
Class A Shares............. 4.83% 43.0% 8.47%
Class B Shares............. 4.31% 43.0% 7.56%
Class C Shares............. 4.49% 43.0% 7.88%
Class R Shares............. 5.28% 43.0% 9.26%
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
S-34
<PAGE>
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields table in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen 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%, were as follows:
<TABLE>
<CAPTION>
MAY 31, 1997
-------------------------------
DISTRIBUTION RATES
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Alabama Municipal Bond Fund............... 5.02% 4.49% 4.69% 5.44%
Georgia Municipal Bond Fund............... 5.12% 4.60% 4.80% 5.55%
Louisiana Municipal Bond Fund............. 5.07% 4.56% 4.74% 5.50%
North Carolina Municipal Bond Fund ....... 4.98% 4.45% 4.64% 5.39%
South Carolina Municipal Bond Fund........ 5.03% 4.51% 4.70% 5.45%
Tennessee Municipal Bond Fund............. 5.07% 4.55% 4.75% 5.50%
</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 Class A Shares of each fund reflect actual performance
for all periods. For the Alabama, Georgia, Louisiana, North Carolina, South
Carolina, and Tennessee Funds, the Class B, C and R Shares, total returns
reflect actual performance for periods since class inception, and the Class A
Shares' performance for periods prior to inception, adjusted for the
differences in sales charges (and for Class B and C, fees) between the classes.
S-35
<PAGE>
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
Alabama Municipal Bond Fund
Class A Shares....................................... April 11, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 1, 1997
Class R Shares....................................... February 1, 1997
Georgia Municipal Bond Fund
Class A Shares....................................... March 27, 1986
Class B Shares....................................... February 1, 1997
Class C Shares....................................... January 4, 1994
Class R Shares....................................... February 1, 1997
Lousiana Municipal Bond Fund
Class A Shares....................................... September 12, 1989
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 2, 1994
Class R Shares....................................... February 1, 1997
North Carolina 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
South Carolina Municipal Bond Fund
Class A Shares....................................... July 6, 1993
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 1, 1997
Class R Shares....................................... February 1, 1997
Tennessee Municipal Bond Fund
Class A Shares....................................... November 2, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
</TABLE>
S-36
<PAGE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A shares, and applicable CDSC for Class B
Shares, for the one-year, five-year and ten-year periods (as applicable) ended
May 31, 1997 and for the period from inception through May 31, 1997,
respectively, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, MAY 31, MAY 31, MAY 31,
1997 1997 1997 1997
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Alabama Municipal Bond Fund
Class A Shares............ 4.63% N/A N/A 5.83%
Class B Shares............ 4.79% N/A N/A 5.91%
Class C Shares............ 9.00% N/A N/A 6.95%
Class R Shares............ 9.38% N/A N/A 7.34%
Georgia Municipal Bond Fund
Class A Shares............ 4.79% 5.71% 7.39% 6.99%
Class B Shares............ 4.73% 5.87% 7.38% 6.98%
Class C Shares............ 8.80% 6.00% 7.24% 6.80%
Class R Shares............ 9.46% 6.64% 7.86% 7.41%
Louisiana Municipal Bond
Fund
Class A Shares............ 4.78% 6.65% N/A 7.74%
Class B Shares............ 4.61% 6.80% N/A 7.73%
Class C Shares............ 8.78% 6.97% N/A 7.73%
Class R Shares............ 9.33% 7.56% N/A 8.33%
North Carolina Municipal
Bond Fund
Class A Shares............ 3.26% 5.40% 7.39% 6.51%
Class B Shares............ 3.14% 5.56% 7.38% 6.50%
Class C Shares............ 7.20% 5.69% 7.24% 6.31%
Class R Shares............ 7.86% 6.33% 7.86% 6.93%
South Carolina Municipal
Bond Fund
Class A Shares............ 3.73% N/A N/A 4.04%
Class B Shares............ 3.52% N/A N/A 3.89%
Class C Shares............ 7.73% N/A N/A 4.78%
Class R Shares............ 8.45% N/A N/A 5.23%
Tennessee Municipal Bond
Fund
Class A Shares............ 3.18% 5.76% N/A 7.35%
Class B Shares............ 3.07% 5.92% N/A 7.34%
Class C Shares............ 7.12% 6.07% N/A 7.23%
Class R Shares............ 7.58% 6.64% N/A 7.82%
</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
S-37
<PAGE>
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 as follows:
<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>
Alabama Municipal Bond
Fund
Class A Shares.......... 4.63% N/A N/A 19.45%
Class B Shares.......... 4.79% N/A N/A 19.73%
Class C Shares.......... 9.00% N/A N/A 23.47%
Class R Shares.......... 9.38% N/A N/A 24.87%
Georgia Municipal Bond
Fund
Class A Shares.......... 4.79% 32.00% 103.92% 112.88%
Class B Shares.......... 4.73% 32.99% 103.73% 112.69%
Class C Shares.......... 8.80% 33.82% 101.14% 108.54%
Class R Shares.......... 9.46% 37.88% 113.01% 122.36%
Louisiana Municipal Bond
Fund
Class A Shares.......... 4.78% 37.99% N/A 77.69%
Class B Shares.......... 4.61% 38.97% N/A 77.58%
Class C Shares.......... 8.78% 40.03% N/A 77.66%
Class R Shares.......... 9.33% 43.98% N/A 85.40%
North Carolina Municipal
Bond Fund
Class A Shares.......... 3.26% 30.09% 104.00% 102.38%
Class B Shares.......... 3.14% 31.08% 103.87% 102.25%
Class C Shares.......... 7.20% 31.86% 101.22% 98.26%
Class R Shares.......... 7.86% 35.89% 113.08% 111.40%
South Carolina Municipal
Bond Fund
Class A Shares.......... 3.73% N/A N/A 16.72%
Class B Shares.......... 3.52% N/A N/A 16.06%
Class C Shares.......... 7.73% N/A N/A 19.99%
Class R Shares.......... 8.45% N/A N/A 22.02%
Tennessee Municipal Bond
Fund
Class A Shares.......... 3.18% 32.28% N/A 97.26%
Class B Shares.......... 3.07% 33.30% N/A 97.09%
Class C Shares.......... 7.12% 34.24% N/A 95.21%
Class R Shares.......... 7.58% 37.93% N/A 105.68%
</TABLE>
S-38
<PAGE>
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 41.5% maximum combined marginal federal and State tax rate for
1997, the annual taxable equivalent total return for the Alabama Municipal
Fund's Class A shares for the one-year period ended May 31, 1997 was 13.17%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of
S-39
<PAGE>
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.
S-40
<PAGE>
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.
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.
S-41
<PAGE>
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 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
S-42
<PAGE>
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;
. 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 trusts may reinvest their distributions
from such unit 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.
S-43
<PAGE>
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 upon 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 systematic
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.
GENERAL MATTERS
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
S-44
<PAGE>
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen mutual funds
during specified time periods.
To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software, electronic information sites, or additional sales literature to
promote the advantages of using the Funds to meet these and other specific
investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
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 III, 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.
S-45
<PAGE>
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 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
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama Fund............ 51 7 37 5 41 6
Georgia Fund............ 343 49 293 39 347 47
Louisiana Fund.......... 297 63 254 33 247 32
North Carolina Fund..... 228 31 358 49 439 47
South Carolina Fund..... 49 6 48 8 44 6
Tennessee Fund.......... 612 86 639 88 846 113
</TABLE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
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<PAGE>
For the fiscal year ended May 31, 1997, 100% of service fees and distribution
fees were paid out as compensation to Authorized Dealers. For the period from
June 1, 1996 to January 31, 1997, the service fee for all Class C Shares was
.20% and the distribution fee was .40% for the Class A Shares and .75% for the
Class C Shares. Thereafter, the service fee for the Class A and Class C Shares
was .20% and the distribution fee for the Class B Shares was .75% and for the
Class C Shares was .55%.
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1997
----------------------
<S> <C>
Alabama Municipal Bond Fund
Class A................................................ $ 12,164
Class B................................................ $ 372
Class C................................................ $ 72
Georgia Municipal Bond Fund
Class A................................................ $366,712
Class B................................................ $ 173
Class C................................................ $ 92,494
Louisiana Municipal Bond Fund
Class A................................................ $247,898
Class B................................................ $ 1,569
Class C................................................ $ 54,724
North Carolina Municipal Bond Fund
Class A................................................ $617,970
Class B................................................ $ 448
Class C................................................ $ 60,676
South Carolina Municipal Bond Fund
Class A................................................ $ 36,806
Class B................................................ $ 353
Class C................................................ $ 223
Tennessee Municipal Bond Fund
Class A................................................ $852,686
Class B................................................ $ 761
Class C................................................ $137,228
</TABLE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast in person at a meeting called for the
purpose of considering such amendments. During the continuance of the Plan, the
selection and nomination of the non-interested trustees of the Trust will be
committed to the discretion of the non-interested trustees then in office.
S-47
<PAGE>
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. In
addition to audit services, the auditors will provide consultation and
assistance on accounting, internal control, tax and related matters. The
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for prior periods set forth under
"Financial Highlights" in the Prospectus have been audited by the auditors as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of those auditors in giving their reports.
The custodian of the 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.
S-48
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
A-1
<PAGE>
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
FUTURES AND INDEX TRANSACTIONS
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
B-1
<PAGE>
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.
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
B-2
<PAGE>
delays. If the seller becomes insolvent and subject to liquidation or
reorganization under applicable bankruptcy or other laws, the Fund's ability to
dispose of the underlying securities may be restricted. Finally, it is possible
that the Fund may not be able to substantiate its interest in the underlying
securities. To minimize this risk, the securities underlying the repurchase
agreement will be held by the custodian at all times in an amount at least
equal to the repurchase price, including accrued interest. If the seller fails
to repurchase the securities, the Fund may suffer a loss to the extent proceeds
from the sale of the underlying securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-3
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Alabama
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Alabama Overview
9 Financial Section
27 Shareholder Meeting Report
31 Shareholder Information
32 Fund Information
<PAGE>
[Photo of Timothy R. Schwertfeger Appears Here]
Timothy R. Schwertfeger
Dear Shareholder
It's a pleasure to report to you on the performance of the Nuveen Flagship
Alabama Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 9.22%
for Class A shares, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) outpaced the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
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, shareholders were
receiving tax-free yields on net asset value of 5.07% for Class A shares. To
match this yield, investors in the 33.5% combined federal and state income tax
bracket would have had to earn at least 7.62% 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 inflation has hampered the performance
of municipals and led to
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
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,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
Answering Your Questions
[Photo of Ted Neild appears here]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
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 this 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.
3
<PAGE>
"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."
Given this market environment, how did the fund perform?
The Alabama Municipal Bond Fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 9.22% for Class
A shares, including price changes and reinvested dividends. Additionally, the
fund was ranked number one among eight Alabama municipal bond funds for the one-
year period by Lipper Analytical Services, a nationally recognized performance
measurement service. Steady demand, coupled with tight supply, caused munis to
outperform Treasury securities over the 12 month period.
What strategies did you employ to add value?
The fund maintained its average call protection at just over eight years. Where
possible, we strive to extend the call protection to increase the upward price
potential of callable municipal bonds during market rallies--such as the rally
of the last 12 months. The duration, a measure of the fund's volatility, was
reduced somewhat during the year from 9.6 years to 8.16 years to reduce slightly
the interest rate risk of the fund after the market's strong performance.
What is the current status of Alabama municipal market?
Alabama's municipal market performed well in 1996. A limited amount of issuance
added to previously tight supply levels caused heavy demand for Alabama bonds.
An economy once heavily reliant on agriculture is now increasingly dependent on
manufacturing and service-related industries. Increases in infrastructures
issuance are expected for the upkeep of one of the nation's largest inland river
systems and busiest ports. State municipal bond issuance was down 8.1% to $1.18
billion in the first six months of 1997.
4
<PAGE>
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 will 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.
5
<PAGE>
Alabama
Overview
Credit Quality
[PIE CHART APPEARS HERE]
BBB/NR 5%
A 14%
AA 11%
AAA 70%
Diversification
[PIE CHART APPEARS HERE]
Hospitals 10%
Pollution Control 7%
Escrowed Bonds 7%
Utilities 8%
Water & Sewer 23%
Transportation 6%
Other 4%
Educational Facilities 19%
General Obligations 16%
<TABLE>
<CAPTION>
Fund Highlights
===============================================================================
<S> <C> <C> <C> <C>
Share Class A B C R
Inception Date 4/94 2/97 2/97 2/97
- -------------------------------------------------------------------------------
Net Asset Value (NAV) $10.12 $10.14 $10.14 $10.13
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total Net Assets ($000) $5,242
- -------------------------------------------------------------------------------
Average Weighted Maturity (years) 20.38
- -------------------------------------------------------------------------------
Duration (years) 8.39
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
===============================================================================
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
1-Year 9.22% 4.63% 8.79% 9.00% 9.38%
- -------------------------------------------------------------------------------
Since Inception 7.29% 5.83% 6.74% 6.95% 7.34%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
===============================================================================
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.24% 5.02% 4.49% 4.69% 5.44%
- -------------------------------------------------------------------------------
SEC 30-Day Yld 5.07% 4.86% 4.16% 4.45% 5.31%
- -------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.62% 7.31% 6.26% 6.69% 7.98%
- -------------------------------------------------------------------------------
</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 B, 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. Giving effect to the CDSC applicable
to Class B shares, the 1-year and since inception total returns above
would be 4.79% and 5.91%, respectively.
/2/ Based on SEC yield and a combined federal and state income tax rate of
33.5%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship Alabama Municipal Bond Fund
May 31, 1997 Annual Report
* 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 (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Nuveen Flagship Nuveen Flagship
Municipal Bond Alabama Municipal Alabama Municipal
Index Bond Fund (NAV) Bond Fund (Offer)
<S> <C> <C> <C>
April 1994 10000 10000 9580
May 1994 10085 9989.57 9570.01
May 1995 10756 10616.1 10170.2
May 1996 11611.1 11375.9 10898.2
May 1997 12675.2 12475.1 11951.1
</TABLE>
. Lehman Brothers Municipal Bond Index $12,675
. Nuveen Flagship Alabama Municipal Bond Fund (NAV) $12,469
. Nuveen Flagship Alabama Municipal Bond Fund (Offer) $11,945
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
Dividend History
(A Shares)
June 1996 0.04344
July 1996 0.04489
August 1996 0.04489
September 1996 0.04344
October 1996 0.04489
November 1996 0.04344
December 1996 0.04489
January 1997 0.04501
February 1997 0.0442
March 1997 0.0442
April 1997 0.0442
May 1997 0.0442
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
14 Statement of Net Assets
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Notes to Financial Statements
23 Financial Highlights
26 Independent Auditors' Report
9
<PAGE>
Portfolio of Investments
Nuveen Flagship Alabama
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Education -- 18.0%
$ 495,000 Alabama Agricultural and Mechanical University, 11/05 at 102 AAA $ 485,714
Revenue, Formerly Alabama Agricultural and
Mechanical College, 5.500%, 11/01/20
150,000 Birmingham, Southern College, Alabama Private 6/06 at 102 A 151,986
Educational Building Authority, Tuition, 6.000%,
12/01/21
200,000 Troy, Alabama State University Revenue, Troy State 6/07 at 102 AAA 200,822
University, City of Troy Project, 5.650%, 6/01/27(WI)
110,000 University of South Alabama, University Revenue 5/06 at 102 AAA 104,465
Refunding, Tuition, 5.000%, 11/15/15
- ---------------------------------------------------------------------------------------------------------------------------
Health Care -- 1.9%
100,000 Colbert County, Northwest Alabama, Health Care 6/05 at 102 AAA 101,865
Authority, Health Care Facilities Revenue, Helen
Keller Hospital, 5.750%, 6/01/15
- ---------------------------------------------------------------------------------------------------------------------------
Hospitals -- 7.3%
100,000 Birmingham, Carraway, Alabama, Special Care 8/05 at 102 AAA 101,795
Facilities, Financing Authority, Revenue Refunding,
Carraway Methodist Health System, Series A,
5.875%, 8/15/15
25,000 Huntsville, Alabama, Health Care Authority, Health 6/02 at 110 AAA 27,117
Care Facilities Revenue, Series B, 6.500%, 6/01/13
100,000 Lauderdale County and Florence, Alabama, Health 7/06 at 102 AAA 100,442
Care Authority, Revenue Refunding, Eliza Coffee
Memorial Hospital, 5.750%, 7/01/19
75,000 Puerto Rico, Industrial, Tourist, Educational, Medical, 7/05 at 102 AAA 78,944
and Environmental Control Facilities, Financing
Authority, Hospital Revenue, Hospital Auxiliary
Mutual Obligation Group, Series A, 6.250%, 7/01/24
70,000 Puerto Rico, Industrial Tourist Educational Medical 8/05 at 101 AAA 72,154
and Environmental Control Facilities Financing
Authority Hospital Revenue Refunding, Pila Hospital
Project, Series A, 5.875%, 8/01/12
- ---------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 2.2%
85,000 Alabama, Housing Finance Authority, Single Family 4/05 at 102 Aaa 87,426
Mortgage Revenue, Collateralized Home Mortgage,
Series A, Issue 2, 6.400%, 10/01/20
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family -- continued
$ 25,000 Alabama, Housing Finance Authority, Single Family 4/04 at 102 Aaa $ 26,471
Mortgage Revenue, Home Mortgage, Series A,
Issue 1, 6.600%, 4/01/19
- --------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 6.9%
100,000 Courtland, Alabama, Industrial Development Board, 9/05 at 102 Baa1 101,496
Solid Waste Disposal Revenue, Champion
International Corporation Project, Series A,
6.500%, 9/01/25
250,000 Tallassee, Alabama, Industrial Development Board 8/06 at 102 A1 258,883
Revenue Refunding, Dow, United Tech Composite,
Series A, 6.100%, 8/01/14
- --------------------------------------------------------------------------------------------------------------
Municipal Revenue/Transportation -- 5.8%
200,000 Alabama, State Docks Department, Docks Facilities 10/06 at 102 AAA 208,700
Revenue, 6.100%, 10/01/13
100,000 Huntsville, Madison County, Alabama, Airport Authority, 1/07 at 102 AAA 95,468
Airport Terminal Revenue, 5.400%, 7/01/19
- --------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 8.0%
90,000 Huntsville, Alabama, Electric System Revenue, 6.100%, 12/03 at 102 AA 94,745
12/01/10
165,000 Puerto Rico, Electric Power Authority, Power Revenue 7/04 at 102 BBB+ 175,388
(Formerly Puerto Rico, Commonwealth Water Resource
Authority Power), Series T, 6.375%, 7/01/24
150,000 Puerto Rico, Electric Power Authority, Power Revenue No Opt. Call AAA 151,116
(Formerly Puerto Rico, Commonwealth Water Resource
Authority Power), Series Aa, 5.000%, 7/01/07
- --------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer -- 22.2%
25,000 Alabama, Water Pollution Control Authority, Revolving 8/05 at 100 AAA 27,255
Fund Loan, Series A, 6.750%, 8/15/17
250,000 Bayou, Louisiana, Batre, Alabama, Utilities Board, 3/07 at 102 AA 250,293
Water and Sewer Revenue Refunding and
Improvement, 5.750%, 3/01/27
375,000 Cherokee County, Alabama, Water Authority Water 4/07 at 102 AAA 377,048
Revenue Refunding, 5.750%, 4/01/22
100,000 Jefferson County, Alabama, Sewer Revenue Refunding, 2/07 at 101 AAA 98,548
Series A, 5.625%, 2/01/22
100,000 Jefferson County, Alabama, Sewer Revenue, Series D, 2/07 at 101 AAA 99,878
5.750%, 2/01/27
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Alabama -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Water and Sewer -- continued
Mobile, Alabama, Water and Sewer Commrs Water and
Sewer Revenue, Series 95:
$ 80,000 5.000%, 1/01/06 1/05 at 102 AAA $ 80,468
100,000 5.500%, 1/01/10 1/05 at 102 AAA 101,445
125,000 Prichard, Alabama, Waterworks and Sewer Board, 11/04 at 102 AAA 131,026
Water and Sewer Revenue Refunding,
6.125%, 11/15/14
- ---------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 10.2%
150,000 Birmingham, Alabama, Series A, 4/02 at 102 AA 150,197
5.750%, 4/01/19
180,000 Mobile, Alabama, Capital Improvement, 2/06 at 102 AAA 182,788
5.750%, 2/15/16
200,000 Northport, Alabama, Series A, 5.700%, 3/01/21 3/06 at 102 AAA 201,178
- ---------------------------------------------------------------------------------------------------------------
Pre-refunded -- 7.0%
20,000 Alabama, State Municipal Electric Authority, Power 9/01 at 101 AAA 21,652
Supply Revenue, Series A, 6.500%, 9/01/05
50,000 Puerto Rico, Commonwealth Highway and 7/02 at 101 1/2 AAA 55,366
Transportation, Authority, Highway Revenue,
Series T, 6.625%, 7/01/18
100,000 Puerto Rico, Public Buildings Authority, Guaranteed 7/02 at 101 1/2 AAA 111,857
Public Education and Health Facilities, Series L,
6.875%, 7/01/21
160,000 Puerto Rico, Electric Power Authority, Power Revenue 7/01 at 102 Aaa 177,915
(Formerly Puerto Rico Commonwealth Water
Resource Authority Power), Series P, 7.000%, 7/01/21
- ---------------------------------------------------------------------------------------------------------------
Special Tax Revenue -- 1.0%
50,000 Alabama, State Public School and College Authority, No Opt. Call Aa 53,078
Series A, 6.000%, 8/01/02
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State/Territorial General Obligations -- 5.1%
Puerto Rico Commonwealth:
$ 150,000 6.450%, 7/01/17 7/04 at 102 A $ 160,020
100,000 6.500%, 7/01/23 7/04 at 101 A 106,545
- -----------------------------------------------------------------------------------------------------------
$4,905,000 Total Investments -- (cost $4,864,572) -- 95.6% 5,011,554
============-----------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 4.4% 229,974
-------------------------------------------------------------------------------------------
Net Assets -- 100% $5,241,528
===========================================================================================
</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 and Poor's or
Moody's rating.
(WI) Security purchased on a when-issued basis (see note 1 of
the Notes to Financial Statements).
13 See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets
May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship
Alabama
- ------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $ 5,011,554
Cash 489,799
Receivables:
Interest 77,834
Shares sold 10
Other assets 6,695
- ------------------------------------------------------------------------------
Total assets 5,585,892
- ------------------------------------------------------------------------------
Liabilities
Payable for investments purchased 297,940
Accrued expenses:
Management fees (note 6) 598
12b-1 distribution and service fees (notes 1 and 6) 1,132
Other 24,707
Dividends payable 19,987
- ------------------------------------------------------------------------------
Total liabilities 344,364
- ------------------------------------------------------------------------------
Net assets (note 7) $ 5,241,528
==============================================================================
Class A Shares (note 1)
Net assets $ 4,445,680
Shares outstanding 439,267
Net asset value and redemption price per share $ 10.12
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.56
==============================================================================
Class B Shares (note 1)
Net assets $ 590,941
Shares outstanding 58,298
Net asset value, offering and redemption price per share $ 10.14
==============================================================================
Class C Shares (note 1)
Net assets $ 204,807
Shares outstanding 20,200
Net asset value, offering and redemption price per share $ 10.14
==============================================================================
Class R Shares (note 1)
Net assets $ 100
Shares outstanding 10
Net asset value, offering and redemption price per share $ 10.13
==============================================================================
</TABLE>
14 See accompanying notes to financial statements.
<PAGE>
Statement of Operations Nuveen Municipal Bond Fund
Year ended May 31, 1997 May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Nuveen Flagship
Alabama*
- --------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $212,620
- --------------------------------------------------------------------------------
Expenses
Management fees (note 6) 19,394
12b-1 service fees -- Class A (notes 1 and 6) 12,164
12b-1 distribution and service fees -- Class B (notes 1 and 6) 372
12b-1 distribution and service fees -- Class C (notes 1 and 6) 72
Shareholders' servicing agent fees and expenses 14,252
Custodian's fees and expenses 37,560
Trustees' fees and expenses (note 6) 24
Professional fees 7,667
Shareholders' reports -- printing and mailing expenses 234
Federal and state registration fees 1,194
Organizational expenses (note 1) 20,264
Other expenses 585
- --------------------------------------------------------------------------------
Total expenses before expense reimbursement 113,782
Expense reimbursement (note 6) (98,659)
- --------------------------------------------------------------------------------
Net expenses 15,123
- --------------------------------------------------------------------------------
Net investment income 197,497
- --------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 588
Net change in unrealized appreciation or depreciation of investments 138,286
- --------------------------------------------------------------------------------
Net gain from investments 138,874
- --------------------------------------------------------------------------------
Net increase in net assets from operations $336,371
================================================================================
</TABLE>
* Information represents eight months of Flagship Alabama and four months of
Nuveen Flagship Alabama (see note 1 of Notes to the Financial Statements).
15 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Alabama* Alabama
---------------------------------------
Year ended 5/31/97 Year ended 5/31/96
- ----------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 197,497 $ 134,485
Net realized gain from investment
transactions (notes 1 and 4) 588 519
Net change in unrealized appreciation
or depreciation of investments 138,286 (63,639)
- ----------------------------------------------------------------------------
Net increase in net assets
from operations 336,371 71,365
- ----------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (195,673) (134,144)
Class B (2,069) N/A
Class C (212) --
Class R (1) N/A
From accumulated net realized gains
from investment transactions:
Class A -- (1,200)
Class B -- N/A
Class C -- --
Class R -- N/A
- ----------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (197,955) (135,344)
- ----------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 2,438,658 1,733,573
Net proceeds from shares issued to
shareholders due to reinvestment of
distributions 99,346 55,732
- ----------------------------------------------------------------------------
2,538,004 1,789,305
- ----------------------------------------------------------------------------
Cost of shares redeemed (691,292) (348,493)
- ----------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 1,846,712 1,440,812
- ----------------------------------------------------------------------------
Net increase in net assets 1,985,128 1,376,833
Net assets at the beginning of year 3,256,400 1,879,567
- ----------------------------------------------------------------------------
Net assets at the end of year $ 5,241,528 $ 3,256,400
- ----------------------------------------------------------------------------
Balance of undistributed net
investment income at end of year $ 57 $ 515
- ----------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Alabama and four months of
Nuveen Flagship Alabama (see note 1 of the Notes to Financial Statements).
N/A--Flagship Alabama was not authorized to issue Class B or Class R Shares.
See accompanying notes to financial statements.
16
<PAGE>
Notes to Financial Statements
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Alabama 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 Alabama Double Tax
Exempt Fund ("Flagship Alabama") was reorganized into the Trust and renamed
Nuveen Flagship Alabama Municipal Bond Fund ("Nuveen Flagship Alabama").
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 a when-issued purchase commitment of $197,219.
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.
17
<PAGE>
Notes to Financial Statements -- continued
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 Alabama 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, 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 and Alabama state 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, 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, B, C and R Shares. Class B, C and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). 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 18 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.
18
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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
$60,800) will be reimbursed to the Adviser on a straight-line basis over a
period of three years. As of May 31, 1997, $20,264 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.
19
<PAGE>
Notes to Financial Statements -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Alabama* Alabama
------------------------------------------------------------
Year ended Year ended
5/31/97 5/31/96
-------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 165,385 $ 1,650,047 174,099 $ 1,733,573
Class B 58,298 585,381 N/A N/A
Class C 20,200 203,130 -- --
Class R 10 100 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 9,936 99,346 5,583 55,732
Class B -- -- N/A N/A
Class C -- -- -- --
Class R -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------
253,829 2,538,004 179,682 1,789,305
- --------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (69,498) (691,292) (35,361) (348,493)
Class B -- -- N/A N/A
Class C -- -- -- --
Class R -- -- N/A N/A
- --------------------------------------------------------------------------------------------------------------------------
(69,498) (691,292) (35,361) (348,493)
- --------------------------------------------------------------------------------------------------------------------------
Net increase 184,331 $ 1,846,712 144,321 $ 1,440,812
==========================================================================================================================
</TABLE>
* Information represents eight months of Flagship Alabama and four months of
Nuveen Flagship Alabama (see note1).
N/A - Flagship Alabama was not authorized to issue Class B or Class R Shares.
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
Alabama
- ------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0440
Class B .0380
Class C .0395
Class R .0460
==============================================================================
</TABLE>
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities for the fiscal year ended May 31, 1997 (eight months of Flagship
Alabama and four months of Nuveen Flagship Alabama -- see note 1), aggregated
$4,354,191 and $2,674,332, respectively.
At May 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 May 31, 1997, the Fund had an unused capital loss carryforward of $11,473
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)
At May 31, 1997, net unrealized appreciation aggregated $146,982, all of which
related to appreciated securities.
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) Flagship Alabama 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.
21
<PAGE>
Notes to Financial Statements -- continued
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 of approximately
$51,400 of which approximately $44,500 were paid out as concessions to
authorized dealers. 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 $25,600 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, 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 their investments.
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
Alabama
- -------------------------------------------------------------------------------
<S> <C>
Capital paid-in $5,108,666
Balance of undistributed net investment income 57
Accumulated net realized gain (loss) from investment transactions (14,177)
Net unrealized appreciation of investments 146,982
- -------------------------------------------------------------------------------
Net assets $5,241,528
===============================================================================
</TABLE>
22
<PAGE>
Financial Highlights
23
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
-------------------------- ----------------------------
Net
NUVEEN FLAGSHIP ALABAMA ++ Net realized and Distributions 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 (4/94)
1997 $ 9.77 $.53 $ .35 $(.53) $ - $10.12 9.22%
1996 9.94 .53 (.17) (.53) - 9.77 3.72
1995 9.66 .52 .28 (.52) - 9.94 8.77
1994(c) 9.58 .03 .09 (.04) - 9.66 9.34+
Class B (2/97)
1997(c) 10.16 .11 (.02) (.11) - 10.14 .94
Class C (2/97)
1997(c) 10.16 .12 (.02) (.12) - 10.14 .99
Class R (2/97)
1997(c) 10.16 .16 (.05) (.14) - 10.13 1.08
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Alabama.
(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.
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- -----------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4,446 3.04% 2.65% .40% 5.29% 72%
3,256 3.19 2.53 .48 5.24 42
1,880 7.61 (1.98) .16 5.47 120
357 34.92+ (32.50)+ -- 2.42+ --
591 2.79+ 2.18+ .71+ 4.26+ 72
205 2.62+ 2.35+ .40+ 4.57+ 72
-- .91+ 5.26+ -- 6.17+ 72
- -----------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship Alabama Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Flagship
Alabama 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
Alabama 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
26
<PAGE>
Shareholder Meeting Report
Flagship Alabama
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Advisory Agreement For 256,854
Against --
Abstain 4,414
------------------------------------------------
Total 261,268
================================================================================
Broker Non Votes 56,056
================================================================================
Reorganization For 190,551
Against --
Abstain 1,840
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
================================================================================
Investment Objective For 186,211
Against 6,180
Abstain --
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
================================================================================
Investment Assets For 186,211
Against 6,180
Abstain --
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
================================================================================
Type of Securities For 186,211
Against 6,180
Abstain --
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
================================================================================
Borrowing For 186,211
Against 6,180
Abstain --
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
================================================================================
Pledges For 186,211
Against 6,180
Abstain --
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
================================================================================
Senior Securities For 186,211
Against 6,180
Abstain --
------------------------------------------------
Total 192,391
================================================================================
Broker Non Votes 124,933
------------------------------------------------
</TABLE>
27
<PAGE>
Shareholder Meeting Report
Flagship Alabama--continued
<TABLE>
<CAPTION>
A Shares
- -------------------------------------------------------------------------------
<S> <C> <C>
Underwriting For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Real Estate For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Commodities For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Loans For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Short Sales/Margin Purchases For 181,395
Against 6,180
Abstain 4,816
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Put and Call Options For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Industry Concentration For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
===============================================================================
Affiliate Purchases For 186,211
Against 6,180
Abstain --
-----------------------------------------------
Total 192,391
===============================================================================
Broker Non Votes 124,933
-----------------------------------------------
</TABLE>
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Companies For 186,211
Against 6,180
Abstain -
----------------------------------------------
Total 192,391
- --------------------------------------------------------------------------------
Broker Non Votes 124,933
- --------------------------------------------------------------------------------
12b-1 Fees For 254,992
Against 3,137
Abstain 3,139
----------------------------------------------
Total 261,268
- --------------------------------------------------------------------------------
Broker Non Votes 56,056
----------------------------------------------
</TABLE>
29
<PAGE>
Shareholder Meeting Report
Flagship Alabama--continued
<TABLE>
<CAPTION>
Directors A Shares
========================================================================
<S> <C> <C>
Bremner For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Brown For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Dean For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Impellizzeri For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Rosenheim For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Sawers For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Schneider For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
========================================================================
Schwertfeger For 314,185
Withhold 3,139
------------------------------------------------
Total 317,324
</TABLE>
30
<PAGE>
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
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
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
Shareholder Information
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
31
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
32
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
MUNICIPAL
BONDS FUNDS
MAY 31, 1997
- -------------------------------
ANNUAL REPORT
- -------------------------------
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
GEORGIA
[PHOTO APPEARS HERE]
<PAGE>
CONTENTS
1 Dear Shareholder
3 Answering Your Questions
6 Georgia Overview
9 Financial Section
29 Shareholder Meeting Report
32 Shareholder Information
33 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
DEAR SHAREHOLDER
It's a pleasure to report to you on the performance of the Nuveen Flagship
Georgia Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 9.39%
for Class A shares, if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) outpaced the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
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, shareholders were
receiving tax-free yields on net asset value of 5.20% for Class A shares. To
match this yield, investors in the 35% combined federal and state income tax
bracket would have had to earn at least 8.00% 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 inflation has hampered the performance
of municipals and led to
____
1
<PAGE>
"IN ADDITION TO SUBSTANTIAL TOTAL RETURNS, SHAREHOLDERS CONTINUE TO ENJOY VERY
ATTRACTIVE CURRENT YIELDS GENERATED BY A PORTFOLIO OF QUALITY BONDS."
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,
/s/ Timothy R. Schwertfeger
- -------------------------------
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
July 15, 1997
____
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
TED NEILD, HEAD OF NUVEEN'S DAYTON-BASED PORTFOLIO MANAGEMENT TEAM, TALKS ABOUT
THE MUNICIPAL BOND MARKET AND OFFERS INSIGHTS INTO FACTORS THAT AFFECTED FUND
PERFORMANCE OVER THE PAST YEAR.
ANSWERING YOUR QUESTIONS
WHAT ARE THE HAT 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 funds 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 this 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.
____
3
<PAGE>
"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."
GIVEN THIS MARKET ENVIRONMENT, HOW DID THE FUND PERFORM?
The Georgia Municipal Bond Fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 9.39% for Class
A shares, including price changes and reinvested dividends. Additionally, the
fund was ranked NUMBER ONE among 30 Georgia municipal bond funds for the one-
year period by Lipper Analytical Services, a nationally recognized performance
measurement service. Steady demand, coupled with tight supply, caused munis to
outperform Treasury securities over the 12-month period.
WHAT STRATEGIES DID YOU EMPLOY TO ADD VALUE?
During periods of rising interest rates -- like we experienced during the first
quarter of 1997 -- the fund swapped out of bonds held at a loss and into similar
bonds trading at discounts in the secondary market. This provided reduced
capital gains on the fund and furthered the fund's objective of providing
superior after-tax total return. We also sold high-coupon, pre-refunded
securities at a gain and reinvested the proceeds in longer maturity bonds,
allowing us to align the fund with the original maturity profile in the
prospectus. Without this recycling process, the distribution yield would be at
risk as higher coupon bonds are called away from the portfolio.
WHAT IS THE CURRENT STATUS OF GEORGIA'S MUNICIPAL MARKET?
As one of the nation's fastest growing states in terms of population, Georgia
has benefited from steady economic and employment growth. Unemployment is
expected to remain low over the next few years. The combination of the low cost
of municipal bond insurance, the generally high ratings of many of the states
municipal issuers, and this years low issuance has created a market with below-
average activity and tight credit spreads.
"At Nuveen, value investing mean's taking a fundamental appraoch to finding
bonds that offer the best balance of high potential return with low risk
regardless of the direction of interest rates."
____
4
<PAGE>
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 will 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.
____
5
<PAGE>
GEORGIA OVERVIEW
Credit Quality
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 53%
BBB/NR 12%
A 19%
AA 16%
Diversification
[PIE CHART APPEARS HERE]
Water & Sewer 5%
Escrowed Bonds 14%
Hospitals 14%
Other 4%
Tax Revenue 12%
General Obligations 9%
Utilities 8%
Housing Facilities 29%
Pollution Control 5%
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Share Class A B C R
Inception Date 3/86 2/97 1/94 2/97
- ----------------------------------------------------------------
Net Asset Value (NAV) $10.57 $10.57 $ 10.55 $10.57
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Total Net Assets ($000) $123,457
- ----------------------------------------------------------------
Average Weighted Maturity (years) 22.6
- ----------------------------------------------------------------
Duration (years) 9.36
- ----------------------------------------------------------------
<CAPTION>
ANNUALIZED TOTAL RETURN/1/
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
1-Year 9.39% 4.79% 8.73% 8.80% 9.46%
5-Year 6.62% 5.71% 6.03% 6.00% 6.64%
10-Year 7.85% 7.39% 7.38% 7.24% 7.86%
- ----------------------------------------------------------------------------
<CAPTION>
TAX-FREE YIELDS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.35% 5.12% 4.60% 4.80% 5.55%
SEC 30-Day Yld 5.20% 4.98% 4.45% 4.65% 5.41%
Taxable Equiv Yld2 8.00% 7.66% 6.85% 7.15% 8.32%
</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
B, 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.
Giving effect to the CDSC applicable to Class B shares, the 1-year, 5-year,
and 10-year total returns above would be 4.73%, 5.87%, and 7.38%,
respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 35%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
____
6
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
May 31, 1997 Annual Report
* 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 (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Nuveen Flagship Georgia Nuveen Flagship Georgia
Municipal Bond Index Municipal Bond Fund (NAV) Municipal Bond Fund (Offer)
<S> <C> <C> <C>
10,000 10,000 9,580 MAY 1987
10,898.1 10,861 10,404.8 MAY 1988
12,150.6 12,356.7 11,837.8 MAY 1989
13,039.7 12,919.1 12,376.5 MAY 1990
14,353.9 14,197.9 13,601.6 MAY 1991
15,764.1 15,448.3 14,799.5 MAY 1992
17,650 17,122 16,402.9 MAY 1993
18,085.8 17,434.6 16,702.4 MAY 1994
19,732.8 18,883.6 18,090.5 MAY 1995
20,634.7 19,459.6 18,642.3 MAY 1996
22,534.8 21,285.9 20,391.9 MAY 1997
</TABLE>
.Lehman Brothers Municipal Bond Index $22,535
.Nuveen Flagship Georgia Municipal Bond Fund (NAV) $21,286
.Nuveen Flagship Georgia Municipal Bond Fund (Offer) $20,392
Past performance is not predictive of future preformance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C> <C>
JUNE 0.04631 JANUARY 0.04799
JULY 0.04786 FEBRUARY 0.0471
AUGUST 0.04786 MARCH 0.0471
SEPTEMBER 0.04631 APRIL 0.0471
OCTOBER 0.04786 MAY 0.0471
NOVEMBER 0.04631
DECEMBER 0.04786
</TABLE>
____
7
<PAGE>
FINANCIAL SECTION
CONTENTS
10 Portfolio of Investments
17 Statement of Net Assets
18 Statement of Operations
19 Statement of Changes in Net Assets
20 Notes to Financial Statements
25 Financial Highlights
28 Independent Auditors' Report
____
9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP GEORGIA
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 1.3%
$ 1,000,000 Private Colleges and Univs Facilities Authority, Georgia, No Opt. Call AAA $ 1,125,420
Revenue, Mercer University Project,
6.500%, 11/01/15
500,000 Private Colleges and Univs Authority, Georgia, 6/04 at 102 AAA 529,135
Revenue Refunding, Spelman College Project,
6.200%, 6/01/14
- --------------------------------------------------------------------------------------------------------------------------------
ESCROWED TO MATURITY - 6.5%
505,000 Cherokee County, Georgia, Water and Sewer 8/05 at 100 AAA 681,280
Authority, Revenue, 9.750%, 8/01/09
4,765,000 Colquitt County, Georgia, Development Authority, No Opt. Call Aaa 952,428
Revenue, Series C, 0.000%, 12/01/21
10,275,000 Colquitt County, Georgia, Development Authority, No Opt. Call Aaa 2,053,767
Revenue, Series A, First Mortgage,
RMK12/15/92, 0.000%, 12/01/21
2,100,000 Richmond County, Georgia, Development Authority, No Opt. Call Aaa 419,748
Revenue, Series C, 0.000%, 12/01/21
19,890,000 Richmond County, Georgia, Development Authority, No Opt. Call Aaa 3,975,613
Revenue, First Mortgage, Series A,
0.000%, 12/01/21
- --------------------------------------------------------------------------------------------------------------------------------
HOSPITALs - 13.5%
500,000 Cherokee County, Georgia, Hospital Authority, 12/00 at 102 AAA 544,405
Revenue Certificates, Series 1990,
7.250%, 12/01/15
1,000,000 Clarke County, Georgia, Hospital Authority, Revenue 1/07 at 100 AAA 907,700
Refunding Certificates, Athens Regional Medical
Project, 5.000%, 1/01/27
1,000,000 Coffee County, Georgia, Hospital Authority, Revenue 12/06 at 102 N/R 988,580
Anticipation Certificates, Coffee Regional Medical,
Series A, 6.750%, 12/01/16
Dalton, Georgia, Development Authority, Revenue
Certificates, Hamilton Health Care System:
2,000,000 5.250%, 8/15/26 2/07 at 102 AAA 1,895,600
2,000,000 5.500%, 8/15/26 No Opt. Call AAA 1,989,740
Fulco, Georgia, Hospital Authority, Revenue
Anticipation Certificates, Georgia Baptist
Health Care, Series A:
3,000,000 6.250%, 9/01/13 9/02 at 102 Baa1 3,045,180
2,600,000 6.375%, 9/01/22 9/02 at 102 Baa1 2,650,388
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_____
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - CONTINUED
$ 2,250,000 Fulco, Georgia, Hospital Authority, Revenue Refunding, 9/02 at 102 Baa1 $ 2,293,605
Anticipation Certificates, Georgia Baptist Health,
Series B, 6.375%, 9/01/22
1,000,000 Gainesville & Hall County, Georgia, Hospital Authority, 10/05 at 102 AAA 1,023,490
Revenue Refunding, Anticipation Certificates,
Northeast Georgia Healthcare Project,
6.000%, 10/01/20
1,250,000 Ware County, Georgia, Hospital Authority, Revenue 3/02 at 102 AAA 1,344,988
Anticipation Certificates, Series A,
6.625%, 3/01/15
- --------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTI FAMILY - 14.5%
1,840,000 Augusta, Georgia, Housing Authority, Mortgage 5/05 at 102 Aa 1,892,679
Revenue Refunding, River Glen Apartments,
Series A, 6.500%, 5/01/27
755,000 Clayton County, Georgia, Housing Authority, 12/05 at 102 AAA 749,730
Multifamily Housing Revenue, Advantages Of
Atlanta Apartments Projects, 5.700%, 12/01/16
1,000,000 De Kalb County, Georgia, Housing Authority, 1/05 at 102 AAA 1,057,450
Multi-Family Housing Revenue, The Lakes At
Indian Creek Project, 7.150%, 1/01/25
3,470,000 De Kalb County, Georgia, Housing Authority, 1/06 at 102 A 3,560,532
Multi-Family Housing Revenue, Regency
Woods I & II Project, Senior, Series A,
6.500%, 1/01/26
4,000,000 Fulton County, Georgia, Housing Authority, 7/06 at 102 A 4,032,920
Multi-Family Housing Revenue, Concorde Place
Apartments Project, Series A, 6.375%, 1/01/27
4,715,000 Lawrenceville, Georgia, Housing Authority, 6/07 at 102 AAA 4,760,783
Multi-Family Revenue, Knollwood Park Apartments
Project, 6.250%, 12/01/29
1,300,000 Macon, Georgia, Housing Authority, Mortgage 10/04 at 102 Aaa 1,340,287
Revenue Refunding, The Vistas, Series A,
6.450%, 4/01/26
500,000 Summerville, Georgia, Housing Corporation, 12/98 at 100 N/R 523,595
First Lien Revenue, 8.000%, 12/01/10
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
____
11
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/SINGLE FAMILY - 13.6%
Fulton County, Georgia Housing Authority, Single
Family, Revenue, Series A:
$ 355,000 6.550%, 3/01/18 3/05 at 102 AAA $ 362,906
120,000 6.600%, 3/01/28 3/05 at 102 AAA 122,842
Fulton County, Georgia, Housing Authority, Single
Family, Revenue Refunding, Mortgage, Mortgage
BKD Secs, A:
1,290,000 6.125%, 9/01/18 9/06 at 102 AAA 1,302,913
2,000,000 6.200%, 9/01/27 9/06 at 102 AAA 2,022,380
Georgia, State Housing and Finance Authority Revenue,
Refunding, Single Family Mortgage, Series A:
1,215,000 6.500%, 12/01/17 12/04 at 102 AA+ 1,251,681
750,000 6.600%, 12/01/23 12/04 at 102 AA+ 775,155
1,000,000 Georgia, State Housing and Finance Authority, 3/05 at 102 AA+ 1,024,640
Revenue, Single Family Mortgage, Subseries A-2,
6.400%, 12/01/05
2,500,000 Georgia, State Housing and Finance Authority, 6/05 at 102 AA+ 2,579,525
Revenue, Single Family Mortgage, Series B,
Subseries B-2, 6.550%, 12/01/27
4,000,000 Georgia, State Housing and Finance Authority, 6/06 at 102 AA+ 4,120,720
Revenue, Single Family Mortgage, Series A,
Subseries A-2, 6.450%, 12/01/27
310,000 Georgia, State Residential Finance Authority, Home 12/99 at 103 AA+ 325,990
Ownership Mortgage, Senior, Series D,
Subseries D-3, 7.800%, 6/01/21
350,000 Georgia, State Residential Finance Authority, Home 12/00 at 103 AA+ 368,498
Ownership Mortgage, Series A,
Subseries A-2, 7.750%, 6/01/18
1,615,000 Georgia, State Residential Finance Authority, Home 12/01 at 103 AA+ 1,691,874
Ownership Mortgage, Series A, 7.250%, 12/01/21
750,000 Georgia, State Residential Finance Authority, 12/98 at 103 AA+ 787,095
Single Family, Insured Mortgage, FHA Insured
Virginia Guaranteed, Series B, Subseries B-1,
8.000%, 12/01/16
- --------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT POLLUTION CONTROL - 5.1%
1,000,000 Cartersville, Georgia, Development Authority, 5/02 at 102 A+ 1,075,900
Revenue, Water and Wastewater Facilities,
Anheuser, 6.750%, 2/01/12
</TABLE>
____
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT POLLUTION CONTROL - CONTINUED
$ 2,000,000 Cartersville, Georgia, Development Authority, 5/07 at 101 A+ $ 2,031,540
Revenue Refunding, Sewer Facilities,
Anheuser-Busch, 6.125%, 5/01/27
1,000,000 Savannah, Georgia, Economic Development No Opt. Call A1 1,049,780
Authority, Pollution Control, Revenue Refunding,
Union Camp Corporation Project, 6.150%, 3/01/17
500,000 Wayne County, Georgia, Development Authority, 7/00 at 102 BBB+ 535,865
Solid Waste Disposal, Revenue, Itt Rayonier
Inc. Project, 8.000%, 7/01/15
1,000,000 Wayne County, Georgia, Development Authority, 5/03 at 102 BBB+ 1,035,780
Pollution Control, Revenue Refunding, Itt Rayonier
Inc. Project, 6.100%, 11/01/07
500,000 White County, Georgia, Development Authority, 6/02 at 102 BBB+ 526,780
Industrial Development, Revenue Refunding,
Springs Industries, Inc., 6.850%, 6/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL APPROPRIATION OBLIGATIONS - 1.6%
1,750,000 Butts County, Georgia, Certificates of 12/04 at 102 AAA 1,936,515
Participation, 6.750%, 12/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/TRANSPORTATION - 0.8%
1,000,000 Atlanta, Georgia, Airport Facilities, Revenue, 1/07 at 101 AAA 997,670
Refunding, 5.250%, 1/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/UTILITY - 8.2%
1,800,000 Appling County, Georgia, Development Authority, 1/04 at 101 AAA 1,998,396
Pollution Control, Revenue, Oglethorpe Power
Corporation Hatch Project, 7.150%, 1/01/21
1,500,000 Georgia Municipal Electric Authority, Power, 1/15 at 100 A 1,624,950
Revenue, General, Series B, 6.375%, 1/01/16
1,000,000 Georgia Municipal Electric Authority, Power, 1/10 at 100 AAA 1,014,500
Revenue Refunding, Series Z, Fsa, CRS,
5.500%, 1/01/12
Monroe County, Georgia, Development Authority,
Pollution Control Revenue, Oglethorpe, Power,
Scherer, Series A, Refunding:
500,000 6.750%, 1/01/10 No Opt. Call A 563,490
1,000,000 6.800%, 1/01/12 No Opt. Call A 1,129,180
</TABLE>
____
13
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP GEORGIA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL REVENUE/UTILITY - CONTINUED
$ 1,250,000 Puerto Rico, Electric Power Authority, Power Revenue, 7/04 at 100 BBB+ $ 1,204,850
Formerly Puerto Rico Commonwealth, Water
Resource Authority, Power, Series T,
5.500%, 7/01/20
1,000,000 Puerto Rico, Electric Power Authority, Power Revenue, 7/05 at 100 BBB+ 930,880
Formerly Puerto Rico Commonwealth Water
Resource Authority, Power, Refunding, Series Z,
5.250%, 7/01/21
1,500,000 Puerto Rico, Electric Power Authority, Power Revenue, No Opt. Call AAA 504,420
Formerly Puerto Rico Commonwealth Water
Resource Authority, Power, Capital Appreciation,
Refunding, Series N, Mbia, Ibc, 0.000%, 7/01/17
3,000,000 Puerto Rico, Electric Power Authority, Power Revenue, No Opt. Call AAA 1,008,840
Formerly Puerto Rico Commonwealth Water
Resource Authority, Power, Capital Apprec,
Series O, Mbia, Ibc, 0.000%, 7/01/17
170,000 Puerto Rico, Electric Power Authority, Power Revenue, 7/05 at 100 AAA 167,244
Formerly Puerto Rico Commonwealth Water
Resource Authority, Power, Series X, Mbia, Ibc,
5.500%, 7/01/25
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/WATER AND SEWER - 5.0%
1,000,000 Atlanta, Georgia, Solid Waste Management Authority, 12/06 at 100 AA 960,720
Revenue, Landfill Closure Project, 5.250%, 12/01/21
Brunswick, Georgia, Water and Sewer, Revenue
Refunding and Improvement:
500,000 6.000%, 10/01/11 No Opt. Call AAA 538,190
400,000 6.100%, 10/01/19 No Opt. Call AAA 431,420
2,000,000 Cherokee County, Georgia, Water and Sewer Authority, No Opt. Call AAA 2,001,220
Revenue Refunding and Improvement,
5.500%, 8/01/23
1,000,000 Conyers, Georgia, Water and Sewer, Revenue, 7/04 at 102 AAA 1,119,940
Series A, 6.600%, 7/01/15
1,000,000 Milledgeville, Georgia, Water and Sewer, Revenue No Opt. Call AAA 1,072,430
Refunding, 6.000%, 12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
NON-STATE GENERAL OBLIGATIONS - 8.2%
1,215,000 Clayton County, Georgia, Solid Waste Management 2/02 at 102 AA 1,293,793
Authority, Revenue, Series A, 6.500%, 2/01/12
</TABLE>
____
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NON-STATE GENERAL OBLIGATIONS - CONTINUED
$ 800,000 Downtown Marietta Development Authority, Georgia 1/02 at 102 AAA $ 868,888
Revenue, Cobb County Lease, 6.600%, 1/01/19
1,000,000 Downtown Smyrna Development Authority, Georgia 2/05 at 102 AAA 1,095,350
Revenue, 6.600%, 2/01/17
Peach County, Georgia, School District:
1,015,000 6.300%, 2/01/14 2/05 at 102 AAA 1,092,922
3,810,000 6.400%, 2/01/19 2/05 at 102 AAA 4,074,452
1,500,000 Washington County, Georgia, School District, 1/05 at 102 AAA 1,673,580
6.875%, 1/01/14
- --------------------------------------------------------------------------------------------------------------------------------
PRE-REFUNDED - 7.7%***
750,000 Burke County, Georgia, Development Authority 7/97 at 102 A 767,858
Pollution Control, Revenue, Georgia Power
Company, Plant Vogtle Project, 8.375%, 7/01/17
Chatham County, Georgia, Hospital Authority,
Revenue, Memorial Medical Center Inc., Series A:
100,000 7.000%, 1/01/10 1/01 at 102 AAA 109,702
1,130,000 7.000%, 1/01/21 1/01 at 102 AAA 1,239,633
500,000 Colquitt County, Georgia, Hospital Authority, Revenue 3/02 at 102 AAA 553,850
Certificates, Colquitt Regional Medical Center,
6.700%, 3/01/12
500,000 Dade County, Georgia, Water and Sewer Authority, 7/99 at 102 AAA 541,870
Water and Sewer Revenue Refunding,
7.600%, 7/01/15
500,000 Gainesville, Georgia, Water and Sewer Revenue 11/00 at 102 AAA 552,115
Refunding, Series B, 7.200%, 11/15/10
1,855,000 Marietta, Georgia, Development Authority, Revenue, 12/99 at 102 AAA 2,017,127
Life College Inc. Project, 7.250%, 12/01/19
1,200,000 Metropolitan Atlanta Rapid Transit Authority, Georgia 7/99 at 102 AAA 1,291,008
Sales Tax Revenue, Series L, 7.200%, 7/01/20
1,650,000 Metropolitan Atlanta Rapid Transit Authority, Georgia 7/04 at 102 AAA 1,882,221
Sales Tax Revenue, Second Indenture, Series A,
6.900%, 7/01/20
500,000 Ware County, Georgia, Hospital Authority, Revenue, 3/00 at 102 AAA 543,035
Anticipation Certificates, 7.125%, 3/01/15
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
____
15
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP GEORGIA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX REVENUE -12.0%
$ 570,000 Burke County, Georgia, Development Authority, 2/01 at 102 A $ 614,819
Industrial Development Revenue, Georgia Safe
Corporation Project, 7.500%, 2/01/11
1,150,000 Burke County, Georgia, Economic Development 12/02 at 102 A 1,235,100
Authority, Industrial Development Revenue, Ritz
Industrial Transformers, 7.250%, 12/01/11
3,000,000 Cobb-Marietta, Georgia, Coliseum and Exhibit Hall 10/19 at 100 AAA 3,056,250
Authority, Revenue, Refunding, 5.625%, 10/01/26
2,765,000 Metropolitan Atlanta Rapid Transit Authority, Georgia No Opt. Call AA- 3,034,588
Sales Tax, Revenue Refunding, Series N,
6.250%, 7/01/18
500,000 Metropolitan Atlanta Rapid Transit Authority, Georgia No Opt. Call AAA 549,710
Sales Tax, Revenue Refunding, Series P,
6.250%, 7/01/20
6,000,000 Puerto Rico Commonwealth Highway and 7/16 at 100 A 5,835,420
Transportation Authority, Highway Revenue,
Series Y, 5.500%, 7/01/36
550,000 Puerto Rico Commonwealth Infrastructure Financing 7/98 at 102 BBB+ 581,762
Authority, Special, Series A, 7.750%, 7/01/08
- -------------------------------------------------------------------------------------------------------------------------------
STATE/TERRITORIAL GENERAL OBLIGATIONS - 0.9%
100,000 Puerto Rico Commonwealth, Refunding, 7/05 at 101 AAA 97,971
5.375%, 7/01/22
450,000 Puerto Rico Commonwealth, MBIA, Ibc, 7/04 at 101 1/2 AAA 483,907
6.450%, 7/01/17
475,000 Puerto Rico Public Buildings Authority Guaranteed 7/03 at 101 1/2 A 474,705
Public Education and Health Facilities, Refunding,
Series M, 5.750%, 7/01/15
- -------------------------------------------------------------------------------------------------------------------------------
$ 150,425,000 Total Investments - (cost $115,758,671) - 98.9% 122,097,398
- -------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.1% 1,359,352
------------------------------------------------------------------------------------------------------
Net Assets - 100% $123,456,750
======================================================================================================
</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 and Poor's
or Moody's rating.
*** Pre-refunded 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. Pre-
refunded securities are normally considered to be
equivalent to AAA rated securities.
N/R - Investment is not rated.
____
16
<PAGE>
STATEMENT OF NET ASSETS Nuveen Municipal Bond Fund
May 31, 1997 May 31, 1997 Annual Report
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
GEORGIA
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $ 122,097,398
Cash 388,954
Receivables:
Interest 2,562,322
Shares sold 186,736
Investments sold 50,000
Other assets 27,963
- --------------------------------------------------------------------------------
Total assets 125,313,373
- --------------------------------------------------------------------------------
LIABILITIES
Payables:
Investments purchased 989,610
Shares redeemed 206,840
Accrued expenses:
Management fees (note 6) 43,078
Other 69,550
Dividends payable 547,545
- --------------------------------------------------------------------------------
Total liabilities 1,856,623
- --------------------------------------------------------------------------------
Net assets (note 7) $ 123,456,750
================================================================================
CLASS A SHARES (NOTE 1)
Net assets $ 111,518,477
Shares outstanding 10,551,439
Net asset value and redemption price per share $ 10.57
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.03
================================================================================
CLASS B SHARES (NOTE 1)
Net assets $ 113,275
Shares outstanding $ 10,720
Net asset value, offering and redemption price per share $ 10.57
================================================================================
CLASS C SHARES (NOTE 1)
Net assets $ 11,802,566
Shares outstanding 1,119,142
Net asset value, offering and redemption price per share $ 10.55
================================================================================
CLASS R SHARES (NOTE 1)
Net assets $ 22,432
Shares outstanding 2,122
Net asset value, offering and redemption price per share $ 10.57
================================================================================
</TABLE>
See accompanying notes to financial statements.
____
17
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
GEORGIA*
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $ 7,487,788
- --------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 622,281
12b-1 service fees - Class A (notes 1 and 6) 366,712
12b-1 distribution and service fees - Class B (notes 1 and 6) 173
12b-1 distribution and service fees - Class C (notes 1 and 6) 92,494
Shareholders' servicing agent fees and expenses 79,289
Custodian's fees and expenses 79,954
Trustees' fees and expenses (note 6) 3,223
Professional fees 17,554
Shareholders' reports - printing and mailing expenses 11,692
Federal and state registration fees 3,610
Other expenses 5,532
- --------------------------------------------------------------------------------
Total expenses before reimbursement 1,282,514
Expense reimbursement (note 6) (283,341)
- --------------------------------------------------------------------------------
Net expenses 999,173
- --------------------------------------------------------------------------------
Net investment income 6,488,615
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 816,979
Net change in unrealized appreciation or depreciation of
investments 3,379,145
- --------------------------------------------------------------------------------
Net gain from investments 4,196,124
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 10,684,739
================================================================================
</TABLE>
* Information represents eight months of Flagship Georgia and four months of
Nuveen Flagship Georgia (see note 1 of the Notes to Financial Statements).
See accompanying notes to financial statements.
____
18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
GEORGIA* GEORGIA
---------------------------------------
YEAR ENDED 5/31/97 YEAR ENDED 5/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 6,488,615 $ 6,536,598
Net realized gain from investment
transactions (notes 1 and 4) 816,979 600,909
Net change in unrealized appreciation or
depreciation of investments 3,379,145 (3,544,803)
- --------------------------------------------------------------------------------
Net increase in net assets from operations 10,684,739 3,592,704
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (5,973,872) (6,196,741)
Class B (779) N/A
Class C (513,629) (392,640)
Class R (289) N/A
- --------------------------------------------------------------------------------
Decrease in net assets from distributions to
shareholders (6,488,569) (6,589,381)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 18,042,463 14,972,667
Net proceeds from shares issued to
shareholders due to reinvestment
of distributions 3,251,554 3,853,135
- --------------------------------------------------------------------------------
21,294,017 18,825,802
- --------------------------------------------------------------------------------
Cost of shares redeemed (19,327,898) (18,861,782)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions 1,966,119 (35,980)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets 6,162,289 (3,032,657)
Net assets at the beginning of year 117,294,461 120,327,118
- --------------------------------------------------------------------------------
Net assets at the end of year $123,456,750 $117,294,461
- --------------------------------------------------------------------------------
Balance of undistributed net investment
income at end of year $ 46 $ --
- --------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Georgia and four months of
Nuveen Flagship Georgia (see note 1 of the Notes to Financial Statements).
N/A - Flagship Georgia was not authorized to issue Class B or Class R Shares.
See accompanying notes to financial statements.
____
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Georgia 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 Georgia Double Tax
Exempt Fund ("Flagship Georgia") was reorganized into the Trust and renamed
Nuveen Flagship Georgia Municipal Bond Fund ("Nuveen Flagship Georgia").
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 purchase 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.
____
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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 Georgia 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, 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 and Georgia state 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, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class B and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). 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 18 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.
____
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
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.
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
GEORGIA* GEORGIA
----------------------------------------------------------------
YEAR ENDED YEAR ENDED
5/31/97 5/31/96
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,320,552 $ 13,778,494 1,076,625 $ 11,247,191
Class B 10,720 112,660 N/A N/A
Class C 393,868 4,129,100 355,608 3,725,476
Class R 2,104 22,209 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 287,354 2,992,929 343,594 3,593,871
Class B -- -- N/A N/A
Class C 24,846 258,440 24,841 259,264
Class R 18 185 N/A N/A
- ---------------------------------------------------------------------------------------------------------
2,039,462 21,294,017 1,800,668 18,825,802
- ---------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,627,331) (16,977,352) (1,686,034) (17,598,671)
Class B -- -- N/A N/A
Class C (225,854) (2,350,546) (122,108) (1,263,111)
Class R -- -- N/A N/A
- ---------------------------------------------------------------------------------------------------------
(1,853,185) (19,327,898) (1,808,142) (18,861,782)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) 186,277 $ 1,966,119 (7,474) $ (35,980)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Georgia and four months of
Nuveen Flagship Georgia (see note1).
N/A- Flagship Georgia was not authorized to issue Class B or Class R Shares.
____
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
3.DISTRIBUTIONS TO SHAREHOLDERS
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
GEORGIA
- --------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0470
Class B .0405
Class C .0420
Class R .0490
================================================================================
</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
GEORGIA*
- --------------------------------------------------------------------------------
<S> <C>
PURCHASES
Investments in municipal securities $48,893,968
Temporary municipal investments 5,500,000
SALES
Investments in municipal securities 6,954,834
Temporary municipal investments 5,500,000
================================================================================
</TABLE>
* Information represents eight months of Flagship Georgia and four months of
Nuveen Flagship Georgia (see note 1).
At May 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 May 31, 1997, the Fund had unused capital loss carryforwards of $2,608,045
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, $704,617 of the carryover will expire in the year
2001, $1,400,169 will expire in the year 2002 and $503,259 will expire in the
year 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At May 31, 1997, net unrealized appreciation aggregated $6,338,727 of which
$6,343,997 related to appreciated securities and $5,270 related to depreciated
securities.
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:
____
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS-CONTINUED
<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) Flagship Georgia 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 of approximately
$342,600, of which approximately $293,900 were paid out as concessions to
authorized dealers. 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 $69,700 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, 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 their investments.
The Distributor and its predecessor also collected and retained approximately
$3,200 of CDSC on share redemptions during the fiscal year ended 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
GEORGIA
- --------------------------------------------------------------------------------
<S> <C>
Capital paid-in $119,726,022
Balance of undistributed net investment income 46
Accumulated net realized gain (loss)
from investment transactions (2,608,045)
Net unrealized appreciation of investments 6,338,727
- --------------------------------------------------------------------------------
Net assets $123,456,750
================================================================================
</TABLE>
____
24
<PAGE>
FINANCIAL HIGHLIGHTS
____
25
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
---------------------------- -----------------------------
NET
NUVEEN FLAGSHIP GEORGIA 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 (3/86)
1997 $10.20 $.57 $ .37 $(.57) $ -- $10.57 9.39%
1996 10.46 .57 (.25) (.58) -- 10.20 3.05
1995 10.23 .58 .23 (.58) -- 10.46 8.31
1994 10.62 .59 (.39) (.59) -- 10.23 1.83
1993 10.16 .62 .45 (.61) -- 10.62 10.84
1992 9.95 .63 .21 (.63) -- 10.16 8.81
1991 9.67 .64 .28 (.64) -- 9.95 9.90
1990 9.88 .65 (.22) (.64) -- 9.67 4.55
1989 9.30 .65 .59 (.66) -- 9.88 13.77
1988 9.19 .66 .11 (.66) -- 9.30 8.61
CLASS B (2/97)
1997(c) 10.66 .14 (.11) (.12) -- 10.57 .31
CLASS C (1/94)
1997 10.18 .51 .37 (.51) -- 10.55 8.80
1996 10.44 .51 (.25) (.52) -- 10.18 2.48
1995 10.21 .52 .23 (.52) -- 10.44 7.72
1994(c) 10.91 .19 (.69) (.20) -- 10.21 (10.96)+
CLASS R (2/97)
1997(c) 10.65 .18 (.06) (.20) -- 10.57 1.11
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Georgia.
(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.
____
26
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
RATIO RATIO
OF NET OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
EXPENSES IN COME TO EXPENSES INCOME TO
TO AVERAGE AVERAGE TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (B) MENT (B) RATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$111,518 1.02% 5.20% .78% 5.44% 39%
107,862 1.08 5.18 .80 5.46 59
113,354 1.09 5.53 .83 5.79 40
123,068 1.06 5.11 .70 5.47 39
101,196 1.08 5.42 .62 5.88 30
70,650 1.14 5.74 .57 6.31 21
44,829 1.22 6.10 .72 6.60 24
36,034 1.23 6.23 .84 6.62 34
35,637 1.21 6.49 .96 6.74 23
29,701 1.18 6.87 .91 7.14 46
113 1.63+ 4.49+ 1.32+ 4.80+ 39
11,803 1.56 4.63 1.32 4.87 39
9,433 1.63 4.61 1.34 4.90 59
6,973 1.64 4.92 1.38 5.18 40
4,348 1.60+ 4.22+ 1.27+ 4.55+ 39
22 .68+ 5.41+ .38+ 5.71+ 39
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
____
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND:
We have audited the accompanying statement of net assets of Nuveen Flagship
Georgia 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
Georgia 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
____
28
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP GEORGIA
<TABLE>
<CAPTION>
A SHARES C SHARES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
ADVISORY AGREEMENT For 8,274,496 795,047
Against 255,231 5,079
Abstain 139,357 38,938
-----------------------------------------------
Total 8,669,084 839,064
- ----------------------------------------------------------------------------
Broker Non Votes 129,460 30,572
- ----------------------------------------------------------------------------
REORGANIZATION For 5,411,178 489,766
Against 191,350 10,329
Abstain 110,415 29,861
-----------------------------------------------
Total 5,712,943 529,956
- ----------------------------------------------------------------------------
Broker Non Votes 3,085,601 339,680
- ----------------------------------------------------------------------------
INVESTMENT OBJECTIVE For 5,431,040 495,083
Against 326,838 27,879
Abstain 15,253 6,993
-----------------------------------------------
Total 5,773,131 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,413 339,681
- ----------------------------------------------------------------------------
INVESTMENT ASSETS For 5,437,551 495,083
Against 320,715 27,879
Abstain 14,864 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
TYPE OF SECURITIES For 5,433,282 495,083
Against 322,672 27,879
Abstain 17,176 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
BORROWING For 5,429,414 493,229
Against 326,540 27,879
Abstain 17,176 8,847
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
PLEDGES For 5,434,230 495,083
Against 322,997 27,879
Abstain 15,903 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
SENIOR SECURITIES For 5,435,879 493,229
Against 321,331 27,879
Abstain 15,920 8,847
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
UNDERWRITING For 5,427,113 495,083
Against 337,685 27,879
Abstain 8,332 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
-----------------------------------------------
</TABLE>
____
29
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP GEORGIA-CONTINUED
<TABLE>
<CAPTION>
A SHARES C SHARES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
REAL ESTATE For 5,415,396 495,083
Against 341,814 27,879
Abstain 15,920 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
COMMODITIES For 5,415,714 495,083
Against 343,606 27,879
Abstain 13,810 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
LOANS For 5,416,396 495,083
Against 337,710 27,879
Abstain 19,024 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
SHORT SALES/MARGIN For 5,415,002 495,083
PURCHASES
Against 341,395 27,879
Abstain 16,733 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
PUT AND CALL OPTIONS For 5,411,051 495,083
Against 346,014 27,879
Abstain 16,066 6,993
-----------------------------------------------
Total 5,773,131 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,413 339,681
- ----------------------------------------------------------------------------
INDUSTRY CONCENTRATION For 5,431,817 495,083
Against 324,688 27,879
Abstain 16,625 6,993
-----------------------------------------------
Total 5,773,130 529,955
Broker Non Votes 3,025,414 339,681
AFFILIATE PURCHASES For 5,433,755 495,083
Against 324,403 27,879
Abstain 14,972 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
INVESTMENT COMPANIES For 5,432,986 494,085
Against 324,116 28,877
Abstain 16,028 6,993
-----------------------------------------------
Total 5,773,130 529,955
- ----------------------------------------------------------------------------
Broker Non Votes 3,025,414 339,681
- ----------------------------------------------------------------------------
DIV VS. NON-DIV For 5,283,651 488,970
Against 292,880 11,678
Abstain 197,407 29,308
-----------------------------------------------
Total 5,773,938 529,956
- ----------------------------------------------------------------------------
Broker Non Votes 3,027,606 339,680
- ----------------------------------------------------------------------------
12B-1 FEES For 8,099,794 760,735
Against 301,855 39,390
Abstain 267,435 38,938
-----------------------------------------------
Total 8,669,084 839,063
- ----------------------------------------------------------------------------
Broker Non Votes 129,460 30,573
-----------------------------------------------
</TABLE>
____
30
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A SHARES C SHARES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
DIRECTORS
- ----------------------------------------------------------------------------
Bremner For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Brown For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Dean For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Impellizzeri For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Rosenheim For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Sawers For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Schneider For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
- ----------------------------------------------------------------------------
Schwertfeger For 8,609,958 824,735
Withhold 188,586 44,901
-----------------------------------------------
Total 8,798,544 869,636
-----------------------------------------------
</TABLE>
____
31
<PAGE>
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed
to help you reach your financial goals.
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
Intermediate-Term
Limited-Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
SHAREHOLDER INFORMATION
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
____
32
<PAGE>
FUND INFORMATION
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND
DIVIDEND DISBURSING AGENT
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Dayton, Ohio
____
33
<PAGE>
SERVING INVESTORS
FOR GENERATIONS
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Il. 60606-1286
(800) 621-7227
www. nuveen.com
Since our founding in 1898. John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach - purchasing securities of strong companies and
communities that represent good long-term value - is the cornerstone of Nuveen's
investment philosophy. It is a careful, long-term strategy that offers the
potential for attractive returns with moderated risk. Successful value investing
begins with in-depth research and a discerning eye for marketplace opportunity.
Nuveen's team of investment professionals is backed by the discipline, resources
and expertise of almost a century of investment experience, including one of the
most recognized research departments in the industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Louisiana
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Louisiana Overview
9 Financial Section
29 Shareholder Meeting Report
32 Shareholder Information
33 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Dear Shareholder
It's a pleasure to report to you on the performance of the Nuveen Flagship
Louisiana Municipal Bond Fund. Over the past year, the fund posted sizable
gains. For the fiscal year ended May 31, 1997, the value of your investment rose
9.37% for Class A shares if you chose to reinvest your tax-free income
dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) outpaced the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
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, shareholders were
receiving tax-free yields on net asset value of 5.10% for Class A shares. To
match this yield, investors in the 34% combined federal and state income tax
bracket would have had to earn at least 7.73% 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 inflation has hampered the performance
of municipals and led to increased volatility in both the equity and bond
markets.
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
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,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
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 this 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
3
<PAGE>
"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."
operating in a healthy supply environment, where securities were available as
needed.
Given this market environment, how did the fund perform?
The Louisiana Municipal Bond fund performed well over the past year, rewarding
investors with a total return on net asset value for the year of 9.37% for Class
A shares, including price changes and reinvested dividends. Additionally, the
fund was ranked number one among 13 Louisiana 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?
As the spread between yields on higher and lower quality bonds continued to
narrow during the year, we were able to enhance the credit quality of the fund
without sacrificing yield. We also focused on purchasing bonds with strong call
protection, which resulted in healthy appreciation for the fund as interest
rates generally fell over the period.
What is the current status of Louisiana's municipal market?
The supply of Louisiana bonds has been tight over the past year. Issuance is
down 23.5%, from a volume of $1.2 billion in the first half of 1996 to $891
million in the first half of 1997. Municipal financial operations in the state
have stabilized somewhat in recent years, with debt levels moderating. The
declining debt levels are partly due to the retirement of bonds once issued by
the Louisiana Recovery District to compensate for deficits experienced in the
1980s. Louisiana's healthcare market continues to be rather volatile. The
increased presence of managed care programs and strong for-profit healthcare
providers have squeezed reimbursement levels, particularly in the New Orleans
metro area. In addition, proposed reductions in federal Medicaid funds threaten
to leave the state with greatly increased payment obligations.
4
<PAGE>
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.
5
<PAGE>
Louisiana
Overview
- ---------------------------------------------------
- ---------------------------------------------------
Credit Quality
- ---------------------------------------------------
[PIE CHART APPEARS HERE]
BBB/NR 20%
A 11%
AA 9%
AAA/Pre-refunded 60%
- ---------------------------------------------------
- ---------------------------------------------------
Diversification
- ---------------------------------------------------
[PIE CHART APPEARS HERE]
Hospitals 26%
Escrowed Bonds 9%
Other 4%
Tax Revenue 7%
Housing Facilities 9%
General Obligations 17%
Pollution Control 22%
Lease Rental 3%
Education 3%
- ---------------------------------------------------
<TABLE>
<CAPTION>
Fund Highlights
===============================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 9/89 2/97 2/94 2/97
- -------------------------------------------------------------------------------
Net Asset Value (NAV) $11.10 $11.09 $11.09 $ 11.09
===============================================================================
Total Net Assets ($000) $84,593
- -------------------------------------------------------------------------------
Average Weighted Maturity (years) 22.15
- -------------------------------------------------------------------------------
Duration (years) 8.69
===============================================================================
Annualized Total Return/1/
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 9.37% 4.78% 8.61% 8.78% 9.33%
- --------------------------------------------------------------------------------
5-Year 7.57% 6.65% 6.96% 6.97% 7.56%
- --------------------------------------------------------------------------------
Since Inception 8.34% 7.74% 7.73% 7.73% 8.33%
================================================================================
Tax-Free Yields
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.30% 5.07% 4.56% 4.74% 5.50%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 5.10% 4.88% 4.36% 4.55% 5.71%
- --------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.73% 7.39% 6.61% 6.89% 8.65%
================================================================================
</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 B, 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. Giving effect to the CDSC applicable to Class B
shares, the 1-year, 5-year, and since inception total returns above would be
4.61%, 6.80%, and 7.73%, respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 34%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
May 31, 1997 Annual Report
* 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 (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Lehman Brothers Louisiana Municipal Bond Louisiana Municipal Bond
Municipal Bond Index Fund (NAV) Fund (Offer)
<S> <C> <C>
September 1989 10,000 10,000 9,580
May 1990 10,323.9 10,179.5 9,751.96
May 1991 11,509.7 11,533.5 11,049.1
May 1992 12,604.7 12,659.9 12,128.2
May 1993 14,199.2 14,467.5 13,859.8
May 1994 14,505.1 14,652.4 14,037
May 1995 15,470.2 15,632.7 14,976.1
May 1996 16,700 16,848.7 16,141
May 1997 18,230.5 18,547.8 17,768.8
</TABLE>
Lehman Brothers Municipal Bond Index $18,230
Nuveen Flagship Louisiana Municipal Bond Fund (NAV) $18,548
Nuveen Flagship Louisiana Municipal Bond Fund (Offer) $17,769
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C>
June 1996 0.0482 Capital Gain
July 1996 0.0498
August 1996 0.0498
September 1996 0.0482
October 1996 0.0498
November 1996 0.0482
December 1996 0.0498
January 1997 0.04994 0.0025
February 1997 0.049
March 1997 0.049
April 1997 0.049
May 1997 0.049
</TABLE>
Capital Gain
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
16 Statement of Net Assets
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Notes to Financial Statements
26 Financial Highlights
28 Independent Auditors' Report
9
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Education -- 2.6%
<S> <C> <C> <C> <C>
$ 750,000 Louisiana Public Facilities Authority, 10/99 at 102 A+ $ 807,923
Revenue Refunding, Loyola University Project,
89 Issue A, 7.250%, 10/01/09
380,000 Louisiana Public Facilities Authority 4/02 at 102 A+ 416,875
Revenue Refunding, College and University,
Loyola University, 6.750%, 4/01/10
1,000,000 Louisiana, Public Facilities Authority, Revenue, 12/07 at 102 AAA 986,290
Tulane University of Louisiana,
5.600%, 12/15/27 (WI)
- --------------------------------------------------------------------------------------------------------------------
Escrowed to Maturity -- 4.7%
775,000 Louisiana, Public Facilities Authority, Hospital 4/02 at 102 AAA 914,136
Revenue Refunding, Southern Baptist Hospital Inc.
Project, 8.000%, 5/15/12
10,000,000 Louisiana, Public Facilities Authority, Revenue, No Opt. Call AAA 2,786,400
Series B, 0.000%, 12/01/19
250,000 Shreveport, Louisiana, Home Mortgage Authority, No Opt. Call Aaa 276,075
Single Family Mortgage, Revenue, Series A,
6.750%, 9/01/10
- --------------------------------------------------------------------------------------------------------------------
Health Care -- 4.4%
3,000,000 Louisiana, Housing Finance Agency, Mortgage 9/05 at 103 AAA 3,237,030
Revenue, St. Dominic Assisted Care,
6.950%, 9/01/36
500,000 Louisiana, Public Facilities Authority, Revenue, 1/05 at 102 AAA 522,180
Mary Bird Perkins Cancer Center, 6.200%, 1/01/19
- --------------------------------------------------------------------------------------------------------------------
Hospital -- 21.1%
1,125,000 Louisiana, Public Facilities Authority, Hospital 10/02 at 102 A3 1,278,473
Revenue, Woman's Hospital Foundation Project,
7.250%, 10/01/22
Louisiana, Public Facilities Authority, Hospital
Revenue Refunding, Lafayette General Medical
Center Project:
1,000,000 6.400%, 10/01/12 10/02 at 102 AAA 1,065,830
2,000,000 6.500%, 10/01/22 10/02 at 102 AAA 2,153,440
2,750,000 Louisiana, Public Facilities Authority, Hospital 7/07 at 101 AAA 2,625,398
Revenue Refunding, Woman's Hospital
Foundation Project, 5.375%, 10/01/22 (WI)
</TABLE>
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hospitals -- continued
$1,325,000 Louisiana, Public Facilities Authority, Revenue 5/02 at 102 AAA $1,422,056
Refunding, Series B, Alton Ochsner Medical
Foundation Project, 6.500%, 5/15/22
3,400,000 Louisiana, Public Facilities Authority, Revenue No Opt. Call AA 3,174,308
Refunding, Health Facilities, Sister's Mercy,
Series A, 5.000%, 6/01/19
2,500,000 Louisiana, Public Facilities Authority, Revenue, 11/04 at 102 AAA 2,667,525
General Health Inc. Project, 6.375%, 11/01/24
2,180,000 St. Tammany Parish, Louisiana, Hospital Service 10/04 at 102 AAA 2,293,883
District Number 2, Hospital Revenue, Slidell
Memorial Hospital and Medical Center,
Refunding, 6.250%, 10/01/14
1,135,000 Tangipahoa Parish, Louisiana, Hospital Service 2/04 at 102 AAA 1,186,200
District Number 1, Hospital Revenue Refunding,
6.250%, 2/01/24
- --------------------------------------------------------------------------------------------------------------------
Housing/ Multi Family -- 4.6%
750,000 Lake Charles, Louisiana, Non-Profit Housing 8/97 at 100 AAA 764,625
Development Corporation, Mortgage Revenue
Refunding, Chateau Project, Series A,
7.875%, 2/15/25
1,740,000 Louisiana, Housing Finance Agency, Mortgage 1/04 at 101 AAA 1,839,859
Revenue, Villa Maria Retirement Center Project,
7.100%, 1/20/35
735,000 Louisiana, Public Facilities Authority, Revenue, 6/03 at 103 AAA 788,354
Walmsley Housing Corporation, Series A,
7.500%, 6/01/21
500,000 Louisiana, Public Facilities Authority, Revenue, 11/01 at 102 AA 533,560
Multifamily Housing, National Housing
Corporation, 7.750%, 11/01/16
- --------------------------------------------------------------------------------------------------------------------
Housing/ Single Family -- 4.5%
1,260,000 East Baton Rouge, Louisiana, Mortgage Finance 8/00 at 102 Aaa 1,326,087
Authority, Single Family Mortgage Purchase,
Mortgage Backed Securities Program, Series A,
7.875%, 8/01/23
345,000 Louisiana, Housing Finance Agency, Single Family 6/05 at 102 Aaa 354,443
Mortgage Revenue, Series A, Issue 2,
6.550%, 12/01/26
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- continued
<S> <C> <C> <C> <C>
$ 580,000 New Orleans, Louisiana, Home Mortgage 1/00 at 102 Aaa $ 605,276
Authority, Single Family Mortgage Revenue,
Series C, Issue 1, 7.750%, 12/01/22
1,000,000 New Orleans, Louisiana, Home Mortgage Authority, 12/06 at 102 Aaa 993,000
Single Family Mortgage, Revenue, Series A,
6.100%, 12/01/29
281,573 St. Bernard Parish, Louisiana, Home Mortgage No Opt. Call A1 305,306
Authority, Single Family Mortgage, Revenue
Refunding, Series A, 8.000%, 3/25/12
192,004 St. Mary, Louisiana, Public Tollroad Financing No Opt. Call Aaa 209,561
Authority, Single Family Mortgage, Revenue
Refunding, Series A, 7.625%, 3/25/12
- ---------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 21.8%
1,000,000 De Soto Parish, Louisiana, Environmental Improvement, 6/05 at 102 A-- 1,045,890
Revenue Refunding, International Paper Company
Project, Series B, 6.550%, 4/01/19
1,000,000 Lake Charles, Louisiana, Harbor and Terminal District, 12/02 at 102 BBB 1,064,410
Port Facilities, Revenue Refunding, Occidental
Petroleum Corporation, 7.200%, 12/01/20
3,000,000 Lake Charles, Louisiana, Harbor and Terminal District, 8/02 at 103 Baa2 3,407,010
Port Facilities, Revenue Refunding, Trunkline LNG
Company Project, 7.750%, 8/15/22
1,000,000 Louisiana, State Offshore Terminal Authority, 9/00 at 102 A 1,089,510
Deepwater Port, Revenue Refunding, Loop Inc.,
First Stage, Series E, 7.600%, 9/01/10
500,000 Louisiana, State Offshore Terminal Authority, 9/01 at 102 A 549,825
Deepwater Port, Revenue Refunding, Loop Inc.,
First Stage, Series B, 7.200%, 9/01/08
3,000,000 Natchitoches Parish, Louisiana, Solid Waste Disposal, 12/03 at 102 A-- 3,011,940
Revenue, Williamette Industries Project,
5.875%, 12/01/23
2,500,000 St. Bernard Parish, Louisiana, Exempt Facility, 11/06 at 102 AA 2,513,275
Revenue, Mobil Oil Corporation Project, 5.900%,
11/01/26
1,000,000 Saint Charles Parish, Louisiana, Environmental 11/02 at 102 BBB 1,007,260
Improvement, Revenue, Louisiana Power and Light
Company Project, Series A, 6.200%, 5/01/23
1,000,000 Saint Charles Parish, Louisiana, Environmental 11/00 at 102 BBB-- 1,010,220
Improvement, Revenue, Louisiana Power and Light
Company Project, 6.375%, 11/01/25
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- continued
<S> <C> <C> <C> <C>
$ 500,000 Saint Charles Parish, Louisiana, Pollution Control, 12/99 at 103 Baa3 $ 546,145
Revenue, Louisiana Power and Light, 2nd Issue,
8.000%, 12/01/14
1,500,000 Saint Charles Parish, Louisiana, Pollution Control, 11/02 at 102 BBB 1,595,895
Revenue, Union Carbide Project,
7.350%, 11/01/22
1,500,000 St. Charles Parish, Louisiana, Solid Waste 12/02 at 102 BBB 1,574,340
Disposal, Revenue, Louisiana Power and Light
Company Project, Series A, 7.000%, 12/01/22
- --------------------------------------------------------------------------------------------------------------------
Municipal Appropriation Obligations -- 2.9%
685,000 Louisiana, Public Facilities Authority, Revenue 8/99 at 101 1/2 AAA 735,697
Refunding, Jefferson Parish Eastbank Project,
7.700%, 8/01/10
1,500,000 Office Facilities Corporation, A Louisiana 12/01 at 103 BBB+ 1,680,750
Non-Profit Corporation, Capital Facilities,
7.750%, 12/01/10
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Other -- 2.6%
2,000,000 New Orleans, Louisiana, Audubon Park Commission, 4/02 at 102 N/R 2,189,820
Aquarium Revenue, Series A,
8.000%, 4/01/12
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 0.3%
250,000 Puerto Rico, Electric Power Authority, Power 7/05 at 100 BBB+ 232,720
Revenue (Formerly Puerto Rico
Commonwealth Water Resource Authority
Power), Refunding, Series Z, 5.250%, 7/01/21
- --------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer -- 1.9%
1,500,000 Louisiana, Public Facilities Authority, Revenue, 2/03 at 101 AA-- 1,599,630
Baton Rouge Water Works Company Project,
6.400%, 2/01/10
- --------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 15.5%
1,500,000 New Orleans, Louisiana, Public Improvement, 11/05 at 100 AAA 1,524,270
5.900%, 11/01/25
New Orleans, Louisiana, Refunding:
2,000,000 0.000%, 9/01/10 No Opt. Call AAA 969,400
5,785,000 0.000%, 9/01/16 No Opt. Call AAA 1,945,900
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
Non-State General Obligations -- continued
Orleans Parish, Louisiana, Parishwide
School District:
<S> <C> <C> <C> <C>
$ 1,000,000 5.000%, 9/01/14 9/06 at 100 AAA $ 945,190
3,000,000 5.000%, 9/01/20 3/06 at 100 AAA 2,765,460
13,875,000 Orleans Parish, Louisiana, School Board, Refunding, No Opt. Call AAA 4,974,881
0.000%, 2/01/15
- --------------------------------------------------------------------------------------------------------------------
Pre-refunded -- 3.8%***
500,000 Louisiana, Public Facilities Authority, Revenue 6/99 at 102 Aaa 538,535
Refunding, Sisters of Mercy, Series B,
7.375%, 6/01/19
1,000,000 Louisiana State General Obligation, Series 1990,
7.125%, 9/01/10 9/00 at 102 Aaa 1,097,260
1,400,000 Ouachita Parish, Louisiana, Hospital Service District 7/01 at 102 A 1,569,778
Number 1, Revenue, Glenwood Regional Medical
Center, 7.500%, 7/01/21
- --------------------------------------------------------------------------------------------------------------------
Special Tax Revenue -- 7.1%
1,250,000 East Baton Rouge Parish, Louisiana, Sales and Use 2/03 at 101 1/2 AAA 1,125,863
Tax, Series A, 4.900%, 2/01/18
1,000,000 Jefferson, Louisiana, Sales Tax District, Special 12/02 at 100 AAA 1,091,560
Sales Tax, Revenue, Series B, 6.750%, 12/01/06
1,530,000 Lafayette Parish, Louisiana, School Board, Sales Tax, 4/04 at 101 AAA 1,419,715
Revenue, 4.875%, 4/01/13
750,000 Puerto Rico Commonwealth, Highway and 7/16 at 100 A 729,428
Transportation Authority, Highway Revenue,
Series Y, 5.500%, 7/01/36
1,500,000 Saint John Baptist Parish, Louisiana, Sales Tax 12/99 at 103 Baa 1,624,635
District, Refunding, Series 1989, 7.800%, 12/01/14
- --------------------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 0.9%
250,000 Guam Government, Series A, 5.400%, 11/15/18 11/03 at 102 BBB 230,468
500,000 Louisiana, Refunding, Series B, 5.625%, 8/01/13 No Opt. Call AAA 512,260
- --------------------------------------------------------------------------------------------------------------------
$101,728,577 Total Investments -- (cost $78,026,816) -- 98.7% 83,453,033
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Temporary Investments in Short-Term Municipal Securities --2.6%
$1,500,000 Louisiana Offshore Terminal Authority, Deepwater VMIG-1 $ 1,500,000
Port, Refunding Revenue Bonds (Loop Inc. Project),
1st Stage, Series A, Variable Rate Demand Bonds,
4.050%, 9/01/08+
700,000 Louisiana Offshore Terminal Authority, Deepwater VMIG-1 700,000
Port, Refunding Revenue Bonds (Loop Inc. Project),
ACES, Variable Rate Demand Bonds,
4.000%, 9/01/06+
- --------------------------------------------------------------------------------------------------------------------
$2,200,000 Total Temporary Investments -- 2.6% 2,200,000
- --------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (1.3)% (1,060,140)
-------------------------------------------------------------------------------------------
Net Assets -- 100% $84,592,893
===========================================================================================
* 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.
*** Pre-refunded 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. Pre-
refunded securities are normally considered to be equivalent to AAA rated securities.
N/R -- Investment is not rated.
(WI) Security purchased on a when-issued basis (see note 1 of the Notes to Financial Statements).
+ The security has a maturity of more than one year, but has variable rate and demand features which
qualify it as a short-term security. The rate disclosed is that currently in effect. This rate
changes periodically based on market conditions or a specified market index.
</TABLE>
15 See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets
May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship
Louisiana
- --------------------------------------------------------------------------------
Assets
<S> <C>
Investments in municipal securities, at market value (note 1) $83,453,033
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 2,200,000
Cash 714,688
Receivables:
Interest 1,287,054
Shares sold 122,340
Investments sold 1,068,244
Other assets 2,645
- --------------------------------------------------------------------------------
Total assets 88,848,004
- --------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 3,599,686
Shares redeemed 195,019
Accrued expenses:
Management fees (note 6) 22,165
12b-1 distribution and service fees (notes 1 and 6) 18,293
Other 51,584
Dividends payable 368,364
- --------------------------------------------------------------------------------
Total liabilities 4,255,111
- --------------------------------------------------------------------------------
Net assets (note 7) $84,592,893
- --------------------------------------------------------------------------------
Class A Shares (note 1)
Net assets $76,030,144
Shares outstanding 6,852,550
Net asset value and redemption price per share $11.10
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $11.59
- --------------------------------------------------------------------------------
Class B Shares (note 1)
Net assets $ 917,279
Shares outstanding 82,702
Net asset value, offering and redemption price per share $11.09
- --------------------------------------------------------------------------------
Class C Shares (note 1)
Net assets $ 7,645,370
Shares outstanding 689,484
Net asset value, offering and redemption price per share $11.09
- --------------------------------------------------------------------------------
Class R Shares (note 1)
Net assets $ 100
Shares outstanding 9
Net asset value, offering and redemption price per share $11.09
- --------------------------------------------------------------------------------
</TABLE>
16 See accompanying notes to financial statements.
<PAGE>
Statement of Operations Nuveen Municipal Bond Fund
Year ended May 31, 1997 May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Nuveen Flagship
Louisiana*
- -------------------------------------------------------------------------------
Investment Income
<S> <C>
Tax-exempt interest income (note 1) $ 4,982,169
- -------------------------------------------------------------------------------
Expenses
Management fees (note 6) 417,159
12b-1 service fees -- Class A (notes 1 and 6) 247,898
12b-1 distribution and service fees -- Class B (notes 1 and 6) 1,569
12b-1 distribution and service fees -- Class C (notes 1 and 6) 54,724
Shareholders' servicing agent fees and expenses 51,097
Custodian's fees and expenses 59,142
Trustees' fees and expenses (note 6) 2,229
Professional fees 16,851
Shareholders' reports -- printing and mailing expenses 6,017
Federal and state registration fees 5,502
Other expenses 3,851
- -------------------------------------------------------------------------------
Total expenses before reimbursement 866,039
Expense reimbursement (note 6) (193,709)
- -------------------------------------------------------------------------------
Net expenses 672,330
- -------------------------------------------------------------------------------
Net investment income 4,309,839
- -------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 185,297
Net change in unrealized appreciation or depreciation of investments 2,691,765
- -------------------------------------------------------------------------------
Net gain from investments 2,877,062
- -------------------------------------------------------------------------------
Net increase in net assets from operations $ 7,186,901
- -------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Louisiana and four months of
Nuveen Flagship Louisiana (see note 1 of the Notes to Financial Statements).
17 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Louisiana* Louisiana
----------------------------------------
Year ended 5/31/97 Year ended 5/31/96
- ---------------------------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income $ 4,309,839 $ 4,015,375
Net realized gain from investment transactions
(notes 1 and 4) 185,297 13,525
Net change in unrealized appreciation or depreciation
of investments 2,691,765 (761,714)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 7,186,901 3,267,186
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (4,001,489) (3,818,526)
Class B (7,151) N/A
Class C (300,999) (224,197)
Class R (1) N/A
From accumulated net realized gains from
investment transactions:
Class A (16,962) -
Class B - N/A
Class C (1,376) -
Class R - N/A
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (4,327,978) (4,042,723)
- ---------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 12,680,296 13,860,830
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 2,019,609 2,198,857
- ---------------------------------------------------------------------------------------------------------------------------
14,699,905 16,059,687
- ---------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (10,629,223) (8,986,764)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 4,070,682 7,072,923
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 6,929,605 6,297,386
Net assets at the beginning of year 77,663,288 71,365,902
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 84,592,893 $77,663,288
- ---------------------------------------------------------------------------------------------------------------------------
Balance of undistributed net investment income at end of year $ 199 $ -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship Louisiana and four months
of Nuveen Flagship Louisiana (see note 1 of the Notes to Financial
Statements).
N/A -- Flagship Louisiana was not authorized to issue Class B or Class R Shares.
18 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Louisiana 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 Louisiana Double Tax
Exempt Fund ("Flagship Louisiana") was reorganized into the Trust and renamed
Nuveen Flagship Louisiana Municipal Bond Fund ("Nuveen Flagship Louisiana").
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 when-issued purchase commitments of $3,599,686.
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.
19
<PAGE>
Notes to Financial Statements -- continued
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 Louisiana 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, 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 and Louisiana state 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, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class B and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). 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 18 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.
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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.
21
<PAGE>
Notes to Financial Statements -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Louisiana* Louisiana
---------------------------------------------------
Year ended Year ended
5/31/97 5/31/96
----------------------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Shares sold:
Class A 822,022 $ 9,004,313 997,208 $10,830,874
Class B 82,598 911,240 N/A N/A
Class C 252,430 2,764,643 277,655 3,029,956
Class R 9 100 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 168,536 1,844,320 187,827 2,038,551
Class B 104 1,144 N/A N/A
Class C 15,928 174,145 14,749 160,306
Class R - - N/A N/A
- -------------------------------------------------------------------------------------------
1,341,627 14,699,905 1,477,439 16,059,687
- -------------------------------------------------------------------------------------------
Shares redeemed:
Class A (861,984) (9,454,331) (768,321) (8,319,610)
Class B - - N/A N/A
Class C (107,483) (1,174,892) (61,998) (667,154)
Class R - - N/A N/A
- -------------------------------------------------------------------------------------------
(969,467) (10,629,223) (830,319) (8,986,764)
- -------------------------------------------------------------------------------------------
Net increase 372,160 $ 4,070,682 647,120 $ 7,072,923
===========================================================================================
</TABLE>
* Information represents eight months of Flagship Louisiana and
four months of Nuveen Flagship Louisiana (see note 1).
N/A -- Flagship Louisiana was not authorized to issue Class B or Class R Shares.
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
Nuveen Flagship
Louisiana
- --------------------------------------------------------------------------------
Dividend per share:
Class A $.0490
Class B .0420
Class C .0440
Class R .0510
- --------------------------------------------------------------------------------
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:
Nuveen Flagship
Louisiana*
- --------------------------------------------------------------------------------
Purchases
Investments in municipal securities $22,343,118
Temporary municipal investments 5,000,000
Sales
Investments in municipal securities 19,687,946
Temporary municipal investments 2,800,000
- --------------------------------------------------------------------------------
* Information represents eight months of Flagship Louisiana and four months of
Nuveen Flagship Louisiana (see note 1).
At May 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.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, net unrealized appreciation aggregated $5,426,217, of which
$5,451,416 related to appreciated securities and $25,199 related to depreciated
securities.
23
<PAGE>
Notes to Financial Statements -- continued
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) Flagship Louisiana 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 of approximately
$296,600 of which approximately $233,800 were paid out as concessions to
authorized dealers. 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 $73,500 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, 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 their investments.
The Distributor and its predecessor also collected and retained approximately
$2,300 of CDSC on share redemptions during the fiscal year ended May 31, 1997.
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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
Louisiana
- -------------------------------------------------------------------------------
<S> <C>
Capital paid-in $79,046,809
Balance of undistributed net investment income 199
Accumulated net realized gain from investment transactions 119,668
Net unrealized appreciation of investments 5,426,217
- -------------------------------------------------------------------------------
Net assets $84,592,893
===============================================================================
</TABLE>
25
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
--------------------- ------------------
Net
NUVEEN FLAGSHIP LOUISIANA++ 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 (9/89)
1997 $10.71 $.59 $ .39 $(.59) $ - $11.10 9.37%
1996 10.80 .59 (.08) (.60) - 10.71 4.77
1995 10.48 .60 .32 (.60) - 10.80 9.20
1994 10.93 .61 (.40) (.62) (.04)+++ 10.48 1.77
1993 10.30 .64 .67 (.63) (.05) 10.93 13.12
1992 10.02 .65 .35 (.65) (.07) 10.30 10.35
1991 9.63 .66 .40 (.67) - 10.02 11.47
1990(c) 9.58 .44 .04 (.43) - 9.63 6.52+
Class B (2/97)
1997(c) 11.10 .16 - (.17) - 11.09 1.44
Class C (2/94)
1997 10.70 .53 .39 (.53) - 11.09 8.78
1996 10.80 .53 (.09) (.54) - 10.70 4.12
1995 10.48 .54 .32 (.54) - 10.80 8.59
1994(c) 11.29 .16 (.81) (.16) - 10.48 (17.21)+
Class R (2/97)
1997(c) 11.17 .15 (.08) (.15) - 11.09 .67
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Louisiana.
+++ 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.
(b) After waiver of certain management fees and reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
26
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- ---------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment (b) ment (b) rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$76,030 1.03% 5.14% .79% 5.38% 25%
72,005 1.09 5.17 .80 5.46 26
68,145 1.18 5.45 .83 5.80 44
66,281 1.12 5.10 .66 5.56 22
54,483 1.16 5.40 .61 5.95 29
38,873 1.22 5.70 .49 6.43 43
27,762 1.17 6.00 .38 6.79 57
16,678 1.48+ 5.36+ .44+ 6.40+ 32
917 1.65+ 4.50+ 1.46+ 4.69+ 25
7,645 1.57 4.59 1.33 4.83 25
5,658 1.64 4.58 1.35 4.87 26
3,220 1.73 4.85 1.37 5.21 44
1,501 1.68+ 4.34+ 1.23+ 4.79+ 22
- .08+ 5.27+ .04+ 5.31+ 25
- ---------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship Louisiana Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen Flagship
Louisiana 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
Louisiana 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
28
<PAGE>
Shareholder Meeting Report
Flagship Louisiana
<TABLE>
<CAPTION>
A Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Agreement For 4,985,536 367,428
Against 129,299 3,015
Abstain 63,405 2,761
-----------------------------------------------
Total 5,178,240 373,204
- --------------------------------------------------------------------------------
Broker Non Votes 308,578 -
- --------------------------------------------------------------------------------
Reorganization For 3,700,235 185,346
Against 50,069 1,678
Abstain 70,185 915
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
Investment Objective For 3,618,432 186,025
Against 198,386 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Investment Assets For 3,624,685 186,025
Against 194,228 1,914
Abstain 1,575 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Type Of Securities For 3,626,846 186,025
Against 192,067 1,914
Abstain 1,575 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Borrowing For 3,623,949 183,189
Against 194,965 4,750
Abstain 1,575 -
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
Pledges For 3,626,846 186,025
Against 192,067 1,914
Abstain 1,575 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Senior Securities For 3,622,988 186,025
Against 194,228 1,914
Abstain 3,272 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
-----------------------------------------------
</TABLE>
29
<PAGE>
Shareholder Meeting Report
Flagship Louisiana -- continued
<TABLE>
<CAPTION>
A Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Underwriting For 3,624,251 186,025
Against 192,567 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Real Estate For 3,622,590 186,025
Against 194,228 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Commodities For 3,621,854 186,025
Against 194,965 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
Loans For 3,624,015 183,189
Against 192,804 4,750
Abstain 3,670 -
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
Short Sales/Margin Purchases For 3,624,251 186,025
Against 192,567 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Put and Call Options For 3,621,854 186,025
Against 194,965 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
Industry Concentration For 3,624,015 186,025
Against 192,804 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
Affiliate Purchases For 3,624,015 186,025
Against 192,804 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
-----------------------------------------------
</TABLE>
30
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Companies For 3,618,932 186,025
Against 197,886 1,914
Abstain 3,670 -
-----------------------------------------------
Total 3,820,488 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,330 185,265
- --------------------------------------------------------------------------------
Div vs. Non-Div For 3,601,125 186,025
Against 116,304 999
Abstain 103,060 915
-----------------------------------------------
Total 3,820,489 187,939
- --------------------------------------------------------------------------------
Broker Non Votes 1,666,329 185,265
- --------------------------------------------------------------------------------
12b-1 Fees For 4,782,853 367,428
Against 268,732 3,015
Abstain 126,656 2,761
-----------------------------------------------
Total 5,178,241 373,204
- --------------------------------------------------------------------------------
Broker Non Votes 308,577 -
- --------------------------------------------------------------------------------
Directors
- --------------------------------------------------------------------------------
Bremner For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Brown For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Dean For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Impellizzeri For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Rosenheim For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Sawers For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Schneider For 5,389,707 373,204
Withhold 97,111 -
-----------------------------------------------
Total 5,486,818 373,204
- --------------------------------------------------------------------------------
Schwertfeger For 5,389,707 373,204
Withhold 97,111 -
- --------------------------------------------------------------------------------
Total 5,486,818 373,204
-----------------------------------------------
</TABLE>
31
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
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
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
32
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
33
<PAGE>
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
Serving Investors
for Generations
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
VAN-LA 5-97
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1997
Annual Report [PHOTO APPEARS HERE]
Dependable, tax-free income
to help you keep more of
what you earn.
North
Carolina
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 North Carolina
Overview
9 Financial Section
31 Shareholder Meeting Report
35 Shareholder Information
36 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
TIMOTHY R. SCHWERTFEGER
It's a pleasure to report to you on the performance of the Nuveen Flagship
North Carolina Municipal Bond Fund. Over the past year, the fund posted
sizable gains. For the fiscal year ended May 31, 1997, the value of your
investment rose 7.79% for Class A shares if you chose to reinvest your
tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) kept close pace with the 8.28% increase produced by the
Lehman Brothers Municipal Bond Index, which is used to represent the broad
municipal bond market on an unmanaged basis.
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, shareholders were
receiving tax-free yields on net asset value of 4.71% for Class A shares. To
match this yield, investors in the 36.5% combined federal and state income tax
bracket would have had to earn at least 7.42% 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 inflation has hampered
the performance of municipals and led to
1
<PAGE>
"In addition to substantial
total returns, shareholders
continue to enjoy very
attractive current yields
generated by a portfolio
of quality bonds."
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,
/s/ Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
July 15, 1997
2
<PAGE>
Answering Your Questions
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based
portfolio management team, talks about
the municipal bond market and offers insights
into factors that affected fund performance
over the past year.
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 this 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
3
<PAGE>
producer levels. The fund had the added advantage of operating in a healthy
supply environment, where securities were available as needed.
GIVEN THIS MARKET ENVIRONMENT, HOW DID THE FUND PERFORM?
The North Carolina Municipal Bond Fund performed well over the past year,
rewarding investors with a total return on net asset value for the year of
7.79% for Class A shares, including price changes and reinvested dividends.
The fund was ranked in the top third of 35 North Carolina 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 taking advantage of the strong municipal bond market in North
Carolina to support consistent dividends and extend the average maturity of
the fund. In addition, we took advantage of opportunities to improve the
already-high credit quality of the fund. Increasing demand in the North
Carolina municipal market allows us to purchase high-quality bonds from
diversified investment sectors without affecting the income of the fund.
WHAT IS THE CURRENT STATUS OF NORTH CAROLINA'S
MUNICIPAL MARKET?
In most sectors, the North Carolina municipal market remains healthy. Ample
issuance and consistent demand have kept price levels stable. Overall, credit
quality has been stable to improving, in large part because the state's strong
economy is helping to fill municipal coffers.
The state's municipal market continues to suffer from uncertainty regarding
deregulation in the electric utility sector. However, our diligent research
and credit surveillance helped us to avoid purchasing bonds in those areas. As
a result, your fund has no direct exposure to the joint power agencies in the
state, and is positioned for strong performance over the coming year.
"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."
4
<PAGE>
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.
5
<PAGE>
North Carolina
Overview
[CREDIT QUALITY PIE CHART APPEARS HERE]
BBB/NR 16%
A 19%
AA 29%
AAA/Pre-refunded 36%
[DIVERSIFICATION PIE CHART APPEARS HERE]
Municipal Appropriations 6%
Hospitals 20%
Water & Sewer 8%
Housing Facilities 9%
Pollution Control 12%
Other 6%
Utility 13%
Education/Student Loans 4%
Escrowed Bonds 16%
Tax Revenue 6%
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARE CLASS A B C R
Inception Date 3/86 2/97 10/93 2/97
- -------------------------------------------------------------------------------------------
Net Asset Value (NAV) $10.28 $10.28 $10.26 $ 10.28
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
Total Net Assets ($000) $189,336
- -------------------------------------------------------------------------------------------
Average Weighted Maturity (years) 18.65
- -------------------------------------------------------------------------------------------
Average Weighted Duration (years) 7.68
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN(1)
- -------------------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
1-Year 7.79% 3.26% 7.14% 7.20% 7.86%
- -------------------------------------------------------------------------------------------
5-Year 6.31% 5.40% 5.72% 5.69% 6.33%
- -------------------------------------------------------------------------------------------
10-Year 7.85% 7.39% 7.38% 7.24% 7.86%
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE YIELDS
- -------------------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.19% 4.98% 4.45% 4.64% 5.39%
- -------------------------------------------------------------------------------------------
SEC 30-Day Yld 4.71% 4.51% 3.96% 4.16% 4.91%
- -------------------------------------------------------------------------------------------
Taxable Equiv Yld(2) 7.42% 7.10% 6.24% 6.55% 7.73%
- -------------------------------------------------------------------------------------------
</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 B, 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
above do not reflect imposition of the CDSC. Giving effect to the CDSC
applicable to Class B shares, the 1-year, 5-year and 10-year total returns
above would be 3.14%, 5.56%, and 7.38%, respectively.
(2) Based on SEC yield and a combined federal and state income tax rate of
36.5%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
May 31, 1997 Annual Report
* 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 (4.20%) and all ongoing fund
expenses.
Index Comparison*
[INDEX COMPARISON LINE CHART APPEARS BELOW]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Lehman Brothers North Carolina North Carolina
Municipal Bond Municipal Bond Municipal Bond
Index Fund (NAV) Fund (Offer)
<S> <C> <C> <C>
5/87 10000 10000 9580
5/88 10898.1 10877.1 10420.2
5/89 12150.6 12485 11960.7
5/90 13039.7 13128.7 12577.3
5/91 14353.9 14347.1 13744.5
5/92 15764 15680.7 15022.1
5/93 17650 17507.3 16772
5/94 18085.8 17734.5 16989.6
5/95 19732.8 19056.2 18255.8
5/96 20634.7 19755.4 18925.6
5/97 22534.8 21294 20399.6
</TABLE>
- -- Lehman Brothers Municipal Bond Index $22,535
- -- Nuveen Flagship North Carolina Municipal Bond Fund (NAV) $20,399
- -- Nuveen Flagship North Carolina Municipal Bond Fund (Offer) $21,293
Past performance is not predictive of future performance.
[DIVIDEND HISTORY (A SHARES) BAR CHART APPEARS BELOW]
<TABLE>
<S> <C>
June 1996 0.04377
July 1996 0.04523
August 1996 0.04523
September 1996 0.04377
October 1996 0.04523
November 1996 0.04377
December 1996 0.04523
January 1997 0.04535
February 1997 0.0445
March 1997 0.0445
April 1997 0.0445
May 1997 0.0445
</TABLE>
7
<PAGE>
Financial Section
CONTENTS
10 Portfolio of Investments
18 Statement of Net Assets
19 Statement of Operations
20 Statement of Changes in Net Assets
21 Notes to Financial Statements
27 Financial Highlights
30 Independent Auditors' Report
9
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP NORTH CAROLINA
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 3.8%
North Carolina Educational Facilities, Finance Agency
Revenue, High Point College:
$165,000 7.050%, 12/01/05 12/00 at 102 A3 $ 176,281
175,000 7.100%, 12/01/06 12/00 at 102 A3 186,865
4,220,000 North Carolina Educational Facilities, Finance Agency 10/06 at 102 AA+ 4,015,372
Revenue Refunding, Duke University Project,
Series B, 5.000%, 10/01/17
University of North Carolina, Asheville Revenue,
Dormitory and Dining Hall System, Series A:
175,000 7.000%, 6/01/02 6/97 at 102 A 178,894
195,000 7.000%, 6/01/03 6/97 at 102 A 199,339
205,000 7.000%, 6/01/04 6/97 at 102 A 209,561
220,000 7.000%, 6/01/05 6/97 at 102 A 224,728
235,000 7.000%, 6/01/06 6/97 at 102 A 240,036
255,000 7.000%, 6/01/07 6/97 at 102 A 260,447
270,000 7.000%, 6/01/08 6/97 at 102 A 275,743
295,000 7.000%, 6/01/09 6/97 at 102 A 301,248
315,000 7.000%, 6/01/10 6/97 at 102 A 321,662
340,000 7.000%, 6/01/11 6/97 at 102 A 347,171
295,000 University of North Carolina-Chapel Hill, 6/01 at 102 AA+ 321,175
Student Fee Revenue, Student Recreation Center,
7.000%, 6/01/08
- -----------------------------------------------------------------------------------------------------------------
ESCROWED TO MATURITY - 0.9%
995,000 North Carolina Eastern Municipal Power Agency, No Opt. Call Aaa 1,122,599
Power System Revenue Refunding, Series A,
6.500%, 1/01/18
115,000 North Carolina Medical Care Commission, Hospital No Opt. Call AAA 130,787
Revenue, Memorial Mission Hospital Project,
7.625%, 10/01/08
North Carolina Medical Care Commission, Hospital
Revenue, Scotland Memorial Hospital Project:
280,000 8.000%, 10/01/97 No Opt. Call N/R 283,928
190,000 8.100%, 10/01/98 No Opt. Call N/R 199,599
- -----------------------------------------------------------------------------------------------------------------
HOSPITALS - 19.9%
Charlotte, Mecklenberg Hospital Authority, North
Carolina Health Caresys Revenue, Series A:
5,300,000 5.750%, 1/15/21 1/06 at 102 AA 5,322,578
5,500,000 5.875%, 1/15/26 1/06 at 102 AA 5,560,225
</TABLE>
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - CONTINUED
$3,500,000 North Carolina Medical Care Commission, Health 5/07 at 100 AA $3,270,855
Care Facilities Revenue, Carolina Medicorp
Project, 5.250%, 5/01/26
1,000,000 North Carolina Medical Care Commission, 2/02 at 102 Baa3 1,072,680
Hospital Revenue, Annie Penn Memorial
Hospital, 7.500%, 8/15/21
North Carolina Medical Care Commission, Hospital
Revenue, Halifax Memorial Hospital Project:
1,275,000 6.750%, 8/15/14 8/02 at 102 Baa2 1,324,712
1,000,000 6.750%, 8/15/24 8/02 at 102 Baa2 1,036,040
2,200,000 North Carolina Medical Care Commission, Hospital 10/99 at 102 BBB+ 2,316,182
Revenue, Roanoke, Chowan Hospital Project,
7.750%, 10/01/19
600,000 North Carolina Medical Care Commission, Hospital 10/99 at 102 N/R 633,024
Revenue, Transylvania Community Hospital
Project, 8.000%, 10/01/19
3,400,000 North Carolina Medical Care Commission, Hospital 10/00 at 102 BBB 3,706,238
Revenue, Community General Hospital of
Thomasville, 8.100%, 10/01/15
2,500,000 Northern Hospital District, Surry County, North 10/01 at 102 BBB 2,657,850
Carolina, Health Care Facilities Revenue
Refunding, 7.875%, 10/01/21
4,000,000 Pitt County, North Carolina, Revenue Refunding 12/05 at 102 AA- 3,781,520
Pitt County Memorial Hospital, 5.250%, 12/01/21
5,750,000 University of North Carolina-Chapel Hill, University of 2/06 at 102 AA 5,436,338
North Carolina Hospital Revenue,
5.250%, 2/15/26
500,000 Wake County, North Carolina, Hospital Revenue, 10/97 at 102 AAA 515,270
Series 1988, 7.400%, 10/01/16
1,950,000 Wake County, North Carolina, Hospital Revenue, No Opt. Call AAA 934,791
Crossover Refunding System, 0.000%, 10/01/10
- -----------------------------------------------------------------------------------------------------------------
HOUSING/MULTI FAMILY - 0.3%
620,000 North Carolina Housing Finance Agency, Multi- 7/02 at 102 AA 651,781
family Revenue Refunding, Series B,
6.900%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 8.9%
320,000 North Carolina Housing Finance Agency, Single 9/98 at 102 AA 330,666
Family Revenue, Series E, 8.125%, 9/01/19
</TABLE>
11
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP NORTH CAROLINA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/SINGLE FAMILY - CONTINUED
$730,000 North Carolina Housing Finance Agency, Single 3/98 at 102 AA $ 755,484
Family Revenue, Series G, 7.800%, 3/01/21
905,000 North Carolina Housing Finance Agency, Single 3/01 at 102 AA 937,861
Family Revenue, Series O, 7.600%, 3/01/21
2,000,000 North Carolina Housing Finance Agency, Single 9/04 at 102 AA 2,074,960
Family Revenue, Series Y, 6.300%, 9/01/15
1,845,000 North Carolina Housing Finance Agency, Single 9/04 at 102 AA 1,907,324
Family Revenue, Series Y, 6.350%, 3/01/18
1,940,000 North Carolina Housing Finance Agency, Single 9/05 at 102 AA 1,996,182
Family Revenue, Series BB, 6.500%, 9/01/26
3,500,000 North Carolina Housing Finance Agency, Refunding, 3/05 at 102 AA 3,532,725
Single Family, Series DD, 6.200%, 9/01/27
4,360,000 North Carolina Housing Finance Agency, Single 3/06 at 102 AA 4,403,774
Family, Series LL, 6.200%, 3/01/26
805,000 Winston Salem, North Carolina, Single Family 9/00 at 102 A1 837,933
Mortgage Revenue, 8.000%, 9/01/07
- -----------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL - 11.8%
1,400,000 Gaston County, North Carolina, Industrial Facilities 11/01 at 103 N/R 1,518,426
and Pollution Control, Financing Authority
Revenue, Industrial Development, Combustion
Engineer, 8.850%, 11/01/15
1,400,000 Haywood County, North Carolina, Industrial Facilities 9/05 at 102 Baa1 1,425,606
and Pollution Control, Financing Authority
Environmental Improvement Revenue, Champion
International Corporation Project, 6.250%, 9/01/25
4,000,000 Haywood County, North Carolina, Industrial Facilities 10/03 at 102 Baa1 3,785,560
and Pollution Control, Fingauth Solid Waste
Disposal Revenue, Champion International
Corporation Project, 5.500%, 10/01/18
3,100,000 Haywood County, North Carolina, Industrial Facilities 3/06 at 102 Baa1 3,125,141
and Pollution Control, Fingauth Solid Waste
Disposal Revenue Refunding, Champion
International Corporation Project, 6.000%, 3/01/20
Martin County, North Carolina, Industrial Facilities
and Pollution Control, Financing Authority Revenue,
Solid Waste Disposal, Weyerhaeuser:
2,000,000 7.250%, 9/01/14 9/01 at 103 A 2,203,040
6,000,000 6.800%, 5/01/24 5/04 at 102 A 6,498,540
2,500,000 6.000%, 11/01/25 11/05 at 102 A 2,527,450
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL - CONTINUED
$1,100,000 New Hanover County, North Carolina, Industrial 7/02 at 102 BBB $1,148,026
Facilities and Pollution Control, Financing Authority
Revenue Refunding, Occidental Petro,
6.700%, 7/01/19
- -----------------------------------------------------------------------------------------------------------------
MUNICIPAL APPROPRIATION OBLIGATIONS - 5.7%
500,000 Asheville, North Carolina, Certificates of 2/02 at 102 A1 519,950
Participation, 6.500%, 2/01/08
1,500,000 Buncombe County, North Carolina, Certificates of 12/02 at 102 A1 1,583,280
Participation, 6.625%, 12/01/10
600,000 Durham, North Carolina, Certificates of Participation, 6/05 at 102 AA 615,702
New Durham Corporation, 5.800%, 6/01/15
Harnett County, North Carolina, Certificates of
Participation:
1,000,000 6.200%, 12/01/06 12/04 at 102 AAA 1,097,690
1,750,000 6.200%, 12/01/09 12/04 at 102 AAA 1,901,340
500,000 6.400%, 12/01/14 12/04 at 102 AAA 539,955
Pitt County, North Carolina, Certificates of
Participation, Pitt County Public Facilities, Series A:
1,250,000 5.550%, 4/01/12 4/07 at 102 AAA 1,260,050
1,000,000 5.850%, 4/01/17 4/07 at 102 AAA 1,020,990
715,000 Stokes County, North Carolina, Certificates of 3/01 at 102 AAA 782,010
Participation, 7.000%, 3/01/06
1,410,000 Union County, North Carolina, Certificates of 4/03 at 102 AAA 1,513,621
Participation, 6.375%, 4/01/12
- -----------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/UTILITY - 12.9%
1,000,000 Concord, North Carolina, Utilities System Revenue, 12/05 at 102 AAA 984,150
5.500%, 12/01/19
Fayetteville, North Carolina, Public Works
Commission Revenue Refunding:
2,400,000 4.750%, 3/01/14 3/03 at 100 AAA 2,200,704
1,845,000 5.250%, 3/01/16 3/05 at 102 AAA 1,779,798
1,000,000 5.375%, 3/01/20 3/05 at 102 AAA 970,540
2,000,000 Greenville, North Carolina, Comb Enterprise System 9/04 at 102 A+ 2,056,220
Revenue, 6.000%, 9/01/16
5,300,000 North Carolina, Eastern Municipal Power Agency No Opt. Call AAA 5,627,222
Power System Revenue Refunding, RT Certificates,
6.000%, 1/01/18
</TABLE>
13
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP NORTH CAROLINA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL REVENUE/UTILITY - CONTINUED
North Carolina Municipal Power Agency No. 1,
Catawba Electric Revenue Refunding:
$700,000 7.000%, 1/01/16 1/98 at 102 A- $722,183
355,000 7.625%, 1/01/14 1/98 at 102 AAA 368,781
North Carolina Municipal Power Agency No. 1,
Catawba Electric Revenue Refunding:
6,000,000 0.000%, 1/01/09 No Opt. Call AAA 3,232,560
2,000,000 0.000%, 1/01/10 No Opt. Call AAA 1,011,540
3,000,000 Puerto Rico Electric Power Authority, Formerly Puerto No Opt. Call BBB+ 3,211,740
Rico Commonwealth, Water Resource Authority
Power, Series S, 6.125%, 7/01/09
870,000 Shelby, North Carolina, Comb Enterprise System, 5/05 at 102 A 849,903
Revenue Refunding Series A, 5.500%, 5/01/17
1,470,000 Shelby, North Carolina, Comb Enterprise System, 5/05 at 102 A 1,436,043
Revenue Refunding Series B, 5.500%, 5/01/17
- -----------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/WATER AND SEWER - 7.9%
2,000,000 Asheville, North Carolina, Water System Revenue, 8/06 at 102 AAA 2,012,140
5.700%, 8/01/25
1,615,000 Charlotte, North Carolina, Water and Sewer, 4/05 at 102 AAA 1,609,622
5.400%, 4/01/20
Charlotte, North Carolina, Water and Sewer, Series A:
500,000 5.400%, 4/01/19 4/05 at 102 AAA 500,280
1,830,000 5.400%, 4/01/20 4/05 at 102 AAA 1,823,906
3,400,000 Greensboro, North Carolina, Enterprise System 6/05 at 102 AA- 3,310,206
Revenue, Series A, 5.375%, 6/01/19
3,000,000 Union County, North Carolina, Enterprise System 6/06 at 102 AAA 2,980,230
Revenue, 5.500%, 6/01/17
Winston Salem, North Carolina, Water and Sewer
System Revenue, Series B:
750,000 5.600%, 6/01/14 6/05 at 102 AA+ 750,285
1,500,000 5.700%, 6/01/17 6/05 at 102 AA+ 1,508,520
540,760 Woodfin Treatment Facility Inc., North Carolina, No Opt. Call N/R 538,138
Certificates of Participation,
5.500%, 12/01/03
- -----------------------------------------------------------------------------------------------------------------
NON-STATE GENERAL OBLIGATIONS - 2.3%
Currituck County, North Carolina, School Building:
750,000 5.400%, 4/01/14 4/05 at 102 AAA 749,040
800,000 5.400%, 4/01/15 4/05 at 102 AAA 798,032
</TABLE>
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NON-STATE GENERAL OBLIGATIONS - CONTINUED
New Hanover County, North Carolina,
$650,000 5.300%, 5/01/16 5/07 at 102 Aa $639,529
550,000 5.300%, 5/01/17 5/07 at 102 Aa 540,221
1,600,000 Union County, North Carolina, Series B, 6/05 at 102 AAA 1,573,568
5.200%, 6/01/13
- -----------------------------------------------------------------------------------------------------------------
PRE-REFUNDED - 14.9%***
145,000 Asheville, North Carolina, Housing Development 11/09 at 109 N/R 191,384
Corporation, First Lien Revenue, Asheville
Gardens, 10.500%, 5/01/11
1,900,000 Craven, North Carolina, Regional Medical Authority, 10/00 at 102 AAA 2,093,306
Health Care Facilities Revenue, Insured,
7.200%, 10/01/19
750,000 Cumberland County, North Carolina, Hospital 10/98 at 102 AAA 800,693
Facilities Revenue, Cumberland County Hospital
System Inc., 7.875%, 10/01/14
Durham, North Carolina, Certificates of Participation,
New Durham Corporation:
705,000 7.250%, 9/01/10 9/00 at 102 Aa 776,431
1,000,000 6.750%, 12/01/11 12/01 at 102 Aa3 1,105,210
1,450,000 Greensboro, North Carolina, Certificates of 7/98 at 102 AAA 1,539,770
Participation, Greensboro Center City Corporation,
7.900%, 7/01/09
2,030,000 North Carolina Medical Care Commission, Health 2/99 at 102 A 2,165,015
Care Facilities Revenue, Gaston Health Care
Support Project, 7.250%, 2/15/19
2,055,000 North Carolina Medical Care Commission, Health 10/99 at 102 AAA 2,250,328
Care Facilities Revenue, Stanley Memorial Hospital
Project, 7.800%, 10/01/19
North Carolina Eastern Municipal Power Agency,
Power System Revenue Refunding, Series A:
4,080,000 8.000%, 1/01/21 1/99 at 102 Aaa 4,260,988
690,000 7.500%, 1/01/21 1/99 at 102 Aaa 737,417
500,000 7.625%, 1/01/23 1/98 at 102 Aaa 521,150
500,000 7.250%, 1/01/23 1/99 at 102 Aaa 532,460
240,000 4.500%, 1/01/24 1/22 at 100 Aaa 205,370
7,535,000 North Carolina Housing Finance Agency, Multifamily, 1/99 at 102 AAA 346,083
Series D, 0.000%, 7/01/28
</TABLE>
15
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP NORTH CAROLINA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRE-REFUNDED - CONTINUED
North Carolina Medical Care Commission, Hospital
Revenue, Scotland Memorial Hospital Project:
$200,000 8.150%, 10/01/99 10/98 at 102 N/R $213,934
1,000,000 8.625%, 10/01/11 10/98 at 102 N/R 1,075,720
600,000 North Carolina Municipal Power Agency No. 1, 1/98 at 102 AAA 626,202
Catawba Electric Revenue Refunding,
7.875%, 1/01/19
700,000 Pender County, North Carolina, Certificates of 6/01 at 102 Baa1 795,004
Participation, 7.700%, 6/01/11
1,000,000 Pitt County, North Carolina, Certificates of 4/00 at 102 AAA 1,083,990
Participation, 6.900%, 4/01/08
Puerto Rico Commonwealth, Public Improvement,
Series A:
500,000 7.750%, 7/01/06 7/98 at 102 AAA 530,590
2,000,000 7.750%, 7/01/13 7/98 at 102 AAA 2,122,360
780,000 Puerto Rico Commonwealth, Refunding, 7/98 at 102 A 829,429
8.000%, 7/01/07
Puerto Rico Commonwealth Aqueduct and Sewer
Authority Revenue, Series A:
1,000,000 7.900%, 7/01/07 7/98 at 102 AAA 1,062,690
850,000 7.875%, 7/01/17 7/98 at 102 AAA 903,074
200,000 Puerto Rico Electric Power Authority, Formerly Puerto 7/98 at 102 AAA 212,740
Rico Commonwealth, Water Resource Authority
Power, Series M, 8.000%, 7/01/08
Spindale, North Carolina:
100,000 7.600%, 2/01/07 2/98 at 102 AAA 104,540
100,000 7.600%, 2/01/08 2/98 at 102 AAA 104,540
200,000 7.600%, 2/01/09 2/98 at 102 AAA 209,080
295,000 University of North Carolina-Charlotte, Revenue, 1/98 at 102 N/R 307,195
Refunding, Series K, 7.500%, 1/01/04
Washington County, North Carolina:
200,000 7.600%, 3/01/08 3/98 at 102 AAA 209,682
200,000 7.600%, 3/01/09 3/98 at 102 AAA 209,682
- -----------------------------------------------------------------------------------------------------------------
RESOURCE RECOVERY - 1.8%
Coastal Regional Solid Waste Management
Authority, North Carolina Solid Waste Disposal
System, Revenue Refunding:
1,000,000 6.300%, 6/01/04 6/02 at 102 A 1,068,860
1,000,000 6.500%, 6/01/08 6/02 at 102 A 1,048,890
</TABLE>
16
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RESOURCE RECOVERY - CONTINUED
$1,250,000 Iredell County, North Carolina, Special Obligation, 6/02 at 102 A $1,282,350
Solid Waste System Project, 6.250%, 6/01/12
- -----------------------------------------------------------------------------------------------------------------
SPECIAL TAX REVENUE - 6.3%
Puerto Rico Commonwealth Highway and
Transportation Authority, Highway Revenue, Series Y:
2,300,000 5.500%, 7/01/26 7/06 at 101 1/2 A 2,223,824
5,000,000 5.500%, 7/01/36 7/16 at 100 A 4,862,850
2,450,000 Puerto Rico Commonwealth Infrastructure, Financing 7/98 at 102 BBB+ 2,591,487
Authority Special, Series A, 7.750%, 7/01/08
2,375,000 Winston-Salem, North Carolina, Special Obligation, 4/05 at 102 AA 2,332,463
Solid Waste Management Project, 5.500%, 4/01/16
- -----------------------------------------------------------------------------------------------------------------
STATE/TERRITORIAL GENERAL OBLIGATIONS - 0.6%
220,000 Puerto Rico Commonwealth, 8.000%, 7/01/07 7/98 at 102 A 233,597
1,000,000 Puerto Rico Public Buildings Authority, Revenue No Opt. Call A 986,160
Refunding, Guaranteed, Series L, 5.500%, 7/01/21
- -----------------------------------------------------------------------------------------------------------------
STUDENT LOAN REVENUE BONDS - 0.6%
1,000,000 North Carolina State Education Assistance, 7/05 at 102 A 1,022,010
Authority Revenue, Guaranteed, Student Loan,
Sub Lien, Series A, 6.300%, 7/01/15
- -----------------------------------------------------------------------------------------------------------------
$194,690,760 Total Investments - (cost $178,109,940) - 98.6% 186,622,454
============-----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.4% 2,713,687
--------------------------------------------------------------------------------------------
Net Assets - 100% $189,336,141
--------------------------------------------------------------------------------------------
</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 and Poor's or
Moody's rating.
*** Pre-refunded 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.
Pre-refunded securities are normally considered to be
equivalent to AAA rated securities.
N/R - Investment is not rated.
See accompanying notes to financial statements.
17
<PAGE>
STATEMENT OF NET ASSETS
MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
NORTH CAROLINA
--------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $186,622,454
Cash 115,689
Receivables:
Interest 3,408,006
Shares sold 88,719
Investments sold 312,685
Other assets 9,165
--------------------------------------------------------------------------------------
Total assets 190,556,718
--------------------------------------------------------------------------------------
LIABILITIES
Payable for Shares redeemed 188,808
Accrued expenses:
Management fees (note 6) 84,333
12b-1 distribution and service fees (notes 1 and 6) 35,471
Other 91,719
Dividends payable 820,246
--------------------------------------------------------------------------------------
Total liabilities 1,220,577
--------------------------------------------------------------------------------------
Net assets (note 7) $189,336,141
--------------------------------------------------------------------------------------
CLASS A SHARES (NOTE 1)
Net assets $181,595,175
Shares outstanding 17,670,832
Net asset value and redemption price per share $10.28
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $10.73
--------------------------------------------------------------------------------------
CLASS B SHARES (NOTE 1)
Net assets $271,002
Shares outstanding 26,367
Net asset value, offering and redemption price per share $10.28
--------------------------------------------------------------------------------------
CLASS C SHARES (NOTE 1)
Net assets $7,065,011
Shares outstanding 688,609
Net asset value, offering and redemption price per share $10.26
--------------------------------------------------------------------------------------
CLASS R SHARES (NOTE 1)
Net assets $404,953
Shares outstanding 39,406
Net asset value, offering and redemption price per share $10.28
--------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
STATEMENT OF OPERATIONS Nuveen Municipal Bond Fund
YEAR ENDED MAY 31, 1997 May 31, 1997 Annual Report
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
NORTH CAROLINA*
---------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $ 11,932,050
---------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 984,707
12b-1 service fees - Class A (notes 1 and 6) 617,970
12b-1 distribution and service fees - Class B (notes 1 and 6) 448
12b-1 distribution and service fees - Class C (notes 1 and 6) 60,676
Shareholders' servicing agent fees and expenses 121,393
Custodian's fees and expenses 102,097
Trustees' fees and expenses (note 6) 4,894
Professional fees 20,778
Shareholders' reports - printing and mailing expenses 19,789
Federal and state registration fees 5,637
Other expenses 8,744
---------------------------------------------------------------------------------------
Total expenses before reimbursement 1,947,133
Expense reimbursement (note 6) (133,892)
---------------------------------------------------------------------------------------
Net expenses 1,813,241
---------------------------------------------------------------------------------------
Net investment income 10,118,809
---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 1,921,251
Net change in unrealized appreciation or depreciation of investments 2,403,810
---------------------------------------------------------------------------------------
Net gain from investments 4,325,061
---------------------------------------------------------------------------------------
Net increase in net assets from operations $ 14,443,870
---------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of Nuveen Flagship North Carolina (see note 1 of the Notes to
Financial Statements).
See accompanying notes to financial statements.
19
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
NORTH CAROLINA* NORTH CAROLINA
--------------------------------------
YEAR ENDED 5/31/97 YEAR ENDED 5/31/96
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 10,118,809 $ 10,552,320
Net realized gain from investment transactions
(notes 1 and 4) 1,921,251 2,647,708
Net change in unrealized appreciation or
depreciation of investments 2,403,810 (6,091,694)
- -----------------------------------------------------------------------------------------------
Net increase in net assets from operations 14,443,870 7,108,334
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (9,701,977) (10,307,619)
Class B (1,977) N/A
Class C (326,112) (329,070)
Class R (4,651) N/A
- -----------------------------------------------------------------------------------------------
Decrease in net assets from distributions to
shareholders (10,034,717) (10,636,689)
- -----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 13,538,981 16,169,457
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 5,178,488 5,859,549
- -----------------------------------------------------------------------------------------------
18,717,469 22,029,006
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (25,396,297) (24,794,063)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund
share transactions (6,678,828) (2,765,057)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (2,269,675) (6,293,412)
Net assets at the beginning of year 191,605,816 197,899,228
- -----------------------------------------------------------------------------------------------
Net assets at the end of year $189,336,141 $191,605,816
- -----------------------------------------------------------------------------------------------
Balance of undistributed net investment income at end of year $ 84,092 $ -
- -----------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of Nuveen Flagship North Carolina (see note 1 of the Notes to
Financial Statements).
N/A - Flagship North Carolina was not authorized to issue Class B or Class R
Shares.
See accompanying notes to financial statements.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end
investment company registered under the Investment Company Act of 1940, as
amended. The Trust comprises Nuveen Flagship North Carolina 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 North Carolina
Double Tax Exempt Fund ("Flagship North Carolina") was reorganized into the
Trust and renamed Nuveen Flagship North Carolina Municipal Bond Fund ("Nuveen
Flagship North Carolina").
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 purchase 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 as required for federal income tax purposes.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 North Carolina
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, 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 and North
Carolina state 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, 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, B, C and R Shares. Class B and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without
a sales charge but incur annual 12b-1 distribution and service fees. An
investor purchasing Class B Shares agrees to pay a contingent deferred sales
charge ("CDSC") of up to 5% depending upon the length of time the shares are
held by the investor (CDSC is reduced to 0% at the end of six years). 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 18 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.
22
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
North Carolina* North Carolina
------------------------------------------------------------------------------------
Year ended Year ended
5/31/97 5/31/96
------------------------------------------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,139,324 $ 11,564,705 1,344,285 $ 13,800,240
Class B 26,319 268,174 N/A N/A
Class C 128,427 1,308,314 232,489 2,369,217
Class R 39,185 397,788 N/A N/A
Shares issued to shareholders
due to reinvestment of
distributions:
Class A 489,500 4,984,798 551,768 5,657,437
Class B 48 488 N/A N/A
Class C 18,772 190,950 19,714 202,112
Class R 221 2,252 N/A N/A
- ------------------------------------------------------------------------------------------------------------------
1,841,796 18,717,469 2,148,256 22,029,006
- ------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,374,729) (24,226,252) (2,231,686) (22,878,721)
Class B N N N/A N/A
Class C (115,427) (1,170,045) (187,452) (1,915,342)
Class R N N N/A N/A
- ------------------------------------------------------------------------------------------------------------------
(2,490,156) (25,396,297) (2,419,138) (24,794,063)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (648,360) $ (6,678,828) (270,882) $ (2,765,057)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of Nuveen Flagship North Carolina (see note 1).
N/A - Flagship North Carolina was not authorized to issue Class B or Class R
Shares.
3. DISTRIBUTIONS TO SHAREHOLDERS
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of
record on June 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
NORTH CAROLINA
- ------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0445
Class B .0380
Class C .0395
Class R .0460
- ------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
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
NORTH CAROLINA*
- -------------------------------------------------------------
<S> <C>
PURCHASES
Investments in municipal securities $43,621,349
Temporary municipal investments 200,000
SALES
Investments in municipal securities 50,876,543
Temporary municipal investments 200,000
- -------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of Nuveen Flagship North Carolina (see note 1).
At May 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 May 31, 1997, the Fund had an unused capital loss carryforward of
$1,060,262 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 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At May 31, 1997, net unrealized appreciation aggregated $8,512,514 of which
$8,519,543 related to appreciated securities and $7,029 related to depreciated
securities.
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) Flagship North Carolina 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.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 of approximately
$227,600 of which approximately $197,100 were paid out as concessions to
authorized dealers. 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 $46,500 in
commission advances at the time of purchase. To compensate for commissions
advanced to authorized dealers, all 12b-1 service fees collected on Class B
Shares during the first year following a purchase, all 12b-1 distribution fees
collected on Class B Shares, 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 their investments. The Distributor and its predecessor also collected and
retained approximately $2,400 of CDSC on share redemptions during the fiscal
year ended 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
NORTH CAROLINA
- ------------------------------------------------------------------------------
<S> <C>
Capital paid-in $181,799,797
Balance of undistributed net investment income 84,092
Accumulated net realized gain (loss) from investment transactions (1,060,262)
Net unrealized appreciation of investments 8,512,514
- ------------------------------------------------------------------------------
Net assets $189,336,141
==============================================================================
</TABLE>
26
<PAGE>
Financial Highlights
27
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a common share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------------- --------------------------
NET
NUVEEN FLAGSHIP NET REALIZED AND DIVIDENDS NET TOTAL
NORTH CAROLINA++ 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 (3/86)
1997 $10.05 $.54 $ .23 $(.54) $ -- $10.28 7.79%
1996 10.23 .55 (.18) (.55) -- 10.05 3.67
1995 10.08 .57 .15 (.57) -- 10.23 7.45
1994 10.51 .57 (.42) (.58) -- 10.08 1.30
1993 9.97 .58 .55 (.59) -- 10.51 11.66
1992 9.70 .60 .27 (.60) -- 9.97 9.30
1991 9.46 .61 .24 (.61) -- 9.70 9.28
1990 9.59 .61 (.13) (.61) -- 9.46 5.16
1989 8.93 .62 .66 (.62) -- 9.59 14.78
1988 8.80 .62 .13 (.62) -- 8.93 8.77
CLASS B (2/97)
1997(c) 10.33 .12 (.06) (.11) -- 10.28 .64
CLASS C (10/93)
1997 10.03 .48 .23 (.48) -- 10.26 7.20
1996 10.22 .49 (.18) (.50) -- 10.03 3.01
1995 10.06 .51 .16 (.51) -- 10.22 6.97
1994(c) 10.84 .32 (.78) (.32) -- 10.06 (6.26)+
Class R (2/97)
1997(c) 10.27 .18 .01 (.18) -- 10.28 1.92
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997, reflects the
financial highlights of Flagship North Carolina.
(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.
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
RATIO RATIO
OF NET OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME TO EXPENSES INCOME TO
TO AVERAGE AVERAGE TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (b) MENT (b) RATE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$181,595 1.00% 5.24% .93% 5.31% 23%
185,016 1.03 5.19 .90 5.32 54
191,850 1.06 5.58 .91 5.73 35
196,087 1.04 5.26 .89 5.41 21
169,944 1.04 5.61 .95 5.70 12
131,488 1.05 6.03 .98 6.10 17
108,917 1.06 6.29 .99 6.36 12
96,348 1.05 6.29 .94 6.40 34
87,539 1.07 6.51 .92 6.66 21
68,077 1.03 6.73 .83 6.93 75
271 1.62+ 4.60+ 1.62+ 4.60+ 23
7,065 1.54 4.70 1.48 4.76 23
6,589 1.58 4.64 1.45 4.77 54
6,049 1.61 4.98 1.46 5.13 35
4,161 1.79+ 4.35+ 1.49+ 4.65+ 21
405 .66+ 5.57+ .66+ 5.57+ 23
- --------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND:
We have audited the accompanying statement of net assets of Nuveen Flagship
North Carolina 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. 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 North Carolina 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
30
<PAGE>
Shareholder Meeting Report
Flagship North Carolina
<TABLE>
<CAPTION>
A SHARES C SHARES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
ADVISORY AGREEMENT For 14,080,018 515,639
Against 228,299 2,818
Abstain 224,174 3,340
---------------------------------------------------
Total 14,532,491 521,797
- ----------------------------------------------------------------------------
Broker Non Votes 272,411 39,090
- ----------------------------------------------------------------------------
REORGANIZATION For 10,419,964 258,683
Against 311,974 3,980
Abstain 251,972 2,999
---------------------------------------------------
Total 10,983,910 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,820,992 295,225
- ----------------------------------------------------------------------------
INVESTMENT OBJECTIVE For 10,095,077 233,053
Against 701,799 10,493
Abstain 107,107 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
INVESTMENT ASSETS For 10,125,812 253,686
Against 675,434 10,493
Abstain 102,737 1,483
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
TYPE OF SECURITIES For 10,119,226 233,053
Against 666,365 10,493
Abstain 118,392 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
BORROWING For 10,125,302 233,053
Against 682,795 10,493
Abstain 95,886 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
PLEDGES For 10,130,659 233,053
Against 657,982 10,493
Abstain 115,342 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
---------------------------------------------------
</TABLE>
31
<PAGE>
Shareholder Meeting Report
Flagship North Carolina - continued
<TABLE>
<CAPTION>
A SHARES C SHARES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
SENIOR SECURITIES For 10,086,875 233,053
Against 712,974 10,493
Abstain 104,134 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
UNDERWRITING For 10,131,500 233,053
Against 691,377 10,493
Abstain 81,106 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
REAL ESTATE For 10,112,080 233,053
Against 715,127 10,493
Abstain 76,776 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
COMMODITIES For 10,081,104 233,053
Against 743,754 10,493
Abstain 79,125 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
LOANS For 10,117,334 233,053
Against 716,105 10,493
Abstain 70,544 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
SHORT SALES/MARGIN
PURCHASES For 10,077,656 233,053
Against 741,013 10,493
Abstain 85,314 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
PUT AND CALL OPTIONS For 10,119,510 233,053
Against 690,783 10,493
Abstain 93,690 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
---------------------------------------------------
</TABLE>
32
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A SHARES C SHARES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Industry Concentration For 10,142,066 233,053
Against 680,021 10,493
Abstain 81,896 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
Affiliate Purchases For 10,108,150 233,053
Against 692,390 10,493
Abstain 103,443 22,116
---------------------------------------------------
Total 10,903,983 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,919 295,225
- ----------------------------------------------------------------------------
Investment Companies For 10,107,479 233,053
Against 715,737 10,493
Abstain 80,768 22,116
---------------------------------------------------
Total 10,903,984 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,900,918 295,225
- ----------------------------------------------------------------------------
Div vs. Non-Div For 10,247,978 227,391
Against 433,065 4,515
Abstain 312,437 33,756
---------------------------------------------------
Total 10,993,480 265,662
- ----------------------------------------------------------------------------
Broker Non Votes 3,811,422 295,225
- ----------------------------------------------------------------------------
12b-1 Fees For 13,828,813 477,762
Against 386,525 2,818
Abstain 318,307 41,216
---------------------------------------------------
Total 14,533,645 521,796
- ----------------------------------------------------------------------------
Broker Non Votes 271,257 39,091
---------------------------------------------------
</TABLE>
33
<PAGE>
Shareholder Meeting Report
Flagship North Carolina - continued
<TABLE>
<CAPTION>
A SHARES C SHARES
- -----------------------------------------------------
DIRECTORS:
- -----------------------------------------------------
<S> <C> <C> <C>
Bremner For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Brown For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Dean For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Impellizzeri For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Rosenheim For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Sawers For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Schneider For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
- -----------------------------------------------------
Schwertfeger For 14,351,417 558,069
Withhold 453,485 2,818
------------------------------------
Total 14,804,902 560,887
------------------------------------
</TABLE>
34
<PAGE>
Shareholder Information
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to
help you reach your financial goals.
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Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic
investing program, which allows you to invest a fixed dollar amount every
month automatically.
You can also invest automatically through dividend reinvestment. By
reinvesting your fund's dividends back into the fund, you gain the added
growth potential of long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
35
<PAGE>
Fund Information
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND
DIVIDEND DISBURSING AGENT
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Dayton, Ohio
36
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors
have trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach - purchasing securities of strong companies and
communities that represent good long-term value - is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that
offers the potential for attractive returns with moderated risk. Successful
value investing begins with in-depth research and a discerning eye for
marketplace opportunity. Nuveen's team of investment professionals is backed
by the discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help
you preserve your financial security, talk with your financial adviser, or
call us at (800) 621-7227 for more information, including a prospectus where
applicable. Please read that information carefully before you invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
<PAGE>
[LOGO OF NUVEEN APPEARS HERE]
Municipal
Bond Funds
May 31, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
South
Carolina
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 South Carolina Overview
9 Financial Section
27 Shareholder Meeting Report
31 Shareholder Information
32 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
It's a pleasure to report to you on the performance of the Nuveen Flagship South
Carolina Municipal Bond Fund. Over the past year, the fund posted sizable gains.
For the fiscal year ended May 31, 1997, the value of your investment rose 8.28%
for Class A shares if you chose to reinvest your tax-free income dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) matched the 8.28% increase produced by the Lehman Brothers
Municipal Bond Index, which is used to represent the broad municipal bond market
on an unmanaged basis.
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, shareholders were
receiving tax-free yields on net asset value of 5.37% for Class A shares. To
match this yield, investors in the 36% combined federal and state income tax
bracket would have had to earn at least 8.39% 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 inflation has hampered the performance
of municipals and led to
-----
1
<PAGE>
"In addition to substantial total returns, shareholders continue to enjoy very
attractive current yields generated by a portfolio of quality bonds."
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,
/s/Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1997
-----
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, head of Nuveen's Dayton-based portfolio management team, talks about
the municipal bond market and offers insights into factors that affected fund
performance over the past year.
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 this 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
===
3
<PAGE>
"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."
producer levels. The fund had the added advantage of operating in a healthy
supply environment, where securities were available as needed.
Given this market environment, how did the fund perform?
The South Carolina Municipal Bond Fund performed well over the past year,
rewarding investors with a total return on net asset value for the year of 8.28%
for Class A shares, including price changes and reinvested dividends. The fund
was ranked third among 15 South Carolina 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 taking advantage of the strong municipal bond market in South
Carolina to improve the already-high credit quality of the fund. Strong demand
for bonds in the state has allowed us to purchase quality bonds without
affecting the income of the fund. In addition, we sold some insured lease bonds
in favor of higher-quality bonds in sectors such as utilities, water and sewer
facilities, and schools.
What is the current status of South Carolina's municipal market?
Though still reliant on the textile industry, South Carolina's economy has
diversified into other areas such as trade, services and durable goods
manufacturing. Steady economic gains are expected to continue as local
companies' expansion plans contribute to future growth. Strong retail demand, in
combination with the state's high-quality municipal issuers and this year's low
issuance volume (under $1 billion through the first half of 1997), have kept
South Carolina bonds aggressively priced.
- ----
4
<PAGE>
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.
- ----
5
<PAGE>
South Carolina
Overview
- --------------------------------------------------------------------------------
Credit Quality
- --------------------------------------------------------------------------------
[PIE CHARTS APPEARS HERE]
AAA 61%
AA 18%
A 14%
BBB/NR 7%
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
[PIE CHARTS APPEARS HERE]
Water & Sewer 22%
General Obligations 17%
Education/Student Loans 14%
Municipal Appropriations 12%
Housing Facilities 11%
Hospitals 7%
Utility 7%
Pollution Control 5%
Other 5%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Highlights
- --------------------------------------------------------------------------------
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 7/93 2/97 2/97 2/97
................................................................................
Net Asset Value (NAV) $9.53 $ 9.52 $9.52 $ 9.54
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $10,235
................................................................................
Average Weighted Maturity (years) 18.98
................................................................................
Average Weighted Duration (years) 8.17
................................................................................
<CAPTION>
Annualized Total Return/1/
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 8.28% 3.73% 7.52% 7.73% 8.45%
................................................................................
Since Inception 5.19% 4.04% 4.57% 4.78% 5.23%
- --------------------------------------------------------------------------------
<CAPTION>
Tax-Free Yields
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.25% 5.03% 4.51% 4.70% 5.45%
................................................................................
SEC 30-Day Yld 5.37% 5.14% 4.62% 4.83% 5.57%
................................................................................
Taxable Equiv Yld/2/ 8.39% 8.03% 7.22% 7.55% 8.70%
- --------------------------------------------------------------------------------
</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 B, 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 above do not
reflect imposition of the CDSC. Giving effect to the CDSC shares applicable
to Class B shares, the 1-year and life-of-fund total returns above would be
3.52% and 3.89%, respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 36%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
-----
6
<PAGE>
Nuveen Flagship South Carolina Municipal Bond Fund
May 31, 1997 Annual Report
* 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 (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Lehman Brothers South Carolina South Carolina
Municipal Bond Municipal Bond Municipal Bond
Index Fund (NAV) Fund (Offer)
--------------- --------------- ---------------
<S> <C> <C> <C>
July 1993 10,000 10,000 9,580
May 1994 10,065.5 10,013.5 9,592.91
May 1995 10,982.1 10,868.4 10,411.9
May 1996 11,484.1 11,252 10,779,4
May 1997 12,541.6 12,183.5 11,671.8
</TABLE>
<TABLE>
<S> <C>
Lehman Brothers Municipal Bond Index $12,542
Nuveen Flagship South Carolina Municipal Bond Fund (NAV) $12,183
Nuveen Flagship South Carolina Municipal Bond Fund (Offer) $11,672
</TABLE>
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
June 1996 0.04098
July 1996 0.04235
August 1996 0.04235
September 1996 0.04098
October 1996 0.04235
November 1996 0.04098
December 1996 0.04235
January 1997 0.04247
February 1997 0.0417
March 1997 0.0417
April 1997 0.0417
May 1997 0.0417
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
14 Statement of Net Assets
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Notes to Financial Statements
23 Financial Highlights
26 Independent Auditors' Report
----
9
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship South Carolina
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education -- 9.3%
$ 400,000 Coastal Carolina University, South Carolina, 6/04 at 102 AAA $ 441,880
Revenue Refunding, 6.800%, 6/01/19
250,000 University South Carolina, University, Revenues 6/06 at 101 AAA 255,863
Refunding, 5.600%, 6/01/11
250,000 University South Carolina, University, Revenues, 6/07 at 101 AAA 253,010
5.600%, 6/01/14
- -----------------------------------------------------------------------------------------------------------------------------
Hospitals -- 7.0%
200,000 Greenville Hospital System, South Carolina, No Opt. Call AAA 209,584
Hospital Facilities, Revenue, 6.000%, 5/01/20
250,000 Greenwood County, South Carolina, Hospital, 10/03 at 102 AAA 253,098
Revenue, Self Memorial Hospital,
5.875%, 10/01/17
250,000 South Carolina Jobs, Economic Development 11/05 at 102 AAA 253,113
Authority, Hospital Facilities Revenue, Tuomey
Regional Medical Center, Series A,
5.750%, 11/01/15
- -----------------------------------------------------------------------------------------------------------------------------
Housing/Multi Family -- 5.5%
300,000 South Carolina Regional Housing 7/02 at 102 Aa 309,975
Development Corporation No. 1, Multifamily,
Revenue Refunding, Redwood Village Apartments,
A, 6.625%, 7/01/17
250,000 South Carolina State Housing Finance and 11/05 at 102 AA- 251,635
Development Authority, Multifamily, Revenue
Refunding, Runaway Bay Apartments Project,
6.125%, 12/01/15
- -----------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 5.1%
250,000 South Carolina State Housing Authority, 7/04 at 102 AA 260,215
Homeownership Mortgage Purchase, Series A,
6.150%, 7/01/08
250,000 South Carolina State Housing Finance and 5/06 at 102 Aa2 256,315
Development Authority, Mortgage, Revenue,
Series A, 6.350%, 7/01/25
- -----------------------------------------------------------------------------------------------------------------------------
Industrial Development and Pollution Control -- 5.0%
500,000 Darlington County, South Carolina, Industrial 4/06 at 102 A 507,595
Development, Revenue, Sonoco Products Company
Project, 6.000%, 4/01/26
</TABLE>
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Municipal Appropriation Obligations -- 11.8%
Berkeley County, South Carolina, School District
Certificates of Participation, Berkeley School
Facilities Group Inc.:
$250,000 6.250%, 2/01/12 2/04 at 102 AAA $ 265,690
250,000 6.300%, 2/01/16 2/04 at 102 AAA 265,125
10,000 Charleston County, South Carolina, Certificates of 6/04 at 102 AAA 11,091
Participation, Series B, 6.875%, 6/01/14
400,000 Chesterfield County, South Carolina, School 7/05 at 102 AAA 414,832
District Certificates of Participation,
Chesterfield School Facilities Inc.,
6.000%, 7/01/15
250,000 Hilton Head Island, South Carolina, Public 3/05 at 102 AAA 254,928
Facilities Corporation Certificates of
Participation, 5.750%, 3/01/14
- ------------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Utility -- 6.7%
500,000 Camden South Carolina Public Utility, Revenue 3/07 at 102 AAA 489,045
Refunding and Improvement, 5.500%, 3/01/22
185,000 Puerto Rico Electric Power Authority, Power, 7/04 at 02 BBB+ 197,741
Revenue, Formerly Puerto Rico Commonwealth
Water Resource Authority, Power, Series T,
6.125%, 7/01/08
- ------------------------------------------------------------------------------------------------------------------------------
Municipal Revenue/Water and Sewer -- 22.4%
250,000 Columbia, South Carolina, Waterworks and 7/04 at 102 AA 251,115
Sewer System, Revenue Refunding,
5.375%, 2/01/12
250,000 Georgetown County, South Carolina Water and 6/05 at 102 N/R 246,355
Sewer District, Revenue Refunding and
Improvement, 6.500%, 6/01/25
300,000 Greenville, South Carolina, Waterworks, Revenue, 2/07 at 102 Aa1 294,219
5.500%, 2/01/22
250,000 Hilton Head Public Service District No. 1, 8/05 at 102 AAA 250,655
South Carolina Waterworks and Sewer System,
Revenue Refunding and Improvement,
5.500%, 8/01/15
500,000 Spartanburg, South Carolina, Sanitation Sewer 6/07 at 101 AAA 489,465
District, Sewer System, Revenue, Improvement,
5.500%, 6/01/20
500,000 Spartanburg, South Carolina, Waterworks, Revenue, 6/06 at 100 AAA 518,025
6.100%, 6/01/21
</TABLE>
------
11
<PAGE>
Portfolio of Investments
Nuveen Flagship South Carolina -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Revenue/Water and Sewer -- continued
$ 250,000 York County, South Carolina, Water & Sewer, 12/03 at 102 N/R $246,333
Revenue, 6.500%, 12/01/25
- ---------------------------------------------------------------------------------------------------------
Non-State General Obligations -- 13.8%
250,000 Anderson County, South Carolina, School 3/05 at 102 AAA 250,148
District No. 004, 5.400%, 3/01/15
365,000 Florence County, South Carolina, School 3/06 at 102 AAA 371,811
District No. 005, Series A, 5.700%, 3/01/17
250,000 Horry County, South Carolina, School District, No Opt. Call AAA 268,978
Series A, 6.750%, 3/01/01
250,000 Lexington County, South Carolina, Public Library 2/03 at 102 Aa2 265,137
System, 6.300%, 2/01/10
250,000 Richland, Lexington, South Carolina, Airport 1/05 at 100 AAA 255,942
District Airport, Revenue, Columbia Metropolitan
Airport, 6.000%, 1/01/15
- ---------------------------------------------------------------------------------------------------------
Pre-refunded -- 2.7%
240,000 Charleston County, South Carolina, Certificates 6/04 at 102 AAA 272,997
of Participation, Series B, 6.875%, 6/01/14
- ---------------------------------------------------------------------------------------------------------
Resource Recovery -- 2.5%
250,000 Charleston County, South Carolina, Solid Waste 1/05 at 102 AAA 259,862
User Fee, Revenue, 6.000%, 1/01/14
- ---------------------------------------------------------------------------------------------------------
State/Territorial General Obligations -- 3.6%
250,000 Puerto Rico Commonwealth, 6.400%, 7/01/11 7/04 at 101 1/2 A 266,734
100,000 Puerto Rico Public Buildings Authority, Revenue No Opt. Call A 98,615
Refunding, Guaranteed, Series L, 5.500%, 7/01/21
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Student Loan Revenue Bonds -- 5.0%
$ 500,000 South Carolina State Education Assistance Authority, 9/04 at 101 A $ 515,000
Revenue Refunding, Guaranteed Student Loan,
Sub Lien, 6.300%, 9/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
$10,000,000 Total Investments-(cost $9,847,361) -- 100.4% 10,272,126
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (0.4%) (37,479)
------------------------------------------------------------------------------------------------------
Net Assets -- 100% $10,234,647
======================================================================================================
</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.
===
13
<PAGE>
Statement of Net Assets
May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship
South Carolina
----------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $10,272,126
Cash 321,487
Interest receivable 209,612
Other assets 3,835
----------------------------------------------------------------------------------------
Total assets 10,807,060
----------------------------------------------------------------------------------------
Liabilities
Payable for Shares redeemed 498,750
Accrued expenses:
Management fees (note 6) 16
12b-1 distribution and service fees (notes 1 and 6) 1,931
Other 26,469
Dividends payable 45,247
----------------------------------------------------------------------------------------
Total liabilities 572,413
----------------------------------------------------------------------------------------
Net assets (note 7) $10,234,647
========================================================================================
Class A Shares (note 1)
Net assets $ 9,629,296
Shares outstanding 1,010,730
Net asset value and redemption price per share $ 9.53
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 9.95
========================================================================================
Class B Shares (note 1)
Net assets $ 160,490
Shares outstanding 16,861
Net asset value, offering and redemption price per share $ 9.52
========================================================================================
Class C Shares (note 1)
Net assets $ 419,869
Shares outstanding 44,094
Net asset value, offering and redemption price per share $ 9.52
========================================================================================
Class R Shares (note 1)
Net assets $ 24,992
Shares outstanding 2,621
Net asset value, offering and redemption price per share $ 9.54
========================================================================================
</TABLE>
See accompanying notes to financial statements.
====
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
Statement of Operations
Year ended May 31, 1997
<TABLE>
<CAPTION>
Nuveen Flagship
South Carolina*
---------------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $ 634,638
---------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 56,758
12b-1 service fees -- Class A (notes 1 and 6) 36,806
12b-1 distribution and service fees -- Class B (notes 1 and 6) 353
12b-1 distribution and service fees -- Class C (notes 1 and 6) 223
Shareholders' servicing agent fees and expenses 14,590
Custodian's fees and expenses 35,097
Trustees' fees and expenses (note 6) 318
Professional fees 11,861
Shareholders' reports -- printing and mailing expenses 503
Federal and state registration fees 1,682
Organizational expenses (note 1) 11,818
Other expenses 849
---------------------------------------------------------------------------------------
Total expenses before reimbursement 170,858
Expense reimbursement (note 6) (125,003)
---------------------------------------------------------------------------------------
Net expenses 45,855
---------------------------------------------------------------------------------------
Net investment income 588,783
---------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 12,003
Net change in unrealized appreciation or depreciation of investments 270,459
---------------------------------------------------------------------------------------
Net gain from investments 282,462
---------------------------------------------------------------------------------------
Net increase in net assets from operations $ 871,245
=======================================================================================
</TABLE>
* Information represents eight months of Flagship South Carolina
and four months of Nuveen Flagship South Carolina (see note 1
of the Notes to Financial Statements).
See accompanying notes to financial statements.
===
15
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
South Carolina* South Carolina
---------------------------------------------------
Year ended 5/31/97 Year ended 5/31/96
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 588,783 $ 475,136
Net realized gain from investment transactions (notes 1 and 4) 12,003 35,339
Net change in unrealized appreciation or depreciation of investments 270,459 (201,666)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 871,245 308,809
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (583,450) (493,565)
Class B (1,592) N/A
Class C (1,078) --
Class R (340) N/A
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (586,460) (493,565)
- ----------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 2,419,482 2,795,355
Net proceeds from shares issued to shareholders due to reinvestment of
distributions 337,619 365,824
- ----------------------------------------------------------------------------------------------------------------------------
2,757,101 3,161,179
- ----------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (3,340,985) (1,456,057)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions (583,884) 1,705,122
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (299,099) 1,520,366
Net assets at the beginning of year 10,533,746 9,013,380
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 10,234,647 $ 10,533,746
============================================================================================================================
Balance of undistributed net investment income at end of year $ 2,323 $ --
============================================================================================================================
</TABLE>
* Information represents eight months of Flagship South Carolina and four
months of Nuveen Flagship South Carolina (see note 1 of the Notes to
Financial Statements).
N/A - Flagship South Carolina was not authorized to issue Class B or Class R
Shares.
See accompanying notes to financial statements
- ----
16
<PAGE>
Notes to Financial Statements Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship South Carolina 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 South Carolina Double
Tax Exempt Fund ("Flagship South Carolina") was reorganized into the Trust and
renamed Nuveen Flagship South Carolina Municipal Bond Fund ("Nuveen Flagship
South Carolina").
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 purchase commitments.
- -----
17
<PAGE>
Notes to Financial Statements -- continued
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 South Carolina 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, 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 and South Carolina state 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, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class B, C and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). 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
- -----
18
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
pay a CDSC of 1% if Class C Shares are redeemed within 18 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
$35,400) 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, $11,818 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.
- -----
19
<PAGE>
Notes to Financial Statements -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
South Carolina* South Carolina
- ----------------------------------------------------------------------------------------------------------
Year ended Year ended
5/31/97 5/31/96
--------------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 192,810 $ 1,814,877 296,613 $ 2,795,355
Class B 16,861 160,503 N/A N/A
Class C 44,094 419,098 - -
Class R 2,621 25,004 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 35,809 337,619 38,643 365,824
Class B - - N/A N/A
Class C - - - -
Class R - - N/A N/A
- ----------------------------------------------------------------------------------------------------------
292,195 2,757,101 335,256 3,161,179
- ----------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (353,491) (3,340,985) (153,132) (1,456,057)
Class B - - N/A N/A
Class C - - - -
Class R - - N/A N/A
- ----------------------------------------------------------------------------------------------------------
(353,491) (3,340,985) (153,132) (1,456,057)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (61,296) $ (583,884) 182,124 $ 1,705,122
==========================================================================================================
</TABLE>
* Information represents eight months of Flagship South Carolina and four
months of Nuveen Flagship South Carolina (see note 1).
N/A -- Flagship South Carolina was not authorized to issue Class B or Class R
Shares.
3. Distributions to Shareholders
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
South Carolina
- --------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0415
Class B .0355
Class C .0375
Class R .0435
- --------------------------------------------------------------------------------
</TABLE>
- -----
20
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities for the fiscal year ended May 31, 1997 (eight months of Flagship
South Carolina and four months of Nuveen Flagship South Carolina -- see note 1),
aggregated $7,327,282 and $7,700,970, respectively.
At May 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 May 31, 1997, the Fund had an unused capital loss carryforward of $306,863
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 2003.
5. Unrealized Appreciation (Depreciation)
At May 31, 1997, net unrealized appreciation aggregated $424,765 of which
$426,546 related to appreciated securities and $1,781 related to depreciated
securities.
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) Flagship South Carolina 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 of approximately
$49,200 of which approximately $42,900 were paid out as concessions to
authorized dealers. The
- -----
21
<PAGE>
Notes to Financial Statements -- continued
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 $11,000 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, 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 their investments.
The Distributor and its predecessor also collected and retained approximately
$200 of CDSC on share redemptions during the fiscal year ended 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
South Carolina
- -----------------------------------------------------------------------------------
<S> <C>
Capital paid-in $10,114,422
Balance of undistributed net investment income 2,323
Accumulated net realized gain (loss) from investment transactions (306,863)
Net unrealized appreciation of investments 424,765
- -----------------------------------------------------------------------------------
Net assets $10,234,647
===================================================================================
</TABLE>
- -----
22
<PAGE>
Financial Highlights
23
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
------------------------- --------------------------
NUVEEN FLAGSHIP Net
SOUTH CAROLINA++ Net realized and Distributions 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 (7/93)
1997 $9.28 $.51 $ .24 $(.50) $ -- $9.53 8.28%
1996 9.45 .48 (.15) (.50) -- 9.28 3.53
1995 9.20 .50 .25 (.50) -- 9.45 8.54
1994(c) 9.58 .42 (.38) (.39) (.03) 9.20 .15+
Class B (2/97)
1997(c) 9.61 .13 (.11) (.11) -- 9.52 .20
Class C (2/97)
1997(c) 9.63 .13 (.13) (.11) -- 9.52 .03
Class R (2/97)
1997(c) 9.60 .14 (.07) (.13) -- 9.54 .75
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship South Carolina.
(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.
------
24
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- -----------------------------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9,629 1.55% 4.22% .41% 5.36% 68%
10,534 1.53 4.16 .71 4.98 76
9,013 1.86 4.08 .40 5.54 87
6,284 2.12+ 3.10+ .40+ 4.82+ 88
160 2.12+ 3.84+ 1.09+ 4.87+ 68
420 1.91+ 3.85+ .90+ 4.86+ 68
25 1.17+ 4.70+ .14+ 5.73+ 68
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-----
25
<PAGE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of
Nuveen Flagship South Carolina Municipal Bond Fund:
We have audited the accompanying statement of net assets of Nuveen
Flagship South Carolina 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. 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 South Carolina 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
-----
26
<PAGE>
Shareholder Meeting Report
Flagship South Carolina
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Advisory Agreement For 848,949
Against 20,456
Abstain --
------------------------------------------------
Total 869,405
- --------------------------------------------------------------------------------
Broker Non Votes 23,734
- --------------------------------------------------------------------------------
Reorganization For 610,184
Against 10,506
Abstain 5,129
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Investment Objective For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Investment Assets For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Type Of Securities For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Borrowing For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Pledges For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
------------------------------------------------
</TABLE>
----
27
<PAGE>
Shareholder Meeting Report
Flagship South Carolina --
continued
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Securities For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Underwriting For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Real Estate For 599,543
Against 26,276
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Commodities For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Loans For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Short Sales/Margin Purchases For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Put and Call Options For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
------------------------------------------------
</TABLE>
----
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Industry Concentration For 599,543
Against 26,276
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Affiliate Purchases For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
Investment Companies For 610,092
Against 15,727
Abstain --
------------------------------------------------
Total 625,819
- --------------------------------------------------------------------------------
Broker Non Votes 267,320
- --------------------------------------------------------------------------------
12b-1 Fees For 741,310
Against 128,095
Abstain --
------------------------------------------------
Total 869,405
- --------------------------------------------------------------------------------
Broker Non Votes 23,734
------------------------------------------------
</TABLE>
----
29
<PAGE>
Shareholder Meeting Report
Flagship South Carolina --
continued
<TABLE>
<CAPTION>
Directors A Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Bremner For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Brown For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Dean For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Impellizzeri For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Rosenheim For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Sawers For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Schneider For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
- --------------------------------------------------------------------------------
Schwertfeger For 878,029
Withhold 15,110
------------------------------------------------
Total 893,139
------------------------------------------------
</TABLE>
----
30
<PAGE>
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
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
Intermediate-Term
Limited-Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
-----
31
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio
----
32
<PAGE>
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
[LETTERHEAD OF NUVEEN APPEARS HERE]
Serving Investors
for Generations
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
NUVEEN
MUNICIPAL
BONDS FUNDS
MAY 31, 1997
ANNUAL REPORT
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
TENNESSEE
[PHOTO APPEARS HERE]
<PAGE>
CONTENTS
1 Dear Shareholder
3 Answering Your Questions
6 Tennessee Overview
9 Financial Section
31 Shareholder Meeting Report
35 Shareholder Information
36 Fund Information
<PAGE>
[PHOTO OF Timothy R. Schwertfeger APPEARS HERE]
DEAR SHAREHOLDER
It's a pleasure to report to you on the performance of the Nuveen Flagship
Tennessee Municipal Bond Fund. Over the past year, the fund posted sizable
gains. For the fiscal year ended May 31, 1997, the value of your investment rose
7.71% for Class A shares if you chose to reinvest your tax-free income
dividends.
Over this 12-month period, the total return performance for the fund (with
income reinvested) kept close pace with the 8.28% increase produced by the
Lehman Brothers Municipal Bond Index, which is used to represent the broad
municipal bond market on an unmanaged basis.
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, shareholders were
receiving tax-free yields on net asset value of 5.06% for Class A shares. To
match this yield, investors in the 35% combined federal and state income tax
bracket would have had to earn at least 7.78% 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 inflation has hampered the performance
of municipals and led to
____
1
<PAGE>
"IN ADDITION TO SUBSTANTIAL TOTAL RETURNS, SHAREHOLDERS CONTINUE TO ENJOY VERY
ATTRACTIVE CURRENT YIELDS GENERATED BY A PORTFOLIO OF QUALITY BONDS."
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,
/s/ Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
July 15, 1997
____
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
TED NEILD, HEAD OF NUVEEN'S DAYTON-BASED PORTFOLIO MANAGEMENT TEAM, TALKS ABOUT
THE MUNICIPAL BOND MARKET AND OFFERS INSIGHTS INTO FACTORS THAT AFFECTED FUND
PERFORMANCE OVER THE PAST YEAR.
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 this 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 operating in a
healthy supply environment, where securities were available as needed.
____
3
<PAGE>
"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."
GIVEN THIS MARKET ENVIRONMENT, HOW DID THE FUND PERFORM?
A strong national economy and growth of business in Tennessee meant strong
performance for the Tennessee Municipal Bond Fund. Investors were rewarded with
a total return on net asset value for the year of 7.71% for Class A shares,
including price changes and reinvested dividends. Additionally, the fund was
ranked sixth among 21 Tennessee 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 taking advantange of some changes in the state's municipal bond
market to increase the income and stability of the fund. In Tennessee, it can
sometimes be challenging to find high-quality bonds with the kind of call
protection we at Nuveen seek. However, we discovered some new bond issues during
the year with very strong call protection, which enhanced the stability of the
fund. In addition, we were able to increase the income of the fund by purchasing
higher-yielding bonds in sectors such as housing and pollution control.
WHAT IS THE CURRENT STATUS OF TENNESSEE'S MUNICIPAL MARKET?
Overall, 1996 was a good year for Tennessee's municipal market. Conservative
fiscal management, moderate debt levels and consistent economic growth have
strengthened the state's general obligation debt. A majority of Tennessee's
capital projects are funded on a current basis, resulting in infrequent
municipal bond issuance. Debt issuance has historically funded correctional and
higher education facilities, but healthcare and infrastructure offerings have
increased over the past year. State municipal bond issuance was down 25% to
$1.16 billion in the first 6 months of 1997. Financing medical assistance
through a program called TennCare continues to strain the state's finances.
Federal subsidies have not completely offset cost overruns in the managed care
program.
____
4
<PAGE>
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.
____
5
<PAGE>
TENNESSEE
OVERVIEW
Credit Quality
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 48%
AA 24%
A 18%
BBB/NR 10%
Diversification
[PIE CHART APPEARS HERE]
Health Care/Hospitals 17%
Housing Facilities 9%
Escrowed Bonds 14%
General Obligation 14%
Education 8%
Utility 9%
Pollution Control 19%
Water & Sewer 4%
Other 8%
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
================================================================================
SHARE CLASS A B C R
<S> <C> <C> <C> <C>
Inception Date 11/87 2/97 10/93 2/97
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $11.06 $11.06 $11.05 $ 11.04
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $273,309
- --------------------------------------------------------------------------------
Average Weighted Maturity (years) 19.30
- --------------------------------------------------------------------------------
Average Weighted Duration (years) 7.03
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN/1/
================================================================================
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C>
1-Year 7.71% 3.18% 7.07% 7.12% 7.58%
- --------------------------------------------------------------------------------
5-Year 6.67% 5.76% 6.08% 6.07% 6.64%
- --------------------------------------------------------------------------------
Since Inception 7.83% 7.35% 7.34% 7.23% 7.82%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE YIELDS
================================================================================
SHARE CLASS A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.29% 5.07% 4.55% 4.75% 5.50%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 5.06% 4.85% 4.32% 4.51% 5.30%
- --------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.78% 7.46% 6.65% 6.94% 8.15%
- --------------------------------------------------------------------------------
</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 B, 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 above do not
reflect imposition of the CDSC. Giving effect to the CDSC applicable to Class
B shares, the 1-year, 5-year and life-of-fund total returns above would be
3.07%, 5.92%, and 7.34%, respectively.
2 Based on SEC yield and a combined federal and state income tax rate of 35%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship Tennessee Municipal Bond Fund
May 31, 1997 Annual Report
* 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 (4.20%) and all ongoing fund
expenses.
Index Comparison*
[LINE CHART APPEARS HERE]
Lehman Brothers Nuveen Flagship Nuveen Flagship
Municipal Bond Tennesse Municipal Tennesse Municipal
Index Bond Fund (NAV) Bond Fund (Offer)
--------------- ------------------ ------------------
November 1987 10000 10000 9580
May 1988 10543.5 10441.4 10002.8
May 1989 11755.2 11892.2 11392.7
May 1990 12615.3 12520.5 11994.7
May 1991 13886.8 13725 13148.5
May 1992 15251.1 14912.3 14286
May 1993 17075.7 16789.6 16084.4
May 1994 17497.3 17049.9 16333.8
May 1995 19090.7 18421.5 17647.8
May 1996 19963.3 19118.1 18315.2
May 1997 21801.5 20591.3 19726.5
. Lehman Brothers Municipal Bond Index $21,801
. Nuveen Flagship Tennesse Municipal Bond Fund (NAV) $20,591
. Nuveen Flagship Tennesse Municipal Bond Fund (Offer) $19,726
Past performance is not predictive of future performance.
[BAR CHART APPEARS HERE]
Dividend History (A Shares)
June 1996 0.04775
July 1996 0.04955
Aug. 1996 0.04955
Sept. 1996 0.04795
Oct. 1996 0.04955
Nov. 1996 0.04795
Dec. 1996 0.04955
Jan. 1997 0.04968
Feb. 1997 0.0488
March 1997 0.0488
April 1997 0.0488
May 1997 0.0488
____
7
<PAGE>
FINANCIAL SECTION
CONTENTS
10 Portfolio of Investments
19 Statement of Net Assets
20 Statement of Operations
21 Statement of Changes in Net Assets
22 Notes to Financial Statements
28 Financial Highlights
30 Independent Auditors' Report
____
9
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP TENNESSEE
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION -- 5.4%
Metropolitan Government, Nashville and Davidson
County, Tennessee, Health and Education Facilities
Board Revenue Refunding and Improvement,
Meharry Medical College:
$ 1,000,000 6.000%, 12/01/19 12/17 at 100 AAA $ 1,064,760
4,000,000 5.000%, 12/01/24 6/09 at 100 AAA 3,673,120
Metropolitan Government, Nashville and Davidson
County, Tennessee, Health and Education Facilities
Board Revenue Refunding, Vanderbilt University
Series A:
1,000,000 7.625%, 5/01/08 5/98 at 102 AA 1,048,520
2,850,000 7.625%, 5/01/16 5/98 at 102 AA 2,988,282
3,705,000 Tennessee State School Bond Authority, Higher 5/02 at 101 1/2 AAA 3,886,137
Education Facilities, Series A, 6.250%, 5/01/22
2,000,000 Tennessee State School Bond Authority, Refunding, 5/06 at 102 AA 2,008,300
Higher Educational Facilities, Series C,
5.700%, 5/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
ESCROWED TO MATURITY -- 0.2%
2,205,000 Metropolitan Government, Nashville and Davidson No Opt. Call Aaa 484,946
County, Tennessee, Health and Education Facilities
Board Revenue, Subordinate Volunteer Healthcare,
0.000%, 6/01/21
- -----------------------------------------------------------------------------------------------------------------------------------
HOSPITALS -- 15.7%
1,265,000 Bristol, Tennessee, Health and Educational Facilities No Opt. Call AAA 1,443,770
Board Revenue Refunding, Bristol Memorial
Hospital, 6.750%, 9/01/10
1,930,000 Chattanooga, Tennessee, Health, Education and 9/01 at 102 AAA 2,079,247
Housing Facility Board Revenue, Memorial Hospital
Project, Series A, 6.600%, 9/01/12
Clarksville, Tennessee, Hospital Revenue Refunding
and Improvement, Clarksville Memorial Project:
1,000,000 6.250%, 7/01/08 7/03 at 102 Baa1 1,034,520
1,775,000 6.250%, 7/01/13 7/03 at 102 Baa1 1,797,099
1,250,000 6.375%, 7/01/18 7/03 at 102 Baa1 1,271,438
Cookeville, Tennessee, Industrial Development
Board Hospital Revenue Refunding, Cookeville
General Hospital Project:
4,550,000 5.750%, 10/01/10 12/03 at 102 A 4,448,217
1,000,000 5.625%, 10/01/16 10/06 at 102 A 975,760
</TABLE>
____
10
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> 10
HOSPITALS -- CONTINUED
$ 7,350,000 Jackson, Tennessee, Hospital Revenue Refunding and 4/05 at 102 AAA $ 7,368,669
Improvement, 5.625%, 4/01/15
4,000,000 Johnson City, Tennessee, Health and Educational 7/04 at 102 AAA 3,806,560
Facilities Board, Hospital Revenue Refunding,
Johnson City Medical Center Hospital,
5.000%, 7/01/13
2,090,000 Johnson City, Tennessee, Health and Educational 7/01 at 102 AAA 2,250,867
Facilities Board, Hospital Revenue Refunding and
Improvement, Johnson City Medical,
6.750%, 7/01/16
1,790,000 Knox County, Tennessee, Health Educational and 1/98 at 102 AAA 1,862,370
Housing Facilities Board Hospital Facilities
Revenue, Fort Sanders Regional Medical Center,
8.000%, 1/01/08
Knox County, Tennessee, Health Educational and
Housing Facilities Board, Hospital Facilities
Revenue Refunding, Fort Sanders Alliance:
1,000,000 6.250%, 1/01/13 No Opt. Call AAA 1,085,990
3,000,000 5.250%, 1/01/15 No Opt. Call AAA 2,937,510
Metropolitan Government Nashville and Davidson
County, Tennessee, Health and Education Facilities
Board Revenue, Hospital, Adventist Health System:
1,250,000 5.750%, 11/15/25 11/05 at 102 AAA 1,255,325
2,395,000 7.000%, 11/15/16 11/01 at 102 AAA 2,614,119
4,000,000 Shelby County, Tennessee, Health Educational and 8/05 at 102 AAA 3,887,960
Housing Facility Board Hospital Revenue, Formerly
Shelby County, Tennessee Health Educational
Refunding Methodist Health System, Inc.,
5.250%, 8/01/15
2,500,000 Sumner County, Tennessee, Health Educational and 11/04 at 102 A- 2,770,650
Housing Facilities Board Revenue Refunding,
Sumner Regional Health System Inc., Series 1994,
7.500%, 11/01/14
</TABLE>
____
11
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP TENNESSEE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/MULTIFAMILY -- 2.5%
$ 1,200,000 Chattanooga, Tennessee, Health Education and 7/03 at 102 Aaa $ 1,215,276
Housing Facility Board, Multifamily Mortgage
Revenue Refunding, Windridge Apartments,
Series A, 5.950%, 7/01/14
3,500,000 Franklin, Tennessee, Industrial Development Board, 10/06 at 102 AAA 3,519,670
Multifamily Revenue Refunding, Housing, Landings
Apartment Project, Series A, 6.000%, 10/01/26
Metropolitan Government Nashville and Davidson
County, Tennessee, Health and Education Facilities
Board Revenue, Housing, Mortgage, Herman Street:
250,000 7.000%, 6/01/17 6/02 at 103 AAA 267,710
495,000 7.250%, 6/01/32 6/02 at 103 AAA 525,799
1,250,000 Metropolitan Government Nashville and Davidson 10/98 at 103 AAA 1,311,825
County, Tennessee, Industrial Development Board
Revenue Refunding, Multifamily Housing, St. Paul
Retirement, Series A, 8.125%, 10/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY -- 6.7%
290,000 Hamilton County, Tennessee, Single Family Revenue, 9/00 at 102 AAA 304,970
Mortgage, Home Purchase and Rehabilitation
Program, 8.000%, 9/01/23
6,000,000 Tennessee Housing Development Agency, 7/06 at 102 AA 6,111,780
Homeownership Program, Issue 4A,
6.375%, 7/01/22
700,000 Tennessee Housing Development Agency, 7/98 at 103 AA 710,052
Homeownership Program, Issue J,
7.750%, 7/01/17
2,000,000 Tennessee Housing Development Agency, 7/99 at 103 AA 2,037,640
Homeownership Program, Series O,
7.750%, 7/01/20
805,000 Tennessee Housing Development Agency, 7/00 at 103 AA 846,675
Homeownership Program, Series P,
7.700%, 7/01/16
120,000 Tennessee Housing Development Agency, 7/01 at 102 Aa2 125,654
Homeownership Program, Issue U,
7.400%, 7/01/16
3,900,000 Tennessee Housing Development Agency, 7/01 at 102 Aa2 4,078,932
Homeownership Program, Issue T,
7.375%, 7/01/23
</TABLE>
____
12
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/SINGLE FAMILY -- CONTINUED
$ 2,695,000 Tennessee Housing Development Agency, 7/02 at 102 AA $ 2,811,478
Homeownership Program, Issue WR,
6.800%, 7/01/17
350,000 Tennessee Housing Development Agency, 7/02 at 102 AA 363,559
Homeownership Program, Issue XR,
6.875%, 7/01/22
1,000,000 Tennessee Housing Development Agency, Mortgage 7/04 at 102 A+ 1,046,590
Finance, Series A, 6.900%, 7/01/25
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL -- 18.5%
3,000,000 Chattanooga, Tennessee, Industrial Development Board, 7/03 at 103 A-1+ 3,210,570
Pollution Control Revenue, E.I.DuPont, Series A,
6.350%, 7/01/22
12,000,000 Humphreys County, Tennessee, Industrial Development 5/04 at 102 AA- 12,929,640
Board, Solid Waste Disposal Revenue, E.I. DuPont
Denemours and Company Project, 6.700%, 5/01/24
6,750,000 Loudon County, Tennessee, Industrial Development 2/03 at 102 AA 6,920,910
Board, Solid Waste Disposal Revenue, Kimberly
Clark Corporation Project, 6.200%, 2/01/23
7,000,000 Maury County, Tennessee, Industrial Development 9/04 at 102 A- 7,428,610
Board, Pollution Control Revenue, Multi Modal,
Refunding, Saturn Corporation Project,
6.500%, 9/01/24
2,500,000 McMinn County, Tennessee, Industrial Development 3/01 at 102 Baa1 2,715,650
Board, Pollution Control Revenue, Calhoun
Newsprint Company Project, Bowater, Series A,
7.625%, 3/01/16
4,950,000 McMinn County, Tennessee, Industrial Development 12/02 at 102 Baa1 5,351,198
Board, Solid Waste Revenue, Recycling Facility,
Calhoun Newsprint, Bowater, 7.400%, 12/01/22
Memphis, Shelby County, Tennessee, Airport
Authority, Special Facilities and Project Revenues,
Federal Express Corporation:
5,545,000 7.875%, 9/01/09 9/01 at 103 BBB 6,173,082
4,100,000 6.750%, 9/01/12 9/02 at 102 BBB 4,380,645
</TABLE>
____
13
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP TENNESSEE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL - CONTINUED
$ 250,000 Memphis, Shelby County, Tennessee, Industrial No Opt. Call A1 $ 287,688
Development Board, Industrial Development
Revenue, Colonial Baking Company, Memphis
Project, 9.500%, 4/01/01
1,245,000 South Fulton Inc., Tennessee, Industrial Development 10/05 at 102 A3 1,284,267
Board, Industrial Development Revenue, Tyson
Foods Inc. Project, 6.400%, 10/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL APPROPRIATION OBLIGATIONS - 2.2%
2,660,000 Tennessee State Local Development Authority 10/02 at 102 A- 2,846,785
Revenue, Community Provider, Loan Program,
7.000%, 10/01/21
1,500,000 Wilson County, Tennessee, Certificates of Participation, 6/04 at 102 A 1,555,920
Educational Facilities, 6.125%, 6/30/10
1,500,000 Wilson County, Tennessee, Certificates of Participation, 6/04 at 102 A 1,548,660
Educational Facilities, 6.250%, 6/30/15
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/OTHER - 1.8%
5,000,000 Metropolitan Government, Nashville and Davidson 7/06 at 101 AAA 5,042,550
County, Tennessee, Sports Authority Revenue,
Public Improvement, Stadium Project,
5.750%, 7/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/TRANSPORTATION - 1.8%
Metropolitan Nashville Airport Authority, Tennessee
Airport Revenue, Series C:
145,000 6.625%, 7/01/07 7/01 at 102 AAA 157,461
4,385,000 6.600%, 7/01/15 7/01 at 102 AAA 4,754,392
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/UTILITY - 8.9%
2,150,000 Dickson, Tennessee, Electric System Revenue, 9/08 at 102 AAA 2,135,918
5.500%, 9/01/16
Jackson, Tennessee, Electric System Revenue,
Series E:
315,000 6.300%, 8/01/09 8/00 at 102 A1 330,567
335,000 6.300%, 8/01/10 8/00 at 102 A1 350,330
355,000 6.300%, 8/01/11 8/00 at 102 A1 370,269
380,000 6.300%, 8/01/12 8/00 at 102 A1 395,474
3,000,000 Jackson, Tennessee, Natural Gas Revenue, 4/07 at 100 AAA 2,795,580
5.000%, 4/15/18
3,500,000 Lawrenceburg, Tennessee, Electric Revenue, 7/08 at 100 AAA 3,427,725
5.500%, 7/01/26
</TABLE>
____
14
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL REVENUE/UTILITY - CONTINUED
$ 3,000,000 Madison, Tennessee, Suburban Utility District 2/08 at 100 AAA $ 2,784,330
Waterworks Revenue, Refunding, 5.000%, 2/01/19
Metropolitan Government, Nashville and Davidson
County, Tennessee, Electric Revenue, Series A:
3,300,000 0.000%, 5/15/10 No Opt. Call AA 1,646,106
7,800,000 0.000%, 5/15/11 No Opt. Call AA 3,662,490
5,000,000 0.000%, 5/15/12 No Opt. Call AA 2,207,850
3,250,000 5.625%, 5/15/14 5/06 at 102 AA 3,297,710
1,000,000 Middle Tennessee Utility District Tennessee Natural 10/02 at 102 AAA 1,053,000
Gas Revenue, 6.250%, 10/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL REVENUE/WATER AND SEWER - 3.9%
1,520,000 Clarksville, Tennessee, Water Sewer and Gas No Opt. Call AAA 538,126
Revenue Refunding and Improvement,
0.000%, 2/01/16
1,125,000 Eastside Utility District, Hamilton County, Tennessee, 11/01 at 102 BBB+ 1,178,168
Waterworks Revenue, 6.750%, 11/01/11
140,000 Metropolitan Government, Nashville and Davidson 1/98 at 100 AAA 141,763
County, Tennessee, Water and Sewer Revenue,
Refunding,7.000%, 1/01/14
1,000,000 Milcrofton, Tennessee, Utility District Waterworks 2/06 at 102 N/R 980,740
Revenue, Tennessee Waterworks Revenue
Refunding, Junior Lien, 6.000%, 2/01/24
1,020,000 Mount Juliet, Tennessee, Public Building Authority 2/99 at 102 AAA 1,088,085
Revenue, Utility District Loan, Series D, Hermitage,
7.550%, 2/01/19
Tennessee State, Local Development Authority
Revenue, State Loan Program, Series A:
1,325,000 7.000%, 3/01/12 3/01 at 102 AA- 1,428,721
1,175,000 7.000%, 3/01/21 3/01 at 102 AA- 1,267,825
2,300,000 White House Utility District Tennessee, Robertson 1/02 at 102 AAA 2,426,017
and Sumner Counties, Waterworks System
Revenue Refunding and Improvement, Series B,
6.375%, 1/01/22
1,500,000 Wilson County, Tennessee, Water and Wastewater 3/08 at 102 Baa1 1,529,325
Authority, Waterworks Revenue Refunding and
Improvement, 6.000%, 3/01/14
</TABLE>
____
15
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP TENNESSEE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NON-STATE GENERAL OBLIGATIONS - 7.3%
Hamilton County, Tennessee:
$ 1,490,000 6.250%, 2/01/20 2/05 at 102 Aa2 $ 1,566,526
2,025,000 6.300%, 2/01/25 2/05 at 102 Aa2 2,139,595
5,000,000 Johnson City, Tennessee, School Sales Tax, 5/06 at 100 AAA 5,438,450
6.700%, 5/01/21
1,435,000 Memphis, Tennessee, Series B Airport, 7/98 at 102 AA 1,497,738
7.050%, 7/01/10
8,000,000 Metropolitan Government Nashville and Davidson 5/06 at 101 AA 8,168,240
Counties, Tennessee, Public Improvement,
5.875%, 5/15/21
1,000,000 Shelby County, Tennessee, Refunding, Series A, 4/05 at 101 AA+ 1,012,410
5.625%, 4/01/14
- --------------------------------------------------------------------------------------------------------------------------
PRE-REFUNDED - 13.6%***
Anderson County, Tennessee, Health and Educational
Facilities Board Revenue, Hospital, Refunding
Improvement Methodist Medical Center of Oak Ridge:
2,400,000 8.125%, 7/01/08 No Opt. Call A1 2,552,016
250,000 8.125%, 7/01/08 No Opt. Call AAA 265,890
1,500,000 Chattanooga, Tennessee, Municipal Public No Opt. Call AA- 1,603,470
Improvement Sewer Facility,
8.000%, 6/01/10
1,000,000 Chattanooga, Tennessee, Variable Purpose, No Opt. Call AA- 1,092,390
7.250%, 5/01/12
1,700,000 Clarksville, Tennessee, Water Sewer and Gas Revenue, No Opt. Call AAA 1,777,435
7.700%, 2/01/18
1,455,000 Gladeville, Tennessee, Utility District Waterworks No Opt. Call AAA 1,586,357
Revenue, 7.400%, 10/01/10
3,000,000 Knox County, Tennessee, Health Educational and No Opt. Call AAA 3,263,610
Housing Facilities Board, Hospital Facilities Revenue
Refunding, Mercy Health System, Cincinnati,
Series A, 7.600%, 9/01/19
3,065,000 Knox County, Tennessee, Health Educational and No Opt. Call AAA 3,308,085
Housing Facilities Board, Hospital Facilities Revenue,
Fort Sanders Alliance Obligation, Series C,
7.000%, 1/01/15
</TABLE>
____
16
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRE-REFUNDED - CONTINUED
$ 1,220,000 Metropolitan Government Nashville and Davidson No Opt. Call N/R $ 1,346,624
Counties, Tennessee, Health and Education Facilities
Board Revenue, Homes Inc. Project,
Series A, 9.000%, 10/01/22
2,500,000 Mount Juliet, Tennessee, Public Building Authority No Opt. Call AAA 3,107,525
Revenue, Utility District Loan, Series B, Madison
Suburban, 7.800%, 2/01/19
1,500,000 Northeast Knox Tennessee Utility District, Water No Opt. Call AAA 1,623,585
Revenue, 7.000%, 1/01/20
1,365,000 Puerto Rico Commonwealth, Refunding, No Opt. Call A 1,451,500
8.000%, 7/01/07
1,000,000 Puerto Rico Commonwealth Highway Authority, No Opt. Call AAA 1,065,010
Highway Revenue, Series P, 8.125%, 7/01/13
1,000,000 Puerto Rico Electric Power Authority, Power Revenue, No Opt. Call AAA 1,063,700
Formerly Puerto Rico Commonwealth Water
Resource Authority Power, Refunding, Series M,
8.000%, 7/01/08
865,000 Selmer, Tennessee, Refunding, No Opt. Call Baa 920,940
8.200%, 7/01/13
200,000 Sevier County, Tennessee, Public Building Authority, No Opt. Call AAA 210,194
Solid Waste Facility, 6.750%, 8/01/09
Shelby County, Tennessee, Health Educational and
Housing Facilities Board Revenue, Lebonheur
Children's Medical Center, Series C:
1,000,000 7.625%, 8/15/09 No Opt. Call AA 1,061,350
2,000,000 7.600%, 8/15/19 No Opt. Call AAA 2,122,140
4,000,000 Sullivan County, Tennessee, Health Educational and No Opt. Call AAA 4,352,920
Housing Facilities Board Revenue, Hospital,
Holston Valley Health Care, 7.250%, 2/15/20
125,000 Tennessee State School Bond Authority, Higher No Opt. Call AA 133,489
Educational Facilities, 7.000%, 5/01/20
1,000,000 West Knox Utility District, Knox County, Tennessee, No Opt. Call AAA 1,071,310
Water and Sewer Revenue, Improvement,
7.750%, 12/01/08
</TABLE>
____
17
<PAGE>
PORTFOLIO OF INVESTMENTS
NUVEEN FLAGSHIP TENNESSEE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRE-REFUNDED - CONTINUED
Wilson County, Tennessee, Water and Wastewater
Authority Waterworks Revenue Refunding
and Improvement:
$ 1,000,000 7.875%, 3/01/09 No Opt. Call N/R $ 1,077,400
950,000 8.000%, 3/01/14 No Opt. Call N/R 1,025,345
- ------------------------------------------------------------------------------------------------------------------------------
SPECIAL TAX REVENUE - 2.4%
6,275,000 Puerto Rico Commonwealth Highway and 7/16 at 100 A 6,102,875
Transportation Authority Highway Revenue,
Series Y, 5.500%, 7/01/36
500,000 Puerto Rico Commonwealth Highway and No Opt. Call AAA 505,990
Transportation Authority Highway Revenue,
Series W, 5.500%, 7/01/15
- ------------------------------------------------------------------------------------------------------------------------------
STATE/TERRITORIAL GENERAL OBLIGATIONS - 6.0%
385,000 Puerto Rico Commonwealth, Refunding, 7/98 at 102 A 408,797
8.000%, 7/01/07
16,100,000 Puerto Rico Public Buildings Authority Revenue No Opt. Call A 15,877,173
Guaranteed, Refunding, Series L, 5.500%, 7/01/21
- ------------------------------------------------------------------------------------------------------------------------------
$ 266,785,000 Total Investments - (cost 264,745,972 $250,892,508) - 96.9%
- ------------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES - 1.6%
$ 4,500,000 Metropolitan Nashville (AMR), Series B, Variable Rate Demand Bonds,
4.000%, 10/01/02+ AAA 4,500,000
- ------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 4,063,398
------------------------------------------------------------------------------------------------
Net Assets - 100% $273,309,370
================================================================================================
* 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.
*** Pre-refunded 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. Pre-refunded
securities are normally considered to be
equivalent to AAA-rated securities.
N/R - Investment is not rated.
+ The security has a maturity of more than one
year, but has variable rate and demand
features which qualify it as a short-term
security. The rate disclosed is that
currently in effect. This rate changes
periodically based on market conditions or a
specified market index.
</TABLE>
____
18 See accompanying notes to financial statements.
<PAGE>
Nuveen Municipal Bond Fund
STATEMENT OF NET ASSETS May 31, 1997 Annual Report
MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
TENNESSEE
- --------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $264,745,972
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 4,500,000
Cash 581,246
Receivables:
Interest 4,808,256
Shares sold 309,104
Other assets 60,879
- --------------------------------------------------------------------------------------------
Total assets 275,005,457
- --------------------------------------------------------------------------------------------
LIABILITIES
Payable for Shares redeemed 241,504
Accrued expenses:
Management fees (note 6) 102,351
12b-1 distribution and service fees (notes 1 and 6) 53,587
Other 97,579
Dividends payable 1,201,066
- --------------------------------------------------------------------------------------------
Total liabilities 1,696,087
- --------------------------------------------------------------------------------------------
Net assets (note 7) $273,309,370
============================================================================================
CLASS A SHARES (NOTE 1)
Net assets $257,475,423
Shares outstanding 23,281,377
Net asset value and redemption price per share $ 11.06
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.54
============================================================================================
CLASS B SHARES (NOTE 1)
Net assets $ 536,952
Shares outstanding 48,528
Net asset value, offering and redemption price per share $ 11.06
============================================================================================
CLASS C SHARES (NOTE 1)
Net assets $ 15,049,410
Shares outstanding 1,361,620
Net asset value, offering and redemption price per share $ 11.05
============================================================================================
CLASS R SHARES (NOTE 1)
Net assets $ 247,585
Shares outstanding 22,423
Net asset value, offering and redemption price per share $ 11.04
============================================================================================
</TABLE>
____
19 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
TENNESSEE *
- --------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $ 16,788,455
- --------------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 1,392,750
12b-1 service fees -- Class A (notes 1 and 6) 852,686
12b-1 distribution and service fees -- Class B (notes 1 and 6) 761
12b-1 distribution and service fees -- Class C (notes 1 and 6) 137,228
Shareholders' servicing agent fees and expenses 164,828
Custodian's fees and expenses 99,627
Trustees' fees and expenses (note 6) 6,150
Professional fees 22,843
Shareholders' reports -- printing and mailing expenses 25,459
Federal and state registration fees 14,527
Other expenses 10,300
- --------------------------------------------------------------------------------------------
Total expenses before reimbursement 2,727,159
Expense reimbursement (note 6) (341,259)
- --------------------------------------------------------------------------------------------
Net expenses 2,385,900
- --------------------------------------------------------------------------------------------
Net investment income 14,402,555
- --------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 1,595,041
Net change in unrealized appreciation or depreciation of investments 3,989,675
- --------------------------------------------------------------------------------------------
Net gain from investments 5,584,716
- --------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 19,987,271
============================================================================================
</TABLE>
* Information represents eight months of Flagship Tennessee and four months of
Nuveen Flagship Tennessee (see note 1 of the Notes to Financial Statements).
____
20
<PAGE>
Nuveen Municipal Bond Fund
STATEMENT OF CHANGES IN NET ASSETS May 31, 1997 Annual Report
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
TENNESSEE * TENNESSEE
--------------------------------------------
YEAR ENDED 1/31/97 YEAR ENDED 1/31/97
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 14,402,555 $ 13,837,178
Net realized gain from investment transactions
Notes 1 and 4) 1,595,041 7,163
Net change in unrealized appreciation or depreciation
of investments 3,989,675 (4,307,255)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 19,987,271 9,537,086
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (13,649,276) (13,267,447)
Class B (3,542) N/A
Class C (744,238) (682,508)
Class R (2,064) N/A
- --------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (14,399,120) (13,949,955)
- --------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 27,836,928 39,204,201
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 7,269,232 7,501,429
- --------------------------------------------------------------------------------------------------------
35,106,160 46,705,630
- --------------------------------------------------------------------------------------------------------
Cost of shares redeemed (33,754,624) (30,194,633)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 1,351,536 16,510,997
- --------------------------------------------------------------------------------------------------------
Net increase in net assets 6,939,687 12,098,128
- --------------------------------------------------------------------------------------------------------
Net assets at the beginning of year 266,369,683 254,271,555
- --------------------------------------------------------------------------------------------------------
Net assets at the end of year 273,309,370 $ 266,369,683
- --------------------------------------------------------------------------------------------------------
Balance of undistributed net investment income at end of year $ 3,435 $ --
========================================================================================================
</TABLE>
* Information represents eight months of Flagship Tennessee and four months
of Nuveen Flagship Tennessee (see note 1 of the Notes to Financial
Statements).
N/A -- Flagship Tennessee was not authorized to issue Class B or Class R Shares.
____
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises Nuveen Flagship Tennessee 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 Tennessee Double Tax
Exempt Fund ("Flagship Tennessee") was reorganized into the Trust and renamed
Nuveen Flagship Tennessee Municipal Bond Fund ("Nuveen Flagship Tennessee").
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 purchase 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.
____
22
<PAGE>
NUVEEN MUNICIPAL BOND FUND
MAY 31, 1997 ANNUAL REPORT
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 Tennessee 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, 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 and Tennessee state 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, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
FLEXIBLE SALES CHARGE PROGRAM
The Fund offers Class A, B, C and R Shares. Class B and R Shares were first
offered for sale on February 1, 1997. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class B Shares are sold without a
sales charge but incur annual 12b-1 distribution and service fees. An investor
purchasing Class B Shares agrees to pay a contingent deferred sales charge
("CDSC") of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). 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 18 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.
____
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
____
24
<PAGE>
NUVEEN MUNICIPAL BOND FUND
MAY 31, 1997 ANNUAL REPORT
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP FLAGSHIP
TENNESSEE* TENNESSEE
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
5/31/97 5/31/96
- ---------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold:
Class A 2,181,165 $ 23,957,505 3,011,203 $ 33,202,281
Class B 48,526 533,276 N/A N/A
Class C 282,598 3,100,098 542,572 6,001,920
Class R 22,306 246,049 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 619,521 6,805,317 636,833 7,027,667
Class B 66 718 N/A N/A
Class C 42,079 461,759 42,969 473,762
Class R 131 1,438 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
3,196,392 35,106,160 4,233,577 46,705,630
- ---------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,682,025) (29,442,527) (2,452,182) (27,004,837)
Class B (64) (699) N/A N/A
Class C (393,458) (4,311,248) (290,776) (3,189,796)
Class R (14) (150) N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
(3,075,561) (33,754,624) (2,742,958) (30,194,633)
- ---------------------------------------------------------------------------------------------------------------------
Net increase 120,831 $ 1,351,536 1,490,619 $ 16,510,997
=====================================================================================================================
</TABLE>
* Information represents eight months of Flagship Tennessee and four months of
Nuveen Flagship Tennessee (see note 1).
N/A -- Flagship Tennessee was not authorized to issue Class B or R Shares.
3. DISTRIBUTIONS TO SHAREHOLDERS
On June 9, 1997, the Fund declared a dividend distribution from its tax-exempt
net investment income which was paid on July 1, 1997, to shareholders of record
on June 9, 1997, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
TENNESSEE
- --------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0490
Class B .0420
Class C .0435
Class R .0505
- --------------------------------------------------------------------------------
</TABLE>
____
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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
TENNESSEE*
- --------------------------------------------------------------------------------
<S> <C>
PURCHASES
Investments in municipal securities $62,364,697
Temporary municipal investments 5,500,000
SALES
Investments in municipal securities 67,024,956
Temporary municipal investments 1,000,000
================================================================================
</TABLE>
* Information represents eight months of Flagship Tennessee and four months of
Nuveen Flagship Tennessee (see note 1).
At May 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 May 31, 1997, the Fund had an unused capital loss carryforward of $3,996,954
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 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At May 31, 1997, net unrealized appreciation aggregated $13,853,464, of which
$13,872,366 related to appreciated securities and $18,902 related to depreciated
securities.
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>
____
26
<PAGE>
NUVEEN MUNICIPAL BOND FUND
MAY 31, 1997 ANNUAL REPORT
Prior to the reorganization (see note 1) Flagship Tennessee 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 of approximately
$612,200 of which approximately $526,600 were paid out as concessions to
authorized dealers. 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 $52,900 in commission
advances at the time of purchase. To compensate for commissions advanced to
authorized dealers, all 12b-1 service fees collected on Class B Shares during
the first year following a purchase, all 12b-1 distribution fees collected on
Class B Shares, 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 their investments.
The Distributor and its predecessor also collected and retained approximately
$6,100 of CDSC on share redemptions during the fiscal year ended 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
TENNESSEE
- ---------------------------------------------------------------------------------
<S> <C>
Capital paid-in $263,449,425
Balance of undistributed net investment income 3,435
Accumulated net realized gain (loss) from investment transactions (3,996,954)
Net unrealized appreciation of investments 13,853,464
- ---------------------------------------------------------------------------------
Net assets $273,309,370
=================================================================================
</TABLE>
____
27
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- ------------------------
NET
NUVEEN FLAGSHIP TENNESSEE++ 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 (11/87)
1997 $10.83 $.59 $ .23 $ (.59) $ - $11.06 7.71%
1996 11.01 .59 (.18) (.59) - 10.83 3.78
1995 10.78 .60 .23 (.60) - 11.01 8.04
1994 11.23 .61 (.43) (.61) (.02) 10.78 1.55
1993 10.56 .62 .68 (.63) - 11.23 12.60
1992 10.34 .65 .22 (.65) - 10.56 8.66
1991 10.09 .67 .26 (.67) (.01) 10.34 9.73
1990 10.26 .67 (.15) (.67) (.02) 10.09 5.53
1989 9.65 .68 .60 (.67) - 10.26 13.89
1988(c) 9.58 .35 .09 (.37) - 9.65 7.50+
CLASS B (2/97)
1997(c) 11.14 .14 (.09) (.13) - 11.06 .42
CLASS C (10/93)
1997 10.82 .53 .23 (.53) - 11.05 7.12
1996 11.00 .53 (.18) (.53) - 10.82 3.22
1995 10.78 .54 .22 (.54) - 11.00 7.35
1994(c) 11.61 .35 (.83) (.34) (.01) 10.78 (5.92)+
CLASS R (2/97)
1997(c) 11.09 .20 (.05) (.20) - 11.04 1.40
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Information included prior to the year ending May 31, 1997,
reflects the financial highlights of Flagship Tennessee.
(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.
____
28
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
RATIO RATIO
OF NET OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME TO EXPENSES INCOME TO
TO AVERAGE AVERAGE TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (B) MENT (B) RATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$257,475 .97% 5.23% .85% 5.35% 23%
250,886 1.01 5.17 .88 5.30 38
241,778 1.07 5.46 .89 5.64 23
236,230 1.02 5.16 .76 5.42 17
191,811 1.05 5.49 .88 5.66 15
126,833 1.04 5.98 .84 6.18 35
92,431 1.07 6.29 .76 6.60 30
73,752 1.08 6.27 .78 6.57 56
62,048 1.18 6.24 .62 6.80 50
23,725 1.29+ 5.53+ .47+ 6.35+ 23
537 1.60+ 4.49+ 1.37+ 4.72+ 23
15,049 1.53 4.67 1.40 4.80 23
15,483 1.56 4.62 1.43 4.75 38
12,494 1.62 4.90 1.44 5.08 23
10,652 1.63+ 4.40+ 1.23+ 4.80+ 17
248 .66+ 5.55+ .46+ 5.75+ 23
- ----------------------------------------------------------------------------------------------------
</TABLE>
____
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND:
We have audited the accompanying statement of net assets of Nuveen Flagship
Tennessee 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. 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
Tennessee 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
____
30
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP TENNESSEE
<TABLE>
<CAPTION>
A SHARES C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVISORY AGREEMENT For 17,052,669 1,083,828
Against 293,133 15,166
Abstain 396,163 14,917
--------------------------------------------------
Total 17,741,965 1,113,911
- --------------------------------------------------------------------------------
Broker Non Votes 294,847 41,820
- --------------------------------------------------------------------------------
REORGANIZATION For 12,071,192 504,755
Against 325,509 23,011
Abstain 440,804 13,468
--------------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE For 11,982,460 493,436
Against 773,641 46,626
Abstain 81,404 1,172
--------------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------
INVESTMENT ASSETS For 11,992,269 493,436
Against 770,291 46,626
Abstain 74,945 1,172
--------------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------
TYPE OF SECURITIES For 11,987,472 493,729
Against 763,678 47,505
Abstain 86,356 --
--------------------------------------------------
Total 12,837,506 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,306 614,497
- --------------------------------------------------------------------------------
BORROWING For 11,967,934 493,436
Against 782,715 47,505
Abstain 86,856 293
--------------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------
PLEDGES For 11,954,969 493,436
Against 794,496 47,505
Abstain 88,040 293
--------------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
--------------------------------------------------
</TABLE>
____
31
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP TENNESSEE
- CONTINUTED
<TABLE>
<CAPTION>
A SHARES C SHARES
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
SENIOR SECURITIES For 11,984,673 494,315
Against 770,729 46,626
Abstain 82,103 293
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------------
UNDERWRITING For 1 1,988,640 494,315
Against 763,640 46,626
Abstain 85,225 293
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------------
REAL ESTATE For 1 1,982,055 494,315
Against 788,625 46,626
Abstain 66,825 293
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------------
COMMODITIES For 1 1,916,105 494,315
Against 822,977 46,626
Abstain 98,423 293
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------------
LOANS For 1 1,977,317 494,315
Against 774,954 46,626
Abstain 85,234 293
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------------
SHORT SALES/MARGIN PURCHASES For 1 1,946,177 494,315
Against 799,310 46,626
Abstain 92,018 293
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------------
PUT AND CALL OPTIONS For 1 1,937,423 493,354
Against 798,821 47,880
Abstain 101,261 --
--------------------------------------------------
Total 1 2,837,505 541,234
- --------------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
--------------------------------------------------
</TABLE>
____
32
<PAGE>
Nuveen Municipal Bond Fund
May 31, 1997 Annual Report
<TABLE>
<CAPTION>
A SHARES C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRY CONCENTRATION For 11,989,315 494,315
Against 771,263 46,626
Abstain 76,928 293
--------------------------------------------
Total 12,837,506 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,306 614,497
- --------------------------------------------------------------------------------
AFFILIATE PURCHASES For 11,978,396 494,315
Against 773,674 46,626
Abstain 85,435 293
--------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES For 11,965,931 494,315
Against 799,735 46,626
Abstain 71,839 293
--------------------------------------------
Total 12,837,505 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,307 614,497
- --------------------------------------------------------------------------------
DIV VS. NON-DIV For 11,977,637 494,315
Against 772,359 46,626
Abstain 87,510 293
--------------------------------------------
Total 12,837,506 541,234
- --------------------------------------------------------------------------------
Broker Non Votes 5,199,306 614,497
- --------------------------------------------------------------------------------
12B-1 FEES For 16,914,418 1,053,734
Against 338,747 25,849
Abstain 511,664 34,328
--------------------------------------------
Total 17,764,829 1,113,911
- --------------------------------------------------------------------------------
Broker Non Votes 271,983 41,820
--------------------------------------------
</TABLE>
____
33
<PAGE>
SHAREHOLDER MEETING REPORT
FLAGSHIP TENNESSEE
- CONTINUED
<TABLE>
<CAPTION>
A SHARES C SHARES
- --------------------------------------------------------------------------------
DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(A) Bremner For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(B) Brown For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(C) Dean For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(D) Impellizzeri For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(E) Rosenheim For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(F) Sawers For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(G) Schneider For 17,576,454 1,118,392
Withhold 460,358 37,339
-------------------------------------------------
Total 18,036,812 1,155,731
- --------------------------------------------------------------------------------
(H) Schwertfeger For 17,576,454 1,118,392
-------------------------------------------------
Withhold 460,358 37,339
- --------------------------------------------------------------------------------
Total 18,036,812 1,155,731
-------------------------------------------------
</TABLE>
____
34
<PAGE>
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your financial
goals.
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
Intermediate-Term
Limited-Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
SHAREHOLDER INFORMATION
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
____
35
<PAGE>
FUND INFORMATION
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND
DIVIDEND DISBURSING AGENT
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Dayton, Ohio
____
36
<PAGE>
[PHOTO OF John Nuveen, Sr. APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
SERVING INVESTORS
FOR GENERATIONS
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
trusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of equity and fixed-income mutual funds,
unit trusts, exchange-traded funds, individual managed account services, and
cash management products, including many that generate tax-free income.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
<PAGE>
PART C--OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements:
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information through incorporation
by reference to each Fund's most recent Annual Reports:
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Report of Independent Public Accountants
(b) Exhibits:
<TABLE>
<C> <S>
1(a). Declaration of Trust of Registrant. Filed as Exhibit 1(a) to Regis-
trant's Registration Statement on Form N-1A (File No. 333-16611) and
incorporated herein by reference thereto.
1(b). Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest dated October 11, 1996. Filed as Ex-
hibit 1(b) to Registrant's Registration Statement on Form N-1A (File
No. 333-16611) and incorporated herein by reference thereto.
1(c). Certificate for the Establishment and Designation of Classes dated
July 10, 1996. Filed as Exhibit 1(c) to Registrant's Registration
Statement on Form N-1A (File No. 333-16611) and incorporated herein
by reference thereto.
2. By-Laws of Registrant. Filed as Exhibit 2 to Registrant's Registra-
tion Statement on Form N-1A (File No. 333-16611) and incorporated
herein by reference thereto.
3. Not applicable.
4. Specimen certificates of Shares of each Fund. Filed as Exhibit 4 to
Registrant's Registration Statement on Form N-1A (File No. 333-16611)
and incorporated herein by reference thereto.
5. Investment Management Agreement between Registrant and Nuveen Advi-
sory Corp.
5(a). Renewal of Investment Management Agreement dated May 20, 1997.
6. Distribution Agreement between Registrant and John Nuveen & Co. In-
corporated.
6(a). Renewal of Distribution Agreement dated July 31, 1997.
7. Not applicable.
8. Custodian Agreement between Registrant and Chase Manhattan Bank.
9. Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11. Consent of Deloitte & Touche LLP, Independent Auditors.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule 12b-1 for the Class
A Shares, Class B Shares and Class C Shares of each Fund. Filed as
Exhibit 15 to Registrant's Registration Statement on Form N-1A (File
No. 333-16611) and incorporated herein by reference thereto.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Exhibit 18
to Registrant's Registration Statement on Form N-1A (File No. 333-
16611) and incorporated herein by reference thereto.
99(a). Original Powers of Attorney for the Trustees authorizing, among oth-
ers, Gifford R. Zimmerman and Larry W. Martin to execute the Regis-
tration Statement.
99(b). Certified copy of Resolution of Board of Trustees authorizing the
signing of the names of trustees and officers on the Registrant's
Registration Statement pursuant to power of attorney. Filed as Ex-
hibit 99(b) to Registrant's Registration Statement on Form N-1A (File
No. 333-16611) and incorporated herein by reference thereto.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
C-1
<PAGE>
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES
At September 4, 1997:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
--------------- --------------
Nuveen Flagship Alabama Municipal Bond Fund
<S> <C>
Class A Shares........................................... 113
Class B Shares........................................... 7
Class C Shares........................................... 9
Class R Shares........................................... 9
Nuveen Georgia Municipal Bond Fund
Class A Shares........................................... 2,457
Class B Shares........................................... 16
Class C Shares........................................... 256
Class R Shares........................................... 14
Nuveen Flagship Louisiana Municipal Bond Fund
Class A Shares........................................... 1,136
Class B Shares........................................... 19
Class C Shares........................................... 123
Class R Shares........................................... 8
Nuveen Flagship North Carolina Municipal Bond Fund
Class A Shares........................................... 4,366
Class B Shares........................................... 25
Class C Shares........................................... 265
Class R Shares........................................... 34
Nuveen Flagship South Carolina Municipal Bond Fund
Class A Shares........................................... 198
Class B Shares........................................... 7
Class C Shares........................................... 17
Class R Shares........................................... 9
Nuveen Flagship Tennessee Municipal Bond Fund
Class A Shares........................................... 6,263
Class B Shares........................................... 23
Class C Shares........................................... 397
Class R Shares........................................... 13
</TABLE>
C-2
<PAGE>
ITEM 27: INDEMNIFICATION
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith,
C-3
<PAGE>
gross negligence and willful disregard of duty (i.e., where the insured did not
act in good faith for a purpose he or she reasonably believed to be in the best
interest of Registrant or where he or she shall have had reasonable cause to
believe this conduct was unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Flagship
Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free
Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. It also serves as investment adviser to the following
closed-end management type investment companies: Nuveen Municipal Value Fund,
Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal
Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen
California Performance Plus Municipal Fund, Inc., Nuveen New York Performance
Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen
Municipal Market Opportunity Fund, Inc., Nuveen California Municipal Market
Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen
California Investment Quality Municipal Fund, Inc., Nuveen New York Investment
Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc.,
Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment
Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal
Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select
Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund,
Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, and Nuveen Insured Premium Income Municipal Fund 2. Nuveen
Advisory Corp. has no other clients or business at the present time. The
principal business address for all of these investment companies is 333 West
Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Schwertfeger has, during the last two years, been
Chairman and Director and formerly Executive Vice President and Director of the
John Nuveen Company, John Nuveen & Co. Incorporated, and Nuveen Institutional
Advisory Corp. Anthony T. Dean is President and Director of Nuveen Advisory
Corp., the investment adviser. Mr. Dean has, during the last two years, been
President (since July 1996) and Director and formerly Executive Vice President
and Director of The John Nuveen Company, John Nuveen & Co. Incorporated and
Nuveen Institutional Advisory Corp.
C-4
<PAGE>
ITEM 29: PRINCIPAL UNDERWRITERS
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies: Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship
Municipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., Nuveen Tax-Free
Reserves, Inc., Flagship Admiral Funds Inc., and Nuveen Investment Trust.
Nuveen also acts as depositor and principal underwriter of the Nuveen Tax-
Exempt Unit Trust, and Nuveen Unit Trusts, registered unit investment trusts.
Nuveen has also served or is serving as co-managing underwriter to the
following closed-end management type investment companies: Nuveen Municipal
Value Fund, Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York
Municipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium
Income Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc.,
Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York
Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc.,
Nuveen Municipal Market Opportunity Fund, Inc., Nuveen California Municipal
Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc.,
Nuveen California Investment Quality Municipal Fund, Inc., Nuveen New York
Investment Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund,
Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey
Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality
Municipal Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California
Select Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal
Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured
Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund,
Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc., Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2, Nuveen Select
Tax-Free Income Portfolio, Nuveen Select Tax-Free Income Portfolio 2, Nuveen
Insured California Select Tax-Free Income Portfolio, Nuveen Insured New York
Select Tax-Free Income Portfolio and Nuveen Select Tax-Free Income Portfolio 3.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- --------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger Chairman of the Board, Chairman of the Board
333 West Wacker Drive Chief Executive Officer and Trustee
Chicago, IL 60606
Anthony T. Dean President President and Trustee
333 West Wacker Drive
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West Wacker Drive Chica-
go, IL 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Richard P. Davis Vice President None
One South Main Street Dayton,
OH 45402
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ----------------------------------------------------------------------------------
<S> <C> <C>
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Stephen D. Foy Vice President None
333 West Wacker Drive
Chicago, IL 60606
Robert D. Freeland Vice President None
333 West Wacker Drive
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Robert B. Kuppenheimer Vice President None
19900 MacArthur Blvd.
Irvine, CA 92612
Larry W. Martin Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Assistant Secretary
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, IL 60606
O. Walter Renfftlen Vice President Vice President and
333 West Wacker Drive and Controller Controller
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Assistant Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
C-6
<PAGE>
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004 maintains
all general and subsidiary ledgers, journals, trial balances, records of all
portfolio purchases and sales, and all other required records not maintained by
Nuveen Advisory Corp., Shareholder Services, Inc. or Boston Financial.
Boston Financial Data Services, 225 Franklin Street, Boston, Massachusetts
02106 maintain all the required records in their capacity as transfer, dividend
paying, and shareholder service agents for the Funds.
ITEM 31: MANAGEMENT SERVICES
Not applicable.
ITEM 32: UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest Annual Report to Sharehold-
ers upon request and without charge.
(d) The Registrant agrees to call a meeting of shareholders for the purpose of
voting upon the question of the removal of any trustee or trustees when re-
quested to do so in writing by the record holders of at least 10% of the Reg-
istrant's outstanding shares and to assist the shareholders in communications
with other shareholders as required by section 16(c) of the Act.
C-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (B) OF RULE 485
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 22ND DAY OF
SEPTEMBER, 1997.
NUVEEN FLAGSHIP MULTISTATE TRUST III
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ O. Walter Renfftlen
-------------------------------
O. Walter Renfftlen Vice President and September 22, 1997
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal
Executive Officer)
Anthony T. Dean President and Trustee
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
William J. Schneider Trustee
Judith M. Stockdale Trustee
</TABLE>
/s/ Gifford R. Zimmerman
By____________________________
Gifford R. Zimmerman
Attorney-in-Fact
September 22, 1997
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, GIFFORD R. ZIMMERMAN
AND LARRY W. MARTIN TO EXECUTE THIS REGISTRATION STATEMENT, AND AMENDMENTS
THERETO, FOR EACH OF THE OFFICERS AND TRUSTEES OF REGISTRANT ON WHOSE BEHALF
THIS REGISTRATION STATEMENT IS FILED, HAS BEEN EXECUTED AND IS FILED AS AN
EXHIBIT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
5. Investment Management Agreement between Registrant
and Nuveen Advisory Corp.
5(a). Renewal of Investment Management Agreement dated May
20, 1997.
6. Distribution Agreement between Registrant and John
Nuveen & Co. Incorporated.
6(a). Renewal of Distribution Agreement dated July 31,
1997.
8. Custodian Agreement between Registrant and Chase Man-
hattan Bank.
9. Form of Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust Company.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11. Consent of Deloitte & Touche LLP, Independent Audi-
tors.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
99(a). Original Powers of Attorney for the Trustees autho-
rizing, among others, Gifford R. Zimmerman and Larry
W. Martin to execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
<PAGE>
EXHIBIT 5
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
AGREEMENT made as of the 1st day of February, 1997, by and between NUVEEN
FLAGSHIP MULTISTATE TRUST III, Massachusetts business trust (the "Fund"), and
NUVEEN ADVISORY CORP., a Delaware corporation (the "Adviser").
W I T N E S S E T H
-------------------
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for,
and to manage the investment and reinvestment of the assets of each of the
Fund's series as set forth on Exhibit A attached hereto (the "Portfolios") or as
may exist from time to time in accordance with the Fund's investment objective
and policies and limitations relating to such Portfolio, and to administer the
Fund's affairs to the extent requested by and subject to the supervision of the
Board of Trustees of the Fund for the period and upon the terms herein set
forth. The investment of the assets of each Portfolio shall be subject to the
Fund's policies, restrictions and limitations with respect to securities
investments as set forth in the Fund's registration statement on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 covering the
Fund's Portfolios' shares of beneficial interest, including the Prospectus and
Statement of Additional Information forming a part thereof, all as filed with
the Securities and Exchange Commission and as from time to time amended, and all
applicable laws and the
<PAGE>
regulations of the Securities and Exchange Commission relating to the management
of registered open-end, management investment companies.
The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and administrative services (other than such services, if any, provided by the
Fund's custodian, transfer agent and shareholder service agent, and the like)
for the Fund, to permit any of its officers of employees to serve without
compensation as trustees or officers of the Fund if elected to such positions,
and to assume the obligations herein set forth for the compensation herein
provided. The Adviser shall, for all purposes herein provided, be deemed to be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Fund in any
way, nor otherwise be deemed an agent of the Fund.
2. For the services and facilities described in Section 1, the Fund will pay to
the Adviser, at the end of each calendar month, an investment management fee
related to each of the Fund's Portfolios. For each Portfolio, calculated
separately, the fees shall be computed at the rate of:
Rate Net Assets
---- ----------
.5500% For the first $125 million
.5375% For the next $125 million
.5250% For the next $250 million
.5125% For the next $500 million
.5000% For the next $1 billion
.4750% For assets over $2 billion
2
<PAGE>
For the month and year in which this Agreement becomes effective, or terminates,
and for any month and year in which a Portfolio is added or eliminated from the
Fund, there shall be an appropriate proration on the basis of the number of days
that the Agreement shall have been in effect, or the Portfolio shall have
existed, during the month and year, respectively. The services of the Adviser to
the Fund under this Agreement are not to be deemed exclusive, and the Adviser
shall be free to render similar services or other services to others so long as
its services hereunder are not impaired thereby.
3. The net asset value of each Portfolio shall be calculated as provided in
the Declaration of Trust of the Fund. On each day when net asset value is not
calculated, the net asset value of a share of beneficial interest of a Portfolio
shall be deemed to be the net asset value of such share as of the close of
business on the last day on which such calculation was made for the purpose of
the foregoing computations.
4. Regardless of any of the above provisions, the Adviser guarantees that the
total expenses of each Portfolio in any fiscal year, exclusive of taxes,
interest, brokerage commissions, and extraordinary expenses such as litigation
costs, shall not exceed, and the Adviser undertakes to pay or refund to the
Portfolio any amount up to but not greater than the aggregate fees received by
the Adviser under this Agreement for such fiscal year, the limitation imposed by
any jurisdiction in which the Fund continues to offer and sell shares of the
Portfolio after exceeding such limitation. Except as otherwise agreed to by the
Fund or the Adviser or unless otherwise required by the law or regulation of any
State, any reimbursement by the Adviser to a Portfolio
3
<PAGE>
under this section shall not exceed the management fee payable to the Adviser by
a Portfolio under this Agreement.
5. The Adviser shall arrange for officers or employees of the Adviser to serve,
without compensation from the Fund, as trustees, officers or agents of the Fund,
if duly elected or appointed to such positions, and subject to their individual
consent and to any limitations imposed by law.
6. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested in the
Adviser as officers, directors, agents shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested in
the Fund otherwise than as trustees, officers or agents.
7. The Adviser shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
4
<PAGE>
8. The Adviser currently manages other investment accounts and funds,
including those with investment objectives similar to the Fund, and reserves the
right to manage other such accounts and funds in the future. Securities
considered as investments for a Portfolio of the Fund may also be appropriate
for other Portfolios or for other investment accounts and funds that may be
managed by the Adviser. Subject to applicable laws and regulations, the Adviser
will attempt to allocate equitably portfolio transactions among the Fund's
Portfolios and the portfolios of its other investment accounts and funds
purchasing securities whenever decisions are made to purchase or sell securities
by a Portfolio and another fund's portfolio or one or more of such other
accounts or funds simultaneously. In making such allocations, the main factors
to be considered by the Adviser will be the respective investment objectives of
the Fund Portfolio or Portfolios purchasing such securities and such other
accounts and funds, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment by the Fund
Portfolios and such other accounts and funds, the size of investment commitments
generally held by the Fund Portfolios and such accounts and funds, and the
opinions of the persons responsible for recommending investments to the Fund and
such other accounts and funds.
9. This Agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and shall continue in
force from year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
Investment Company Act of 1940.
5
<PAGE>
This Agreement shall automatically terminate in the event of its assignment, and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser upon sixty (60) days' written notice to the other party. The Fund
may effect termination by action of the Board of Trustees, or, with respect to
any Fund Portfolio, by vote of a majority of the outstanding voting securities
of that Portfolio, accompanied by appropriate notice.
This Agreement may be terminated, at any time, without the payment of any
penalty, by the Board of Trustees of the Fund, or, with respect to any Fund
Portfolio, by vote of a majority of the outstanding voting securities of that
Portfolio, in the event that it shall have been established by a court of
competent jurisdiction that the Adviser, or any officer or director of the
Adviser, has taken any action which results in a breach of the covenants of the
Adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation, described in Section
2, earned prior to such termination.
10. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
6
<PAGE>
11. The Adviser and its affiliates reserve the right to grant, at any time, the
use of the name "Nuveen" or the name "Flagship", or any approximation or
abbreviation thereof, to any other investment company or business enterprise.
Upon termination of this Agreement by either party, or by its terms, the Fund
shall thereafter refrain from using any name of the Fund which includes "Nuveen"
or "Flagship" or any approximation or abbreviation thereof, or is sufficiently
similar to such name as to be likely to cause confusion with such name, and
shall not allude in any public statement or advertisement to the former
association.
12. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for receipt of such notice.
13. The Fund's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This Agreement is executed on behalf of the Fund
by the Fund's officers as officers and not individually and the obligations
imposed upon the Fund by this Agreement are not binding upon any of the Fund's
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Fund.
7
<PAGE>
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
NUVEEN FLAGSHIP MULTISTATE TRUST III
By: /s/ Gifford R. Zimmerman
---------------------------
Vice President
Attest: /s/ Karen L. Healy
---------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By: /s/ J. Thomas Futrell
---------------------------
Vice President
Attest: /s/ Larry Martin
---------------------------
Assistant Secretary
8
<PAGE>
Exhibit A
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
<PAGE>
EXHIBIT 5(a)
NUVEEN FLAGSHIP MULTISTATE TRUST III
------------------------------------
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
------------------------------------------
This Agreement made this 20th day of May, 1997 by and between Nuveen Flagship
Multistate Trust III, a Massachusetts business trust (the "Fund"), and Nuveen
Advisory Corp., a Delaware corporation (the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1997 unless continued in the manner
required by the Investment Company Act of 1940; and
WHEREAS, the Board of Trustees, at a meeting called for the purpose of reviewing
the Agreement, have approved the Agreement and its continuance until August 1,
1998 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1998 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST III
By: /s/ Gifford R. Zimmerman
---------------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- ---------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By: /s/ J. Thomas Futrell
---------------------------------
Vice President
ATTEST:
/s/ Larry Martin
- ---------------------------
Assistant Secretary
<PAGE>
EXHIBIT 6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the 1st day of February, 1997 between NUVEEN FLAGSHIP
MULTISTATE TRUST III, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Fund"), and JOHN NUVEEN & CO. INCORPORATED,
a Delaware corporation (the "Underwriter").
WITNESSETH
----------
in consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the distribution
of shares of beneficial interest, par value $.01 per share, including such
series or classes of shares as may now or hereafter be authorized (the
"Shares"), in jurisdictions wherein Shares may legally be offered for sale;
provided, however, that the Fund, in its absolute discretion, may: (a) issue or
sell Shares directly to holders of Shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; and (b) issue or
sell Shares at net asset value in connection with merger or consolidation with,
or acquisition of the assets of, other investment companies or similar
companies.
2. The Underwriter hereby accepts appointment as agent for the distribution of
the Shares and agrees that it will use its best efforts to sell such part of the
authorized Shares remaining unissued as from time to time shall be effectively
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and State laws and regulations and to the
Declaration of Trust of the Fund.
3. The Fund agrees that it will use its best efforts to keep effectively
registered under the Securities Act for sale, as herein contemplated, such
Shares as the Underwriter shall reasonably request and as the Securities and
Exchange Commission shall permit to be so registered.
4. Notwithstanding any other provision hereof, the Fund may terminate,
suspend, or withdraw the offering of the Shares, or Shares of any series or
class, whenever, in its sole discretion, it deems such action to be desirable.
5. The Underwriter shall sell Shares to, or through, brokers, dealers, banks or
other qualified financial intermediaries (hereinafter referred to as "dealers"),
or others, in such manner not inconsistent with the provisions hereof and the
then effective Registration Statement of the Fund under the Securities Act (and
related Prospectus and Statement of Additional Information) as the Underwriter
may determine from time to time, provided that no dealer, or other person,
shall be appointed nor authorized to act as agent of the Fund without the prior
consent of the Fund. The Underwriter shall have the right to enter into
agreements with brokers, dealers and banks (referred to herein as "dealers") of
its choice for the sale of Shares and fix therein the portion of
<PAGE>
the sales charge which may be allocated to such dealers; provided that the Fund
shall approve the form of such agreements and shall evidence such approval by
filing said form and any amendments thereto as attachments to this Agreement,
which shall be filed as an exhibit to the Fund's currently effective
registration statement under the Securities Act. Shares sold to dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the Fund's then current Prospectus. The current forms of such agreements are
attached hereto as Exhibits 1, 2 and 3.
6. Shares offered for sale, or sold by the Underwriter, shall be so offered or
sold at a price per Share determined in accordance with the then current
Prospectus relating to the sale of Shares except as departure from such prices
shall be permitted by the rules and regulations of the Securities and Exchange
Commission. Any public offering price shall be the net asset value per Share
plus a sales charge of not more than 4.75% of such public offering price. Shares
may be sold at net asset value without a sales charge to such class or classes
of investors or in such class or classes of transactions as may be permitted
under applicable rules of the Securities and Exchange Commission and as
described in the then current Prospectus of the Fund. The net asset value per
Share of each series or class shall be calculated in accordance with the
Declaration of Trust of the Fund and shall be determined in the manner, and at
the time, set forth in the then current Prospectus of the Fund relating to such
Shares.
7. The price the Fund shall receive for all Shares purchased from the Fund
shall be the net asset value used in determining the public offering price
applicable to the sale of such Shares. The excess, if any, of the sales price
over the net asset value of Shares sold by the Underwriter as agent shall be
retained by the Underwriter as a commission for its services hereunder. Out of
such commission, the Underwriter may allow commissions or concessions to dealers
in such amounts as the Underwriter shall determine from time to time. Except as
may be otherwise determined by the Underwriter and the Fund from time to time,
such commissions or concessions shall be uniform to all dealers.
8. The Underwriter shall issue and deliver, or cause to be issued and
delivered, on behalf of the Fund such confirmations of sales made by it as
agent, pursuant to this Agreement, as may be required. At, or prior to, the
time of issuance of Shares, the Underwriter will pay, or cause to be paid, to
the Fund the amount due the Fund for the sale of such Shares. Certificates
shall be issued, or Shares registered on the transfer books of the Fund, in such
names and denominations as the Underwriter may specify.
9. The Fund will execute any and all documents, and furnish any and all
information, which may be reasonably necessary in connection with the
qualification of the Shares for sale (including the qualification of the Fund as
a dealer, where necessary or advisable) in such states as the Underwriter may
reasonably request (it being understood that the Fund shall not be required,
without its consent, to comply with any requirement which, in its opinion, is
unduly burdensome).
2
<PAGE>
10. The Fund will furnish to the Underwriter, from time to time, such
information with respect to the Fund and the Shares as the Underwriter may
reasonably request for use in connection with the sale of Shares. The
Underwriter agrees that it will not use or distribute, nor will it authorize
dealers or others to use, distribute or disseminate, in connection with the sale
of such Shares, any statements other than those contained in the Fund's current
Prospectus and Statement of Additional Information, except such supplemental
literature or advertising as shall be lawful under Federal and State securities
laws and regulations, and that it will furnish the Fund with copies of all such
material.
11. The Underwriter shall order Shares from the Fund only to the extent that it
shall have received purchase orders therefor. The Underwriter will not make, nor
authorize any dealers or others, to make: (a) any short sale of Shares; or (b)
any sale of Shares to any officer or trustee of the Fund, nor to any officer or
trustee of the Underwriter, or of any corporation or association furnishing
investment advisory, managerial, or supervisory services to the Fund, nor to any
such corporation or association, unless such sales are made in accordance with
the then current Prospectus relating to the sale of such Shares.
12. In selling Shares for the account of the Fund, the Underwriter will in all
respects conform to the requirements of all Federal and State laws and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
relating to such sales, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by the Underwriter or any
employee, representative, or agent of the Underwriter. The Underwriter will
observe and be bound by all the provisions of the Declaration of Trust of the
Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given by the
Fund to the Underwriter) which at the time in any way require, limit, restrict,
prohibit or otherwise regulate any action on the part of the Underwriter.
13. The Underwriter will require each dealer to conform to the provisions
hereof and of the Registration Statement (and related Prospectus) at the time in
effect under the Securities Act with respect to the public offering price of
the Shares, and neither the Underwriter nor any such dealer shall withhold the
placing of purchase orders so as to make a profit thereby.
14. The Fund will pay, or cause to be paid, expenses (including the fees and
disbursements of its own counsel) of any registration of Shares under the
Securities Act, expenses of qualifying or continuing the qualification of the
Shares for sale and, in connection therewith, of qualifying or continuing the
qualification of the Fund as a dealer or broker under the laws of such states as
may be designated by the Underwriter under the conditions herein specified, and
expenses incident to the issuance of the Shares such as the cost of Share
certificates, issue taxes, and fees of the transfer and shareholder service
agent. The Underwriter will pay, or cause to be paid, all expenses (other than
expenses which any dealer may bear pursuant to any agreement with the
Underwriter) incident to the sale and distribution of the Shares issued or sold
hereunder, including, without limiting the generality of the foregoing, all: (a)
expenses of printing and distributing any Prospectus and Statement of
Additional Information and of preparing, printing
3
<PAGE>
and distributing or disseminating any other literature, advertising and selling
aids in connection with such offering of the Shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, printing and distribution of any report or other communication to
holders of Shares in their capacity as such), and (b) expenses of advertising in
connection with such offering. No transfer taxes, if any, which may be payable
in connection with the issue or delivery of Shares sold as herein contemplated,
or of the certificates for such Shares, shall be borne by the Fund, and the
Underwriter will indemnify and hold harmless the Fund against liability for all
such transfer taxes.
15. This agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and will continue from
year to year thereafter, but only so long as such continuance is specifically
approved, at least annually, in the manner required by the Investment Company
Act of 1940. Either party hereto may terminate this agreement on any date by
giving the other party at least six months' prior written notice of such
termination, specifying the date fixed therefor. Without prejudice to any other
remedies of the Fund in any such event, the Fund may terminate this agreement at
any time immediately upon any failure of fulfillment of any of the obligations
of the Underwriter hereunder.
Without prejudice to any other remedies of the Fund in any such event, the Fund
may terminate this Agreement at any time immediately upon any failure of
fulfillment of any of the obligations of the Underwriter hereunder.
16. This agreement shall automatically terminate in the event of its
assignment.
17. Any notice under this agreement shall be in writing, addressed, and
delivered or mailed, postage pre-paid, to the other party at such address as
such other party may designate for the receipt of such notice.
18. The Declaration of Trust of the Fund on file with the Secretary of State of
the Commonwealth of Massachusetts was executed on behalf of the Fund by the
initial trustees of the Fund and not individually, and any obligation of the
Fund shall be binding only upon the assets of the Fund (or applicable series
thereof) and shall not be binding upon any trustee, officer or shareholder of
the Fund. Neither the authorization of any action by the trustees or
shareholders of the Fund nor the execution of this agreement on behalf of the
Fund shall impose any liability upon any Trustee, officer or shareholder of the
Fund.
4
<PAGE>
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this Agreement
to be executed on its behalf as of the day and year first above written.
NUVEEN FLAGSHIP MULTISTATE TRUST III
By: /s/ Gifford R. Zimmerman
-------------------------------
Vice President
Attest: /s/ Karen L. Healy
-------------------
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By: /s/ Larry Martin
---------------------
Vice President
Attest: /s/ Morrison C. Warren
----------------------
Assistant Secretary
5
<PAGE>
Exhibit 1 NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone: 312 917 7700
NUVEEN MUTUAL FUNDS
Dealer Distribution and
Shareholder Servicing Agreement
As principal underwriter of shares of the various Nuveen non-money market open-
end mutual funds, and of the shares of any future such funds (collectively, the
"Funds"), we invite you to join a selling group for the distribution of shares
of common stock of the Funds (the "Shares"). As exclusive agent of the Funds, we
offer to sell you Shares on the following terms:
1. In all sales of Shares to the public you shall act as dealer for your own
account, and in no transaction shall you have any authority to act as agent
for any Fund, for us or for any other member of the Selling Group.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares, we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing. Additional instructions may be forwarded to you from time to
time. All orders are subject to acceptance or rejection by us in our sole
discretion.
3. You may offer and sell Shares to your customers only at the public offering
price determined in the manner described in the current Prospectus of the
appropriate Fund. Shares will be offered at a public offering price based
upon the net asset value of such Shares plus, with respect to certain
class(es) of Shares, a sales charge from which you shall receive a discount
equal to a percentage of the applicable offering price as provided in the
Prospectus. You may receive a distribution fee and/or a service fee with
respect to certain class(es) of Shares for which such fees are applicable,
as provided in the applicable Prospectus, which distribution fee and/or
service fee shall be payable for such periods and at such intervals as are
from time to time specified by us. Your placement of an order for Shares
after the date of any notice of such amendment shall conclusively evidence
your agreement to be bound thereby.
Reduced sales charges may also be available as a result of a cumulative
discount or pursuant to a letter of intent. Further information as to such
reduced sales charges, if any, is set forth in the appropriate Fund
Prospectus. You agree to advise us promptly as to the amounts of any sales
made by you to the public qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us;
b) That you will purchase Shares from us only to cover purchase orders
already received from your customers, or for your own bona fide
investment; and
c) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding.
d) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
6. Payment for Shares ordered from us shall be in New York clearing house funds
and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O.Box 5330, Denver, Colorado 80217-5330, within three business days after
our acceptance of your order. If such payment is not received, we reserve
the right, without notice, forthwith to cancel the sale or, at our option,
to cause the Fund to redeem the Shares ordered, in which case we may hold
you responsible for any loss, including loss of profit, suffered by us as a
result of your failure to make such payment. If any Shares confirmed to you
under the terms of this agreement are repurchased by the issuing Fund or by
us as agent for the Fund, or are tendered for repurchase, within seven
business days after the date of
6
<PAGE>
our confirmation of the original purchase order, you shall promptly refund
to us the full discount, commission, or other concession, if any, allowed or
paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or any
Fund except those contained in the applicable current Prospectus and printed
information subsequently issued by the appropriate Fund or by us as
information supplemental to such Prospectus. You agree that you will not
offer or sell any Shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that in
connection with sales and offers to sell Shares you will furnish to each
person to whom any such sale or offer is made a copy of the then current
Prospectus for the appropriate Fund (as then amended or supplemented) and
will not furnish to any persons any information relating to Shares which is
inconsistent in any respect with the information contained in the then
current Prospectus or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and the consent
of the appropriate Fund. You shall be responsible for any required filing of
such advertising.
9. All sales will be made subject to our receipt of Shares from the appropriate
Fund. We reserve the right, in our discretion, without notice, to modify,
suspend or withdraw entirely the offering of any Shares, and upon notice to
change the price, sales charge, or dealer discount or to modify, cancel or
change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a registered securities dealer and a member in good standing of the National
Association of Securities Dealers, Inc. and agree to comply with all
applicable state and Federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., including specifically Section 26,
Article III thereof. You likewise agree that you will not offer to sell
Shares in any state or other jurisdiction in which they may not lawfully be
offered for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and maintenance
of shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Funds, and such
other services as may be agreed upon from time to time and as may be
permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall immediately
inform the Funds or us of all written complaints received by you from Fund
shareholders relating to the maintenance of their accounts and shall
promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds from
time to time in effect, and, in the event of a conflict, the terms of the
Prospectuses shall control. References herein to the "Prospectus" of a Fund
shall mean the prospectus and statement of additional information of such
Fund as from time to time in effect. Any changes, modifications or additions
reflected in any such Prospectus shall be effective on the date of such
Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior dealer distribution agreement with
respect to the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
- -------------------------------------------------------------------------------
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
<TABLE>
<CAPTION>
<S> <C>
Firm___________________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Month Day Year
Authorized Signature___|_________________________________________________________________________________________|__|__|__|__|__|__|
Print Name of__________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Address________________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
City___________________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|__Zip__|___|___|___|___|___|
Tax ID Number__________|___|___|___|___|___|___|___|___|___|___|___|____NASD___|___|___|___|___|___|___|___|___|___|___|___|___|___|
</TABLE>
The above agreement shall be executed in duplicate and both copies returned to
us for signature. We will return a fully executed copy to you for your files.
Please return the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606-
1286
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 2)
- ------------------------------------------------
Nuveen Mutual Funds
----------------------
CUSIP QUOTRON
Number Symbol
- -----------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
--------------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax
Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax
Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax
Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NACCX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal
Bond Fund 67065L864 FIFAX - - 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term
Municipal Bond Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 3)
- ------------------------------------------------
Nuveen Mutual Funds
A SHARE B SHARE C SHARE R SHARE
--------------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate
Municipal Bond Fund 67065N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
Effective February 1, 1997
<PAGE>
Exhibit 2 [LOGO OF NUVEEN]
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917 7700
NUVEEN MUTUAL FUNDS
Distribution and Shareholder
Servicing Agreement
(Version for Bank-Affiliated Broker-Dealers)
As principal underwriter of shares of common stock (the "Shares") of the various
Nuveen non-money market open-end mutual funds and any future such funds
(collectively, the "Funds"), we offer to make available Shares for purchase by
your customers on the following terms:
1. In all sales of Shares to the public you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for any Fund or for us. The customers in question are for all purposes
your customers and not customers of John Nuveen & Co. Incorporated. We shall
execute transactions for each of your customers only upon your
authorization, it being understood in all cases that (a) you are acting as
agent for the customer; (b) the transactions are without recourse against
you by the customer; (c) as between you and the customer, the customer will
have full beneficial ownership of the securities; (d) each transaction is
initiated solely upon the order of the customer; and (e) each transaction is
for the account of the customer and not for your account.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing, and we shall concurrently send to your customer a letter
confirming such order, together with a copy of the appropriate Fund's
current Prospectus. Additional instructions may be forwarded to you from
time to time. All orders are subject to acceptance or rejection by us in our
sole discretion.
3. Members of the general public, including your customers, may purchase Shares
only at the public offering price determined in the manner described in the
current Prospectus of the appropriate Fund. Shares will be offered at a
public offering price based upon the net asset value of such Shares plus,
with respect to certain class(es) of Shares, a sales charge which, together
with the amount of that sales charge to be retained by banks or bank-
affiliated broker-dealers acting as agent for their customers, is set forth
in the Prospectus. You may receive a distribution fee and/or a service fee
with respect to certain class(es) of Shares for which such fees are
applicable, as provided in the applicable Prospectus, which distribution fee
and/or service fee shall be payable for such periods and at such intervals
as are from time to time specified by us. Your placement of an order for
Shares after the date of any notice of such amendment shall conclusively
evidence your agreement to be bound thereby. Reduced sales charges may also
be available as a result of a cumulative discount or pursuant to a letter of
intent. Further information as to such reduced sales charges, if any, is set
forth in the appropriate Fund Prospectus. You agree to advise us promptly as
to the amounts of any sales made by or through you to the public qualifying
for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us, and only to cover purchase
orders already received from your customers;
b) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding; and
c) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
<PAGE>
6. Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O. Box 5330, Denver, Colorado 80217-5330, within three business days
after our acceptance of your order. If such payment is not received, we
reserve the right, without notice, forthwith to cancel the sale or, at our
option, to cause the Fund to redeem the Shares ordered, in which case we
may hold you responsible for any loss, including loss of profit, suffered
by us as result of your or your customer's failure to make such payment. If
any Shares confirmed to you or your customer under the terms of this
agreement are repurchased by the issuing Fund or by us as agent for the
Fund, or are tendered for repurchase, within seven business days after the
date of our confirmation of the original purchase order, you shall promptly
refund to us the full discount, commission, or other concession, if any,
allowed or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or
any Fund except those contained in the applicable current Prospectus and
printed information issued by the appropriate Fund or by us as information
supplemental to such Prospectus. You agree that you will not offer or sell
any Shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection
with sales and offers to sell Shares you will furnish to each person to
whom any such sale or offer is made a copy of the then current Prospectus
for the appropriate Fund (as amended or supplemented) and will not furnish
to any persons any information relating to Shares which is inconsistent in
any respect with the information contained in the then current Prospectus
or cause any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the appropriate
Fund. You shall be responsible for any required filing of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a registered securities broker-dealer and a member in good standing of the
National Association of Securities Dealers, Inc. and agree to comply with
all state and Federal laws, rules and regulations applicable to
transactions hereunder and with the Rules of Fair Practice of the NASD,
including specifically Section 26 of Article III thereof. You likewise
agree that you will not offer to sell Shares in any state or other
jurisdiction in which they may not lawfully be offered for sale. We agree
to advise you currently of the identity of those states and jurisdictions
in which the Shares may lawfully be offered for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior distribution agreement with respect to
the Funds.
John Nuveen & Co. Incorporated
| |
John Nuveen | |
Authorized Signature | |
_______________________________________________________________________________
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
Month Day Year
Authorized Signature | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
Print Name of | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
Address | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
City | | | | | | | | | | |Zip | | | | |
- --------------------------------------------------------------------------------
Tax ID Number | | | | | | | | | | NASD | | | | |
- --------------------------------------------------------------------------------
The above agreement should be executed in duplicate and both copies returned to
us for signature. We will return a fully executed copy to you for your files.
Please return the completed agreement to :
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois
60606-1286
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the Funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 2)
- ----------------------------------------------
Nuveen Mutual Funds
--------------------
CUSIP Quotron
Number Symbol
- ------------------------------------------------------------------
Nuveen Tax-Free Money Market Funds
<S> <C> <C>
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y403 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax-Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax-Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax-Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FTCTX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal Bond Fund 67065L864 FIFAX - - 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal Bond Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 3)
- -----------------------------
Nuveen Mutual Funds
A SHARE B SHARE C SHARE R SHARE
-------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate Municipal Bond Fund 67056N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen Flagship NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
<PAGE>
Exhibit 3
NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917-7700
NUVEEN MUTUAL FUNDS
Distribution and Shareholder
Servicing Agreement
(Bank Version)
As principal underwriter of shares of common stock (the "Shares") of the various
Nuveen non-money marker open-end mutual funds and any future such funds
(collectively, the "Funds"), we offer to make available Shares for purchase by
your customers on the following terms:
1. In all sales of Shares to the public you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for any Fund or for us. The customers in question are for all
purposes your customers and not customers of John Nuveen & Co.
Incorporated. We shall execute transactions for each of your customers only
upon your authorization, it being understood in all cases that (a) you are
acting as agent for the customer; (b) the transactions are without recourse
against you by the customer; (c) as between you and the customer, the
customer will have full beneficial ownership of the securities; (d) each
transaction is initiated solely upon the order of the customer; and (e)
each transaction is for the account of the customer and not for your
account.
2. Orders received from you shall be accepted by us only at the public
offering price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing, and we shall concurrently send to your customer a letter
confirming such order, together with a copy of the appropriate Fund's
current Prospectus. Additional instructions may be forwarded to you from
time to time. All orders are subject to acceptance or rejection by us in
our sole discretion.
3. Members of the general public, including your customers, may purchase
Shares only at the public offering price determined in the manner described
in the current Prospectus of the appropriate Fund. Shares will be offered
at a public offering price based upon the net asset value of such Shares
plus, with respect to certain class(es) of Shares, a sales charge which,
together with the amount of that sales charge to be retained by banks
acting as agent for their customers, is set forth in the Prospectus. You
may receive a distribution fee and/or a service fee with respect to
certain class(es) for Shares for which such fees are applicable, as
provided in the applicable Prospectus, which distribution fee and/or
service fee shall be payable for such periods and at such intervals as are
from time to time specified by us. Your placement of an order for Shares
after the date of any notice of such amendment shall conclusively evidence
your agreement to be bound thereby. Reduced sales charges may also be
available as a result of a cumulative discount or pursuant to a letter of
intent. Further information as to such reduced sales charges, if any, is
set forth in the appropriate Fund Prospectus. You agree to advise us
promptly as to the amounts of any sales made by or through you to the
public qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
(a) That you will purchase Shares only from us, and only to cover purchase
orders already received from your customers;
(b) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding;
and
(c) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares,
attached hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
<PAGE>
6. Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O. Box 5330, Denver, Colorado 80217-5330, within three business days
after our acceptance of your order. If such payment is not received, we
reserve the right, without notice, forthwith to cancel the sale or, at our
option, to cause the Fund to redeem the Shares ordered, in which case we
may hold you responsible for any loss, including loss of profit, suffered
by us as result of your or your customer's failure to make such payment. If
any Shares confirmed to you or your customer under the terms of this
agreement are repurchased by the issuing Fund or by us as agent for the
Fund, or are tendered for repurchase, within seven business days after the
date of our confirmation of the original purchase order, you shall promptly
refund to us the full discount, commission, or other concession, if any,
allowed or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or
any Fund except those contained in the applicable current Prospectus and
printed information issued by the appropriate Fund or by us as information
supplemental to such Prospectus. You agree that you will not offer or sell
any Shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection
with sales and offers to sell Shares you will furnish to each person to
whom any such sale or offer is made a copy of the then current Prospectus
for the appropriate Fund (as amended or supplemented) and will not furnish
to any persons any information relating to Shares which is inconsistent in
any respect with the information contained in the then current Prospectus
or cause any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the appropriate
Fund. You shall be responsible for any required filing of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a bank as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, as amended, and are duly authorized to engage in the transactions to
be performed hereunder. You hereby agree to comply with all applicable
state and Federal laws, rules and regulations applicable to transactions
hereunder. You likewise agree that you will not make Shares available in
any state or other jurisdiction in which they may not lawfully be offered
for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior dealer distribution agreement with
respect to the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm_____|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|_____|
Month Day Year
Authorized Signature ____________________________________|___|_______|_________|
Print Name of _|___|___|___|___|___|___|___|___|_____|___|___|___|___|___|_____|
Address _|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|_____|
City_|___|___|___|___|___|___|___|___|___|___|___|___|ZIP |__|___|___|___|_____|
Tax ID Number _|___|___|___|___|___|___|___| NASD _|___|___|___|___|___|___|___|
The above agreement should be executed in duplicate and both copies returned to
us for signature. We will return a fully executed copy to you for your files.
Please turn the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois
60606-1286
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee: Class B Shares, which are subject to an asset-based sales charge, a
service fee, and a declining contingent deferred sales charge ("CDSC"); and
Class C Shares, which are subject to an asset-based sales charge, a service fee,
and a 12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
Exhibit A (Page 2)
- ------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
-------------------
CUSIP Quotron
Number Symbol
- ---------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfoflio 670637602 NTFXX
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
-------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L858 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal Bond Fund 67065L864 FIFAX - # 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal Bond Fund 67065R887 FLKAX - # 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MO Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 3)
- ------------------------------------------------
Nuveen Mutual Funds
A SHARE B SHARE C SHARE R SHARE
--------------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate
Municipal Bond Fund 67065N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
Effective February 1, 1997
<PAGE>
Exhibit 6(a)
Renewal of Distribution Agreement
---------------------------------
This Agreement made this 31st day of July, 1997 by and between Nuveen Flagship
Multistate Trust III, a Massachusetts business trust (the "Fund"), and John
Nuveen & Co. Incorporated, a Delaware corporation (the "Underwriter");
WHEREAS, the parties hereto are the contracting parties under that certain
Distribution Agreement (the "Agreement") pursuant to which the Underwriter acts
as agent for the distribution of shares of the Fund; and
WHEREAS, the Agreement terminates August 1, 1997 unless continued in the manner
required by the Investment Company Act of 1940;
WHEREAS, the Board of Trustees of the Fund, at a meeting called for the purpose
of reviewing the Agreement has approved the Agreement and its continuance until
August 1, 1998 in the manner required by the Investment Company Act of 1940;
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1998 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST III
By: /s/ Gifford R. Zimmerman
----------------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- --------------------------------
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By: /s/ Anna Kucinskis
----------------------------------
Vice President
ATTEST:
/s/ Larry Martin
- --------------------------------
Assistant Secretary
<PAGE>
EXHIBIT 8
TABLE OF CONTENTS
Page
----
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 3
4. Delivery and Registrations of the Property 4
5. Voting Rights 5
6. Receipt and Disbursement of Money 5
6A. Advances By Custodian 7
7. Receipt and Delivery of Securities 8
8. Use of Securities Depository or the Book Entry System 9
9. Segregated Account 11
10. Instructions Consistent With The Declaration, etc. 12
11. Transactions Not Requiring Instructions, 15
Collections of Income and Other Payments 15
Miscellaneous Transactions 16
12. Transactions Requiring Instructions 16
13. Purchase of Securities 19
14. Sale of Securities 20
15. Not In Use 20
16. Records 20
17. Cooperation with Accountants 21
18. Reports to Fund Independent Public Accountants 21
19. Confidentiality 21
20. Equipment Failures 22
21. Right to Receive Advice 22
22. Compliance with Governmental Rules and Regulations 23
23. Compensation 23
24. Indemnification 23
25. Responsibility of Chase Manhattan Bank 25
26. Collection of Income 26
27. Ownership Certificates for Tax Purposes 26
28. Effective Period; Terminations and Amendment 27
29. Successor Custodian 28
30. Notices 29
31. Further Actions 29
32. Amendments 29
33. Additional Funds 29
34. Miscellaneous 30
35. Declaration of Trust 30
<PAGE>
CUSTODY AGREEMENT
-----------------
THIS AGREEMENT is made as of the 1st day of February, 1997 by and between
NUVEEN FLAGSHIP MULTISTATE TRUST III (the "Fund"), and THE CHASE MANHATTAN BANK.
WITNESSETH
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interest in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund currently has authorized the six series listed on
Appendix A (such series together with other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 33,
being herein referred to as the "Fund(s)"):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints The Chase Manhattan Bank to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. The Chase Manhattan Bank accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Section 23 of this Agreement.
2. Delivery of Documents. The Fund has furnished The Chase Manhattan Bank
with copies property certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the appointment
of The Chase Manhattan Bank as Custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
1
<PAGE>
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Proper
Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Declaration of Trust filed with the State of Massachusetts
and all amendments thereto (such Declaration of Trust as currently in effect and
from time to time, be amended, are herein called the "Declaration");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws"),
(e) Resolutions of the Fund's Board of Trustees appointing the investment
advisor of the Fund and resolutions of the Fund's Board of Trustees and the
Fund's Shareholders approving the proposed Investment Advisory Agreement between
the Fund and the advisor (the "Advisory Agreement");
(f) The Advisory Agreement.
(g) The Fund's Registration Statement on Form N-1A under the 1940 Act and
the Securities Act of 1933, as amended ("the 1933 Act") as filed with the SEC;
and
(h) The Fund's most recent prospectus and statement of additional
information including all amendments and supplements thereto (the "Prospectus").
Upon request the Fund will furnish The Chase Manhattan Bank with copies of
all amendments of or supplements to the foregoing, if any. The Fund will also
furnish The Chase Manhattan Bank upon request with a copy of the opinion of
counsel for the Fund with respect to the validity of the Shares and the status
of such Shares under the 1933 Act filed with the SEC, and any other applicable
federal law or regulation.
2
<PAGE>
3. Definitions.
-----------
(a) "Authorized Person". As used in this Agreement, the term "Authorized
Person" means the Fund's President, Treasurer and any other person, whether or
not any such person is an officer or employee of the Fund, duly authorized by
the Board of Trustees of the Fund to give Proper Instructions on behalf of the
Fund as set forth in resolutions of the Fund's Board of Trustees.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
System" means a book-entry system authorized by the U.S. Department of Treasury,
its successor or successors and its nominee or nominees.
(c) "Proper Instructions". Proper Instructions as used herein means a
writing signed or initialed by two or more persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if The Chase Manhattan Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
such oral instructions to be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the authorization by the Board
of Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and The Chase Manhattan Bank are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by The Chase Manhattan Bank pursuant to any three-party agreement which
requires a segregated asset account in accordance with Section 9.
(d) "Property". The term "Property", as used in this Agreement, means:
3
<PAGE>
(i) any and all securities and other property of the Fund which the
Fund may from time to time deposit, or cause to be deposited, with The
Chase Manhattan Bank or which The Chase Manhattan Bank may from time
to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
properties; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by The Chase Manhattan Bank from time to time from
or on behalf of the Fund.
(e) "Securities Depository". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Company's Board of Trustees approving deposits by The Chase
Manhattan Bank therein.
4. Delivery and Registration of the Property. The Fund will deliver or
cause to be delivered to The Chase Manhattan Bank all securities and all moneys
owned by it, including payments of interest, principal and capital distributions
and cash received for the issuance of its Shares, at any time during the period
of this Agreement, except for securities and monies to be delivered to any
subcustodian appointed pursuant to Section 7 hereof. The Chase Manhattan Bank
will not be responsible for such securities and such monies until actually
received by it. All securities delivered to The Chase Manhattan Bank or to any
such subcustodian (other than in bearer form) shall be registered in the name of
the Fund or in the name of a nominee of the Fund or in the name of The Chase
Manhattan Bank or any nominee of The Chase Manhattan Bank (with or without
indication of fiduciary
4
<PAGE>
status) or in the name of any subcustodian or any nominee of such subcustodian
appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in
form for transfer satisfactory to The Chase Manhattan Bank.
5. Voting Rights. With respect to all securities, however registered, it is
understood that the voting and other rights and powers shall be exercised by the
Fund. The Chase Manhattan Bank's only duty shall be to mail for delivery on the
next business day to the Fund any documents received, including proxy statements
and offering circulars, with any proxies for securities registered in a nominee
name executed by such nominee. Where warrants, options, tenders or other
securities have fixed expiration dates, the Fund understands that in order for
The Chase Manhattan Bank to act, The Chase Manhattan Bank must receive the
Fund's instructions at its offices in New York, addressed as The Chase Manhattan
Bank may from time to time request, by no later than noon (NY City time) at
least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as The Chase Manhattan Bank may reasonably
notify the Fund). Absent The Chase Manhattan Bank's timely receipt of such
instructions, such instruments will expire without liability to The Chase
Manhattan Bank.
6. Receipt and Disbursement of Money.
(a) The Chase Manhattan Bank shall open and maintain a custody account for
the Fund, subject only to draft or order by The Chase Manhattan Bank acting
pursuant to the terms of this Agreement, and shall hold in such account, subject
to the provisions hereof, all cash received by it from or for the Fund other
than cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the 1940 Act. Funds held by The Chase Manhattan
Bank for the Fund may be deposited by it to its credit at The Chase Manhattan
Bank in the Banking Department of The Chase Manhattan Bank or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided,
5
<PAGE>
however, that every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act, and that each such bank or trust company shall be
approved by vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by The Chase Manhattan Bank in its capacity as Custodian and
shall be withdrawable by The Chase Manhattan Bank only in that capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) The Chase Manhattan Bank
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities, options, futures contracts or options
on futures contracts for the Fund as provided in Section 13 hereof; (ii) in the
case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) in the case of repurchase agreements entered into between the Fund
and The Chase Manhattan Bank, or another bank, or a broker-dealer which is a
member of The National Association of Securities Dealers, Inc. ("NASD"), either
(a) against delivery of the securities either in certificate form or through an
entry crediting The Chase Manhattan Bank's account at the Federal Reserve Bank
with such securities or (b) against delivery of the receipt evidencing purchase
by the Fund of securities owned by The Chase Manhattan Bank along with written
evidence of the agreement by The Chase Manhattan Bank to repurchase such
securities from the Fund; (iv) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a conformation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund; (v) for the payment of dividends
or other distributions on shares declared pursuant to the governing documents of
the Fund, or for the payment of interest, taxes, administration, distribution or
advisory fees or expenses which are to be borne by the Fund under the terms of
this Agreement, any Advisory Agreement, or any
6
<PAGE>
administration agreement; (vi) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Fund and held
by or to be delivered to The Chase Manhattan Bank; (vii) to a subcustodian
pursuant to Section 7 hereof; (viii) for such common expenses incurred by the
Fund in the ordinary course of its business, including but not limited to
printing and mailing expenses, legal fees, accountants fees, exchange fees; or
(ix) for any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
(c) The Chase Manhattan Bank is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Fund.
6A. Advances by Custodian. The Custodian may from time to time agree to
advance cash to the Fund, without interest, for the fund's other proper
corporate purposes. If the Custodian advances cash for any purpose, the Fund
shall and hereby does grant to the Custodian a security interest in Fund
securities equal in value to the amount of the cash advance but in no event
shall the value of securities in which a security interest has been granted
exceed 20% of the value of the Fund's total assets at the time of the pledge;
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to reasonably dispose of any securities
in which it has a security interest to the extent necessary to obtain
reimbursement.
7
<PAGE>
7. Receipt and Delivery of Securities.
(a) Except as provided by Section 8 hereof, The Chase Manhattan Bank shall
hold and physically segregate all securities and noncash Property received by it
for the Fund. All such securities and non-cash Property are to be held or
disposed of by The Chase Manhattan Bank for the Fund pursuant to the terms of
this Agreement. In the absence of Proper Instructions accompanied by a
certified resolution authorizing the specific transaction by the Fund's Board,
The Chase Manhattan Bank shall have no power or authority to withdraw, deliver,
assign, hypothecate, pledge or otherwise dispose of any such securities and
investments, except in accordance with the express terms provided for in this
Agreement. In no case may any Trustee, officer, employee or agent of the Fund
withdraw any securities. In connection with its duties under this Section 7, The
Chase Manhattan Bank may, at its own expense, enter into subcustodian agreements
with other banks or trust companies for the receipt of certain securities and
cash to be held by The Chase Manhattan Bank for the account of the Fund pursuant
to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than twenty million dollars ($20,000,000) and that such bank
or trust company agrees with The Chase Manhattan Bank to comply with all
relevant provisions of the 1940 Act and applicable rules and regulations
thereunder. The Chase Manhattan Bank will be liable for acts or omissions of any
subcustodian. The Chase Manhattan Bank shall employ sub-custodians upon receipt
of Proper Instructions, but only in accordance with an applicable vote by the
Board of Trustees of the Fund.
(b) Promptly after the close of business on each day The Chase Manhattan
Bank shall furnish the Fund with confirmations and a summary of all transfers to
or from the account of the Fund during said day. Where securities are
transferred to the account of the Fund established at a Securities Depository or
Book Entry
8
<PAGE>
System pursuant to Section 8 hereof, The Chase Manhattan Bank shall also by
book-entry or otherwise identify as belonging to such Fund the quantity of
securities in a fungible bulk of securities registered in the name of The Chase
Manhattan Bank (or its nominee) or shown in The Chase Manhattan Bank's account
on the books of a Securities Depository or Book-Entry System. At least monthly
and from time to time, The Chase Manhattan Bank shall furnish the Fund with a
detailed statement of the Property held for the Fund under this Agreement.
8. Use of Securities Depository or Book-Entry System. The Fund shall
deliver to The Chase Manhattan Bank a certified resolution of the Board of
Trustees of the Fund approving, authorizing and instructing The Chase Manhattan
Bank on a continuous and ongoing basis until instructed to the contrary by
Proper Instructions actually received by The Chase Manhattan Bank (i) to deposit
in a Securities Depository or Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or
Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation settlements of purchases and
sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of The Chase Manhattan Bank in the Securities Depository or Book-Entry
System (the "Account") and (2) be segregated from any assets and cash controlled
by The Chase Manhattan Bank in other than a fiduciary or custodian capacity but
may be commingled with other assets held in such capacities. The Chase Manhattan
Bank will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices as set forth in (b) below, unless
the Fund has given
9
<PAGE>
The Chase Manhattan Bank Proper Instructions to the contrary. The records of The
Chase Manhattan Bank with respect to securities of the Fund maintained in a
Securities Depository or Book Entry System shall identify by book entry those
securities belonging to the Fund.
(b) The Chase Manhattan Bank shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities Depository or
Book Entry System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of The Chase Manhattan Bank to
reflect such payment and transfer for the account of the Fund. Upon receipt of
Proper Instructions, The Chase Manhattan Bank shall transfer securities sold for
the account of the Fund upon (i) receipt of advice from the Securities
Depository or Book Entry System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
The Chase Manhattan Bank to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities Depository or Book Entry
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by The Chase Manhattan Bank and be provided to
the Fund as its request. Upon request, The Chase Manhattan Bank shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in a Securities Depository
or Book Entry System for the account of the Fund.
(c) The Chase Manhattan Bank shall provide the Fund with any report
obtained by The Chase Manhattan Bank on the Securities Depository or Book Entry
System's accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities Depository or Book Entry
System;
10
<PAGE>
(d) All Books and records maintained by The Chase Manhattan Bank which
relate to the Fund participation in a Securities Depository or Book-Entry System
will at all times during The Chase Manhattan Bank's regular business hours be
open to the inspection of the Fund's duly authorized employees or agents, and
the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
(e) Anything to the contrary in this Agreement notwithstanding, The Chase
Manhattan Bank shall be liable to the Fund for any loss or damage to the Fund
resulting from any negligence, misfeasance or misconduct of The Chase Manhattan
Bank or any of its agents or of any of its or their employees in connection with
its or their use of the Securities Depository or Book Entry Systems or from
failure of The Chase Manhattan Bank or any such agent to enforce effectively
such rights as it may have against such Securities Depository or Book Entry
System; at the election of the Fund, it shall be entitled to be subrogated to
the rights of The Chase Manhattan Bank with respect to any claim against the
Securities Depository or Book Entry System or any other person which The Chase
Manhattan Bank may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any such loss or damage.
9. Segregated Account. The Chase Manhattan Bank shall upon receipt of
Proper Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by The
Chase Manhattan Bank pursuant to Section 8 hereof, (i) in accordance with the
provisions of any agreement among the Fund, The Chase Manhattan Bank and a
broker dealer registered under the Securities and Exchange Act of 1934 and
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing
11
<PAGE>
Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
10. INSTRUCTIONS CONSISTENT WITH THE DECLARATION, ETC.
(a) Unless otherwise provided in this Agreement, The Chase Manhattan Bank
shall act only upon Proper Instructions. The Chase Manhattan Bank may assume
that any Proper Instructions received hereunder are not in any way inconsistent
with any provision of the Declaration or By-Laws or any vote or resolution of
the Fund's Board of Trustees or any committee thereof. The Chase Manhattan Bank
shall be entitled to rely upon any Proper Instructions actually received by The
Chase Manhattan Bank pursuant to this Agreement. The Fund agrees that The Chase
Manhattan Bank shall incur no liability in acting in good faith upon Proper
Instructions given to The Chase Manhattan Bank, except to the extent such
liability was incurred as a result of The Chase Manhattan Bank's negligence or
willful misconduct. In accord with instructions from the Fund, as
12
<PAGE>
required by accepted industry practice or as The Chase Manhattan Bank may elect
in effecting the execution of Fund instructions, advances of cash or other
Property made by The Chase Manhattan Bank, arising from the purchase, sale,
redemption, transfer or other disposition of Property of the Fund, or in
connection with the disbursement of funds to any party, or in payment of fees,
expenses, claims or liabilities owned to The Chase Manhattan Bank by the Fund,
or to any other party which has secured judgment in a court of law against
the Fund which creates an overdraft in the accounts or over-delivery of
Property, shall be deemed a loan by The Chase Manhattan Bank to the Fund,
payable on demand, bearing interest at such rate customarily charged by The
Chase Manhattan Bank for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or other
security devices to be used with respect to instructions which the Fund may give
by telephone, telex, TWX, facsimile transmission, bank wire or other
teleprocess, or through an electronic instruction system, shall be processed in
accordance with terms and conditions for the use of such arrangements, methods
or devices as The Chase Manhattan Bank may put into effect and modify from time
to time. The Fund shall safeguard any test keys, identification codes or other
security devices which The Chase Manhattan Bank makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by The Chase Manhattan Bank or by the Fund as a result of The Chase
Manhattan Bank's acting in accordance with instructions from any unauthorized
person using the proper security device except to the extent such loss,
liability or damage was incurred as a result of The Chase Manhattan Bank's
negligence or willful misconduct. The Chase Manhattan Bank may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Fund. In the
event that the Fund uses The Chase Manhattan Bank's Asset Management system or
any successor electronic
13
<PAGE>
communications or information system, the Fund agrees that The Chase Manhattan
Bank is not responsible for the consequences of the failure of that system to
perform for any reason, beyond the reasonable control of The Chase Manhattan
Bank, or the failure of any communications carrier, utility, or communications
network. In the event that system is inoperable, the Fund agrees that it will
accept the communication of transaction instructions by telephone, facsimile
transmission on equipment compatible to The Chase Manhattan Bank's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
(c) The Chase Manhattan Bank shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the maturity
of futures contracts purchased or sold by the Fund) received by The Chase
Manhattan Bank from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, The Chase Manhattan Bank shall transmit
promptly by facsimile to the Fund all written information received by The Chase
Manhattan Bank from issuers of the securities whose tender or exchange is sought
and from the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Fund shall notify The Chase Manhattan Bank at
least three business days prior to the date on which The Chase Manhattan Bank is
to take such action or upon the date such notification is first received by the
Fund, if later. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of such
property, The Chase Manhattan Bank is authorized to allot the called portion to
the respective beneficial holders of the Property in such manner deemed to be
fair and equitable by The Chase Manhattan Bank in its sole discretion.
14
<PAGE>
11. Transactions Not Requiring Instructions. The Chase Manhattan Bank is
authorized to take the following action without Proper Instructions:
(a) Collection of Income and Other Payments. The Chase Manhattan Bank
shall:
(i) collect and receive on a timely basis for the account of the
Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and similar
items, included or to be included in the Property of the Fund, and
promptly advise the Fund of such receipt and shall credit such income,
as collected, to the Fund. From time to time, The Chase Manhattan Bank
may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Fund or The
Chase Manhattan Bank. Any such crediting and posting shall be at the
Fund's sole risk, and The Chase Manhattan Bank shall be authorized to
reverse any such advance posting in the event it does not receive good
funds from any such payor, central depository, broker or agent of the
Customer. The Chase Manhattan Bank agrees to promptly notify the Fund
of the reversal of any such advance posting.
(ii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same
day as received;
(iii) receive and hold for the account of the Fund all
securities received by the Fund as a result of a stock dividend, share
split-up or reorganization, merger, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities
issued
15
<PAGE>
with respect to any portfolio securities of the Fund held by The Chase
Manhattan Bank hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vi) to effect an exchange of the securities where the par value
is changed, and to surrender securities at maturity or upon an earlier
call for redemption, or when securities otherwise become payable,
against payment therefore in accordance with accepted industry
practice. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of
such property, The Chase Manhattan Bank is authorized to allot the
called portion to the respective beneficial holders of the Property in
such manner deemed to be fair and equitable by The Chase Manhattan
Bank in its sole discretion.
(b) Miscellaneous Transactions. The Chase Manhattan Bank is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor for examination by a dealer selling for the account
of the Fund in accordance with street delivery custom.
12. Transactions Requiring Instructions. In addition to the actions
requiring Proper Instructions set forth herein, upon receipt of Proper
Instructions and not otherwise, The Chase Manhattan Bank, directly or through
the use of a Securities Depository or Book Entry System, shall:
16
<PAGE>
(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
issues of securities or corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents, and cash, if any,
as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
The Chase Manhattan Bank of the monies borrowed, or upon receipt of adequate
collateral as agreed upon by the Fund and The Chase Manhattan Bank which may be
in the form of cash or obligations issued by the U.S. government, its agencies
or instrumentalities, except that in the cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization, further securities may be released for that purpose; and pay such
loan upon re-delivery to it
17
<PAGE>
of the securities pledged or hypothecated therefore and upon surrender of the
note or notes evidencing the loan; and
(f) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Funds;
(g) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund; and
(h) Deliver securities against payment or other consideration or written
receipt therefore for transfer of securities into the name of the Fund or The
Chase Manhattan Bank or a nominee of either, or for exchange or securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to The Chase Manhattan Bank;
(i) Exchange securities in temporary form for securities in definitive
form;
(j) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to The Chase Manhattan Bank;
18
<PAGE>
(k) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(l) Deliver securities pursuant to any other proper corporate purpose, but
only upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or other Executive Committee signed by an
officer of the Funds and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
13. Purchase of Securities. Promptly after each purchase of securities,
options, futures contracts or options on futures contracts by the investment
advisor, the Fund shall deliver to The Chase Manhattan Bank (as Custodian)
Proper Instructions specifying with respect to each such purchase: (a) the name
of the issuer and the title of the securities, (b) the number of shares of the
principal amount purchased and accrued interest, if any, (c) the dates of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made, and (g) the Fund name. The Chase Manhattan
Bank shall upon receipt of securities purchased by or for the Fund registered in
the name of the Fund or in the name of a nominee of The Chase Manhattan Bank or
of the Fund or in proper form for transfer or upon receipt of evidence of title
to options, futures contracts or options on futures contracts purchased by the
Fund, pay out of the moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Proper Instructions. Except as specifically stated otherwise in this
Agreement, in any and every case where payment for purchase of securities for
the account of the Fund is made by
19
<PAGE>
The Chase Manhattan Bank in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so pay in advance,
The Chase Manhattan Bank shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by The
Chase Manhattan Bank.
14. Sale of Securities. Promptly after each sale of securities by the Fund
at the instruction of the investment advisor, the Fund shall deliver to The
Chase Manhattan Bank (as Custodian) Proper Instructions, specifying with respect
to each such sale; (a) the name of the issuer and the title of the security, (b)
the number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
the Fund upon such sale, (f) the name of the broker through whom or the person
to whom the sale was made and (g) the Fund name. The Chase Manhattan Bank shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Proper Instructions. Subject to the foregoing. The Chase Manhattan
Bank may accept payment in such form as shall be satisfactory to it, and may
deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
15. Not In Use.
16. Records. The books and records pertaining to the Fund which are in the
possession of The Chase Manhattan Bank shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act,
as amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during The Chase Manhattan Bank's normal business
hours, and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the fund, copies of any such books and
records at all times during The Chase Manhattan Bank's normal business hours,
and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the Fund, copies of any such books and
records
20
<PAGE>
shall be provided by The Chase Manhattan Bank to the Fund or the Fund's
authorized representative at the Fund's expense.
17. Cooperation with Accountants. The Chase Manhattan Bank shall
cooperate with the Fund's independent certified public accountants and shall
take all reasonable action in the performance of its obligations under this
Agreement to assure that the necessary information is made available to such
accountants for the expression of their unqualified opinion, including but not
limited to the opinion included in the Fund's Form N-1A, Form N-SAR and other
reports to the Securities and Exchange Commission and with respect to any other
requirement of such Commission.
18. Reports to Fund by Independent Public Accountants. The Chase
Manhattan Bank shall provide the Fund, at such times as the Fund may reasonably
require, with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities Depository or Book Entry System,
relating to the services provided by The Chase Manhattan Bank under this
Contract; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
19. Confidentiality. The Chase Manhattan Bank agrees on behalf of itself
and its employees to treat confidentially and as the proprietary information of
the Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after
21
<PAGE>
prior notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld where The Chase
Manhattan Bank may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Fund. Nothing contained
herein, however, shall prohibit The Chase Manhattan Bank from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential Shareholders of the Fund.
20. Equipment Failures. In the event of equipment failures beyond The
Chase Manhattan Bank's control, The Chase Manhattan Bank shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions but shall not have liability with respect thereto. The Chase
Manhattan Bank shall enter into and shall maintain in effect with appropriate
parties one or more agreements making reasonable provisions for back up
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
21. Right to Receive Advice.
(a) Advice of Fund. If The Chase Manhattan Bank shall be in doubt as to
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund clarification or advice.
(b) Advice of Counsel. If The Chase Manhattan Bank shall be in doubt as
to any question of law involved in any action to be taken or omitted by The
Chase Manhattan Bank, it may request advice at its own cost from counsel of its
own choosing (who may be counsel for the Fund or The Chase Manhattan Bank, at
the option of The Chase Manhattan Bank).
(c) Conflicting Advice. In case of conflict between directions or advice
received by The Chase Manhattan Bank pursuant to sub-paragraph (a) of this
22
<PAGE>
paragraph and advice received by The Chase Manhattan Bank pursuant to
subparagraph (b) of this paragraph, The Chase Manhattan Bank shall be entitled
to rely on and follow the advice received pursuant to the latter provision
alone.
(d) Protection of The Chase Manhattan Bank. The Chase Manhattan Bank
shall be protected in any action or inaction which it takes or omits to take in
reliance on any directions or advice received pursuant to subparagraphs (a) or
(b) of this section which The Chase Manhattan Bank, after receipt of any such
directions or advice, in good faith believes to be consistent with such
directions or advice. However, nothing in this paragraph shall be construed as
imposing upon The Chase Manhattan Bank any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to The Chase Manhattan Bank's properly taking
or omitting to take such action. Nothing in this subsection shall excuse The
Chase Manhattan Bank when an action or omission on the part of The Chase
Manhattan Bank constitutes willful misfeasance, bad faith, negligence or
reckless disregard by The Chase Manhattan Bank of its duties under this
Agreement.
22. Compliance with Governmental Rules and Regulations. The Fund assumes
full responsibility for insuring that the contents of each Prospectus of the
Fund complies with all applicable requirements of the 1933 Act, the 1940 Act,
and any laws, rules and regulations of governmental authorities having
jurisdiction.
23. Compensation. As compensation for the services rendered by The Chase
Manhattan Bank during the term of this Agreement, the Fund will pay to The Chase
Manhattan Bank, in addition to reimbursement of its out-of-pocket expenses,
monthly fees as outlined in Exhibit A.
24. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless The Chase Manhattan Bank and its nominees from all
23
<PAGE>
taxes, charges, expenses, assessments, claims, and liabilities (including,
without limitation, liabilities arising under the 1933 Act, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities and
blue sky laws, all as or to be amended from time to time) and expenses,
including (without limitation) attorney's fees and disbursements (hereafter
"liabilities and expenses"), arising directly or indirectly from any action or
thing which The Chase Manhattan Bank takes or does or omits to take or do (i) at
the request or on the direction of or in reliance on the advice of the Fund, or
(ii) upon Proper Instructions, provided, that neither The Chase Manhattan Bank
nor any of its nominees or sub-custodians shall be indemnified against any
liability to the Fund or to its Shareholders (or any expenses incident to such
liability) arising out of (x) The Chase Manhattan Bank's or such nominee's or
sub-custodian's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties under this Agreement or any agreement between The Chase
Manhattan Bank and any nominee or subcustodian or (y) The Chase Manhattan Bank's
own negligent failure to perform its duties under this Agreement. The Chase
Manhattan Bank similarly agrees to indemnify and hold harmless the Fund from all
liabilities and expenses arising directly or indirectly from The Chase Manhattan
Bank's or such nominee's or sub-custodian's willful misfeasance, bad faith,
negligence or reckless disregard in performing its duties under this agreement.
In the event of any advance of cash for any purpose made by The Chase Manhattan
Bank resulting from orders or Proper Instructions of the Fund, or in the event
that The Chase Manhattan Bank or its nominee or subcustodian shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's or sub-custodian's own negligent action, negligent failure
to act, willful misconduct, or reckless disregard, the Fund shall
24
<PAGE>
promptly reimburse The Chase Manhattan Bank for such advance of cash or such
taxes, charges, expenses, assessments claims or liabilities.
25. Responsibility of The Chase Manhattan Bank. In the performance of its
duties hereunder, The Chase Manhattan Bank shall be obligated to exercise care
and diligence and to act in good faith to insure the accuracy and completeness
of all services performed under this Agreement. The Chase Manhattan Bank shall
be responsible for its own negligent failure or that of any subcustodian it
shall appoint to perform its duties under this Agreement but to the extent that
duties, obligations and responsibilities are not expressly set forth in this
Agreement, The Chase Manhattan Bank shall not be liable for any act or omission
which does not constitute willful misfeasance, bad faith, or negligence on the
part of The Chase Manhattan Bank or such subcustodian or reckless disregard of
such duties, obligations and responsibilities. Without limiting the generality
of the foregoing or of any other provision of this Agreement, The Chase
Manhattan Bank in connection with its duties under this Agreement shall, so long
as and to the extent it is in the exercise of reasonable care, not be under any
duty or obligation to inquire into and shall not be liable for or in respect of
(a) the validity or invalidity or authority or lack thereof of any advice,
direction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which The Chase Manhattan Bank
believes to be genuine, (b) the validity of the issue of any securities
purchased or sold by the Fund, the legality of the purchase or sale thereof or
the propriety of the amount paid or received therefor, (c) the legality of the
issue or sale of any Shares, or the sufficiency of the amount to be received
therefore, (d) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor, (e) the legality of the declaration or payment
of any dividend or distribution on Shares, of (f) delays or errors or loss of
data occurring by reason of circumstances beyond The Chase Manhattan Bank's
control, including acts of civil
25
<PAGE>
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in Section 20), flood or catastrophe,
acts of God, insurrection, war, riots, or failure of the mail, transportation,
communication or power supply.
26. Collection of Income. The Chase Manhattan Bank shall collect on a
timely basis all income and other payments with respect to registered securities
held hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by The Chase Manhattan Bank or
its agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, The Chase
Manhattan Bank shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section 9 shall be the
responsibility of the Fund. The Chase Manhattan Bank will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
27. Ownership Certificates for Tax Purposes. The Chase Manhattan Bank
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities of the Fund held by it and in connection with
transfers of securities.
26
<PAGE>
28. Effective Period; Termination and Amendment.
-------------------------------------------
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that The Chase Manhattan Bank shall not act under Section 8 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities Depository or Book Entry System, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended;
provided further, however, that the Fund shall not amend or terminate this
Agreement in contravention of any applicable federal or state regulations, or
any provision of the Declaration of Trust, and further provided, that the Fund
may at any time by action of its Board of Trustees (i) substitute another bank
or trust company for The Chase Manhattan Bank by giving notice as described
above to The Chase Manhattan Bank, or (ii) immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for The Chase
Manhattan Bank by the Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to The Chase
Manhattan Bank such compensation as may be due as of the date of such
termination and shall likewise reimburse The Chase Manhattan Bank for its costs,
expenses and disbursements.
27
<PAGE>
29. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees of the
Fund, The Chase Manhattan Bank shall, upon termination, deliver to such
successor custodian at the office of the custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Fund's securities held in a
Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, The Chase Manhattan Bank
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
The Chase Manhattan Bank on or before the date when such termination shall
become effective, then The Chase Manhattan Bank shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
The Chase Manhattan Bank and all instruments held by The Chase Manhattan
relative thereto and all other property held by it under this Agreement and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities Depository or Book Entry System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of The Chase Manhattan Bank after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of
28
<PAGE>
the Board of Trustees to appoint a successor custodian, The Chase Manhattan Bank
shall be entitled to fair compensation for its services during such period as
The Chase Manhattan Bank retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of The Chase Manhattan Bank shall remain in full force and effect.
30. Notices. All notices and other communications (collectively referred
to as "Notice" or "Notices") in this section hereunder shall be in writing and
shall be first sent by telegram, cable, telex, or facsimile sending device and
thereafter by overnight mail for delivery on the next business day. Notices
shall be addressed (a) if to The Chase Manhattan Bank, at The Chase Manhattan
Bank's address, 4 New York Plaza, 3rd Floor, New York, New York, 10004,
facsimile number (212) 623-8997; (b) if to the Fund, at the address of the Fund
Attention: Controller, facsimile number (312) 917-8049; or (c) if to neither of
the foregoing, at such other address as shall have been notified to the sender
of any such Notice or other communication. Notices sent by overnight mail shall
be deemed to have been given the next business day. Notices sent by messenger
shall be deemed to have been given on the day delivered, and notices sent by
confirming telegram, cable, telex or facsimile sending device shall be deemed to
have been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. Additional Funds. In the event that the Fund establishes one or more
series of Shares in addition to the Nuveen Municipal Bond Fund, Nuveen Insured
Municipal Bond Fund, Nuveen Flagship All-American Municipal Bond Fund, Nuveen
Flagship Limited Term Municipal Bond Fund and Nuveen Flagship Intermediate
Municipal Bond Fund, with respect to which
29
<PAGE>
it desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a Fund
hereunder.
34. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors.
35. Declaration of Trust. The Fund's Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts. This agreement is executed
on behalf of the Fund by the Fund's officers as officers and not individually
and the obligations imposed upon the Fund by this Agreement are not binding upon
any of the Fund's Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Fund.
30
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE CHASE MANHATTAN BANK
Attest: /s/ Thomas V. DiBella By: /s/ Peter C. Arrighetti
---------------------------- ----------------------------
THOMAS V. DIBELLA PETER C. ARRIGHETTI
VICE PRESIDENT SENIOR VICE PRESIDENT
NUVEEN FLAGSHIP MULTISTATE
TRUST III
Attest: /s/ Gifford R. Zimmerman By: /s/ O. Walter Renfftlen
---------------------------- ----------------------------
GIFFORD R. ZIMMERMAN O. WALTER RENFFTLEN
ASSISTANT GENERAL COUNSEL VICE PRESIDENT &
CONTROLLER
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Appendix A
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
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EXHIBIT A
---------
CUSTODY SERVICE FEE
-------------------
Administration and Maintenance Fee
- ----------------------------------
.01375% (1 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
.0075% (3/4 Basis Point) on third $10 billion
.005% (1/2 Basis Point) on remainder
Transaction Fees
- ----------------
$15.00 Per Book Entry Transaction
$25.00 Per Physical Transaction
$35.00 Per Future Contract or Option wire
$8.00 Per outgoing Wire Transfer for ETFs
$5.00 Per incoming and outgoing Wire Transfer
for Open End and Money Market Funds
NOTES:
1. Schedule should be applied to total assets for all Exchange Traded funds,
Open End Load Funds, and Money Market Funds.
2. Add $5.00 per book entry transaction and physical transaction if Custody
inputs trades.
BALANCES
--------
1. During each month, daily net overdrafts are offset by daily net cash
balances dollar for dollar with no penalty or charge for daily net
overdrafts.
2. At the end of each month, the net overdraft for the month incurs an
overdraft charge computed as follows:
The negative net cumulative balance plus 10% reserves multiplied by
the average monthly Fed Funds rate divided by 365 days.
3. Net credit balance at month end carries forward and is eligible for offset
with overdrafts in the next month. The carry forward net credit balance
incurs a 10% reduction. Carry forward balances expire at the end of each
portfolio's fiscal year end for "fully invested funds"; for new funds not
fully invested, the credit balance carries forward until the fund becomes
fully invested. Each series of the Fund will use its best efforts to keep
its cumulative balances at each calendar quarter end below $50 million.
4. Nuveen Institutional Advisory Corp. or Nuveen Advisory Corp. will be
responsible for promptly advising The Chase Manhattan Bank of the date a
new fund becomes fully invested.
5. Effective January 1, 1996, FDIC charges will be no longer applied to the
portfolios.
6. Overdrafts are permissible only as a means of compensating for positive
balances.
7. Due to FDIC capitalization requirements, overdrafts are not permissible on
June 30th and December 31st.
33
<PAGE>
EXHIBIT 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
NUVEEN FLAGSHIP MULTISTATE TRUST III
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Terms of Appointment; Duties of the Bank...................... 1
2. Fees and Expenses............................................. 3
3. Representations and Warranties of the Bank.................... 4
4. Representations and Warranties of the Fund.................... 4
5. Wire Transfer Operating Guidelines............................ 5
6. Data Access and Proprietary Information....................... 6
7. Indemnification............................................... 8
8. Standard of Care.............................................. 9
9. Covenants of the Fund and the Bank............................ 9
10. Termination of Agreement...................................... 10
11. Additional Funds.............................................. 10
12. Assignment.................................................... 10
13. Amendment..................................................... 11
14. Massachusetts Law to Apply.................................... 11
15. Force Majeure................................................. 11
16. Consequential Damages......................................... 11
17. Merger of Agreement........................................... 11
18. Limitations of Liability of the Trustees
or Shareholders............................................... 11
19. Counterparts.................................................. 11
20. Reproduction of Documents..................................... 12
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of February, 1997, by and between NUVEEN
FLAGSHIP MULTISTATE TRUST III, a Massachusetts business trust, having its
principal office and place of business at, 333 Wacker Drive, Chicago,
Illinois 60606 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in six series, Nuveen
Flagship Alabama Municipal Bond Fund, Nuveen Flagship Georgia Municipal Bond
Fund, Nuveen Flagship Louisiana Municipal Bond Fund, Nuveen Flagship North
Carolina Municipal Bond Fund, Nuveen Flagship South Carolina Municipal Bond
Fund, and Nuveen Flagship Tennessee Municipal Bond Fund (each such series,
together with all other series subsequently established by the Fund and made
subject to such series, together with all other series subsequently established
by the Fund and made subject to this Agreement in accordance with Article 11,
being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent and agent in connection with certain
other activities, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its beneficial interest, $.01 par value,
("Shares"), dividend disbursing agent and agent in connection with any
accumulation, open-account or similar plans provided to the shareholders of
each of the respective Portfolios of the Fund ("Shareholders") and set out
in the currently effective prospectus and statement of additional
information ("prospectus") of the Fund on behalf of the applicable
Portfolio, including without limitation any periodic investment plan or
periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly
1
<PAGE>
deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Declaration of
Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with broker-
dealers authorized by the Fund who shall thereby be deemed to be
acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged to
have been lost, stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and protecting the Bank
and the Fund, and the Bank at its option, may issue replacement
certificates in place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of shares of
the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. The Bank shall also provide
the Fund on a regular basis with the total number of shares which
are authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the
2
<PAGE>
above paragraph (a), the Bank shall: (i) perform the customary
services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies,
receiving and tabulating proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required
with respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees
on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time subject
to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited
3
<PAGE>
to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage, or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or with
the consent of the Fund, will be reimbursed by the Fund on behalf of the
applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4
<PAGE>
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
Code
5.1 The Bank is authorized to promptly debit the appropriate Fund account(s)
upon the receipt of a payment order in compliance with the selected
security procedure (the "Security Procedure") chosen for funds transfer and
in the amount of money that the Bank has been instructed to transfer. The
Bank shall execute payment orders in compliance with the Security Procedure
and with the Fund instructions on the execution date provided that such
payment order is received by the customary deadline for processing such a
request, unless the payment order specifies a later time. All payment
orders and communications received after this the customary deadline will
be deemed to have been received the next business day.
5.2 The Fund acknowledges that the Security Procedure it has designated on the
Fund Selection Form was selected by the Fund from security procedures
offered by the Bank. The Fund shall restrict access to confidential
information relating to the Security Procedure to authorized persons as
communicated to the Bank in writing. The Fund must notify the Bank
immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Fund's
authorized personnel. The Bank shall verify the authenticity of all Fund
instructions according to the Security Procedure.
5.3 The Bank shall process all payment order on the basis of the account number
contained in the payment order. In the event of a discrepancy between any
name indicated on the payment order and the account number, the account
number shall take precedence and govern.
5.4 The Bank reserves the right to decline to process or delay the processing
of a payment order which (a) is in excess of the collected balance in the
account to be charged at the time of the Bank's receipt of such payment
order; (b) if initiating such payment order would cause the Bank, in the
Bank's sole judgement, to exceed any volume, aggregate dollar, network,
time, credit or similar limits which are applicable to the Bank; or (c) if
the Bank, in good faith, is unable to satisfy itself that the transaction
has been properly authorized.
5.5 The Bank shall use reasonable efforts to act on all authorized requests to
cancel or amend payment orders received in compliance with the Security
Procedure provided that such requests are received in a timely manner
affording the Bank reasonable opportunity to act. However, the Bank assumes
no liability if the request for amendment or cancellation cannot be
satisfied.
5
<PAGE>
5.6 The Bank shall assume no responsibility for failure to detect any erroneous
payment order provided that the Bank complies with the payment order
instructions as received and the Bank complies with the Security Procedure.
The Security Procedure is established for the purpose of authenticating
payment orders only and not for the detection of errors in payment orders.
5.7 The Bank shall assume no responsibility for lost interest with respect to
the refundable amount of any unauthorized payment order, unless the Bank
is notified of the unauthorized payment order within thirty (30) days or
notification by the Bank of the acceptance of such payment order. In no
event (including failure to execute a payment order) shall the Bank be
liable for special, indirect or consequential damages, even if advised of
the possibility of such damages.
5.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Bank will act as an Originating Depository Financial
Institution and/or receiving depository Financial Institution, as the case
may be, with respect to such entries. Credits given by the Bank with
respect to an ACH credit entry are provisional until the Bank receives
final settlement for such entry from the Federal Reserve Bank. If the Bank
does not receive such final settlement, the Fund agrees that the Bank shall
receive a refund of the amount credited to the Fund in connection with such
entry, and the party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within twenty four (24) hours notice of which may be delivered
through the Bank's proprietary information systems, or by facsimile or
call-back. Fund must report any objections to the execution of an order
within thirty (30) days.
6. Data Access and Proprietary Information
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
6
<PAGE>
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the contents of such data and the Fund agrees to make no claim against
the Bank arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL
COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS
ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
7. Indemnification
7.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against,
any and all losses,
7
<PAGE>
damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer
agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiations and processing of checks made payable to prospective
or existing Shareholders tendered to the Bank for the purchase of
Shares, such checks are commonly known as "third party checks."
7.2 At any time the Bank may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund on behalf of the applicable
Portfolio for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper
or document, reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means
authorized by the Fund, and shall not be held to have notice of any change
of authority of any person, until receipt of written notice thereof from
the Fund. The Bank, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers
of the Fund, and the proper countersignature of any former transfer agent
or former registrar, or of a co-transfer agent or co-registrar.
8
<PAGE>
7.3 In order that the indemnification provisions contained in this Section 7
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend against
said claim in its own name or in the name of the Bank. The Bank shall in no
case confess any claim or make any compromise in any case in which the Fund
may be required to indemnify the Bank except with the Fund's prior written
consent.
8. Standard of Care
8.1 The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but shall be liable for loss or damage due
to errors only if said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees and otherwise shall not be held
responsible or liable.
8.2 If the Fund suffers a loss for which the Bank is liable under section 8.1
hereunder the Bank's obligation to the Fund shall include the Fund's
counsel fees and expenses directly arising out of or attributable to such
liability.
9. Covenants of the Fund and the Bank
9.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms
and devices.
9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Fund Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
9
<PAGE>
9.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
10. Termination of Agreement
10.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
10.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the average
of three (3) months' fees.
11. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Portfolio with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide
such services, such series of Shares shall become a Portfolio hereunder.
12. Assignment
12.1 Except as provided in Section 12.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
12.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
12.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc.,
a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
10
<PAGE>
13. Amendment
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
14. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
15. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
16. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
17. Merger of Agreement
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
18. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
19. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
11
<PAGE>
20. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction shall likewise
be admissible in evidence
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
NUVEEN FLAGSHIP MULTISTATE TRUST III
By: /s/ Anna Kucinskis
--------------------
ATTEST:
/s/ Gifford R. Zimmerman
- ------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
--------------------------
Executive Vice President
ATTEST:
/s/ Steven Cesso
- ------------------------
13
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase of Shares. X X
2. Issue Shares and hold Shares in Shareholders X
accounts.
3. Receive redemption requests. X X
4. Effect transactions 1-3 above directly with X X
broker-dealers.
5. Pay over monies to redeeming Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends and distributions. X
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and accurate control X
book for each issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current Shareholders. X X
15. Withhold taxes on U.S. resident and non-resident X
alien accounts.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation X
statements for Shareholders.
18. Provide Shareholder account information. X
19. Blue sky reporting. X
* Such services are more fully described in Section 1.2 (a), (b) and (c) of
the Agreement.
</TABLE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
BY: /s/ Anna Kucinskis
_______________________________
ATTEST:
/s/ Gifford R. Zimmerman
___________________________________
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
_______________________________
Executive Vice President
ATTEST:
/s/ Steven Cesso
____________________________________
15
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST I
NUVEEN FLAGSHIP MULTISTATE TRUST II
NUVEEN FLAGSHIP MULTISTATE TRUST III
NUVEEN FLAGSHIP MULTISTATE TRUST IV
General - Fees are based on annual per shareholder account charges for account
maintenance plus out-of-pocket expenses. Annual maintenance charges for various
kinds of mutual funds are given below. There is a minimum charge of $1,000.00
per fund or class of shares. This minimum will be waived for the six-month
period, February 1, 1997 through July 31, 1997.
Annual Maintenance Charges - Fees are billable on a monthly basis at the rate of
1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes.
Type (A) Fund 0-$75 million in assets $13.50
Type (B) Fund $75-$150 million in assets $15.50
Type (C) Fund Over $150 million in assets $16.50
The per account maintenance fee will be adjusted annually based on each fund's
assets as of the first day of June. Multiple classes of shares will be billed as
a separate Fund.
Other Fees - The following features will each be assessed an additional charge
as an add-on to the annual per account rate if they are present:
12B-1 $ 5.50 per account*
Manually entered share and maintenance transactions $ 1.00 each
Closed Accounts per account, per month $ 0.10
Disaster Recovery/Emergency backup per account
serviced, per year $ 0.25
* This fee will be reduced to $4.50 for the six-month period, February 1, 1997
through July 31, 1997.
Out-of-Pocket Expenses - Out-of-pocket expenses include but are not limited to:
Confirmation statements, postage, forms, ACH, telephone, microfilm, microfiche,
proxy tabulation, checkwriting and other expenses incurred at the specific
direction of the Fund.
<PAGE>
NUVEEN FLAGSHIP MUNICIPAL TRUST STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST I STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST II STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST III STATE STREET BANK AND TRUST CO.
By: /s/ Anna Kucinskis By: /s/ Ronald E. Logue
------------------------------- ----------------------------------
Title: Vice President Title: Executive Vice President
---------------------------- -------------------------------
Date: 3/24/97 Date: March 20, 1997
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST IV STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
<PAGE>
Exhibit 10
September 22, 1997
Nuveen Flagship Multistate Trust III
333 West Wacker Drive
Chicago, Illinois 60606
RE: Registration Statement on Form N-1A
Under the Securities Act of 1933
(File No. 333-16611)
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Nuveen Flagship Multistate Trust III, a
Massachusetts voluntary association (commonly known as a business trust) (the
"Trust"), in connection with the above-referenced Registration Statement on Form
N-1A (as amended, the "Registration Statement") which relates to the Class A
Shares, Class B Shares, Class C Shares and Class R Shares of the Nuveen Flagship
Alabama Municipal Bond Fund, the Nuveen Flagship Georgia Municipal Bond Fund,
the Nuveen Flagship Louisiana Municipal Bond Fund, the Nuveen Flagship North
Carolina Municipal Bond Fund, the Nuveen Flagship South Carolina Municipal Bond
Fund, and the Nuveen Flagship Tennessee Municipal Bond Fund (collectively, the
"Series"). This opinion is being delivered to you in connection with the Trust's
filing of Post-Effective Amendment No. 1 to the Registration Statement (the
"Amendment") to be filed with the Securities and Exchange Commission on or about
September 23, 1997 pursuant to Rule 485(b) of the Securities Act of 1933 (the
"1933 Act"). With your permission, all assumptions and statements of reliance
herein have been made without any independent investigation or verification on
our part except to the extent otherwise expressly stated, and we express no
opinion with respect to the subject matter or accuracy of such assumptions or
items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;
(b) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and of all
amendments thereto on file with the office of the Secretary of State
(the "Charter");
<PAGE>
Nuveen Flagship Multistate Trust III
September 22, 1997
Page 2
(c) a certificate executed by Karen L. Healy, an Assistant Secretary of
the Trust, certifying as to, and attaching copies of, the Charter and
the By-Laws (the "By-Laws"), and certain resolutions adopted by the
Board of Trustees of the Trust authorizing the issuance of the Shares;
and
(d) a printer's proof, dated September 19, 1997, of the Amendment.
In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinions hereinafter expressed. In all such examinations, we have
assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinion, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representatives of the Trust. We have assumed that the Registration Statement,
as filed with the Securities and Exchange Commission, will be in substantially
the form of the printer's proof referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Trust's
Charter and By-Laws, and for the consideration described in the Registration
Statement, will be legally issued, fully paid and non-assessable, except that,
as set forth in the Registration Statement, shareholders of the Trust may, under
certain circumstances, be held personally liable for its obligations.
The opinion expressed herein is limited to the laws of the Commonwealth of
Massachusetts.
<PAGE>
Nuveen Flagship Multistate Trust III
September 22, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Thomas S. Harman
-------------------------------------
Thomas S. Harman
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 333-16611, of our reports dated July 11, 1997, relating to the Nuveen
Flagship Multistate Trust III, including Nuveen Flagship Alabama Municipal Bond
Fund, Nuveen Flagship Georgia Municipal Bond Fund, Nuveen Flagship Louisiana
Municipal Bond Fund, Nuveen Flagship North Carolina Municipal Bond Fund, Nuveen
Flagship South Carolina Municipal Bond Fund, and Nuveen Flagship Tennessee
Municipal Bond Fund, included in the Statement of Additional Information and to
the references to us under the headings "Financial Highlights" and "Independent
Public Accountants and Custodians" in such Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, Ohio
September 19, 1997
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE FIGURES*
I. YIELD
A. Yield Formula
Yield is computed according the following formula:
[ ( A - B ) 6 ]
YIELD = 2 [ ( ------- + 1 ) - 1 ]
[ ( CD ) ]
Where:
A = dividends and interest(degrees) earned during the period.
B = expenses accrued for the period (net of reimbursements).
C = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
D = the maximum offering price per share on the last day of the period.
- --------
*The maximum sales charge in effect during the periods shown was 4.20%.
(degrees)Interest earned on tax-exempt obligations is determined as follows:
A. In the case of a tax-exempt obligation (1) with a current market premium
or (2) issued at a discount where the current market discount is less
than the then-remaining portion of the original issue discount, it is
necessary to first compute the yield to maturity (YTM). The YTM is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (plus accrued interest).
B. In the case of a tax-exempt obligation issued at a discount where the
current market discount is in excess of the then-remaining portion of the
original issue discount, the adjusted original issue discount basis of
the obligation (plus accrued interest) is used in lieu of the market
value of the obligation (plus accrued interest) in computing the yield to
maturity (YTM). The YTM is then divided by 360 and the quotient is multi-
plied by the adjusted original issue basis of the obligation (plus ac-
crued interest).
C. In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of inter-
est is used in lieu of the yield to maturity. The coupon rate is then di-
vided by 360 and the quotient is multiplied by the par value of the obli-
gation.
B. Yield Calculations
1. Alabama Municipal Bond Fund
The following is a 30-day yield as of May 31, 1997, for the Class A Shares
of the Fund:
[ ( [$ 18,024.81 - $58.70] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 417,169.66 X $10.56] ) ]
= 4.94%
The following is a 30-day yield as of May 31, 1997, for the Class B Shares
of the Fund:
[ ( [$ 1,877.28 - $256.69] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 45,121.98 X $ 10.14] ) ]
= 4.29%
The following is a 30-day yield as of May 31, 1997, for the Class C Shares
of the Fund:
[ ( [$ 422.27 - $28.01] ) 6 ]
Yield = 2 [ ( --------------------- + 1 ) - 1 ]
[ ( [ 10,161.14 X $10.14] ) ]
= 4.64%
1
<PAGE>
The following is a 30-day yield as of May 31, 1997, for the Class R Shares
of the Fund:
[ ( [$ .45 - $ .00] ) 6 ]
Yield = 2 [ ( ---------------- + 1 ) - 1 ]
[ ( [ 9.92 X $10.13] ) ]
= 5.43%
2. Georgia Municipal Bond Fund
The following is a 30-day yield as of May 31, 1997, for the Class A Shares
of the Fund:
[ ( [$ 524,325.46 - $46,960.98] ) 6 ]
Yield = 2 [ ( ----------------------------- + 1 ) - 1 ]
[ ( [ 10,559,800.53 X $ 11.03] ) ]
= 4.97%
The following is a 30-day yield as of May 31, 1997, for the Class B Shares
of the Fund:
[ ( [$ 467.17 - $102.38] ) 6 ]
Yield = 2 [ ( --------------------- + 1 ) - 1 ]
[ ( [ 9,413.40 X $ 10.57] ) ]
= 4.44%
The following is a 30-day yield as of May 31, 1997, for the Class C Shares
of the Fund:
[ ( [$ 55,741.19 - $10,323.64] ) 6 ]
Yield = 2 [ ( ---------------------------- + 1 ) - 1 ]
[ ( [ 1,124,973.78 X $ 10.55] ) ]
= 4.64%
The following is a 30-day yield as of May 31, 1997, for the Class R Shares
of the Fund:
[ ( [$ 101.53 - $ 5.48] ) 6 ]
Yield = 2 [ ( --------------------- + 1 ) - 1 ]
[ ( [ 2,044.93 X $ 10.57] ) ]
= 5.39%
3. Louisiana Municipal Bond Fund
The following is a 30-day yield as of May 31, 1997, for the Class A Shares
of the Fund:
[ ( [$ 358,958.92 - $39,846.03] ) 6 ]
Yield = 2 [ ( ---------------------------- + 1 ) - 1 ]
[ ( [ 6,852,518.90 X $ 11.59] ) ]
= 4.87%
The following is a 30-day yield as of May 31, 1997, for the Class B Shares
of the Fund:
[ ( [$ 3.922.47 - $938.90] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 74,903.47 X $ 11.09] ) ]
= 4.35%
The following is a 30-day yield as of May 31, 1997, for the Class C Shares
of the Fund:
[ ( [$ 35,679.97 - $7,351.52] ) 6 ]
Yield = 2 [ ( ------------------------- + 1 ) - 1 ]
[ ( [ 681,503.41 X $ 11.09] ) ]
= 4.54%
The following is a 30-day yield as of May 31, 1997, for the Class R Shares
of the Fund:
[ ( [$ .47 - $ .00] ) 6 ]
Yield = 2 [ ( ---------------- + 1 ) - 1 ]
[ ( [ 9.01 X $11.09] ) ]
= 5.71%
2
<PAGE>
4. North Carolina Municipal Bond Fund
The following is a 30-day yield as of May 31, 1997, for the Class A Shares
of the Fund:
[ ( [$ 832,703.90 - $128,113.14] ) 6 ]
Yield = 2 [ ( ------------------------------ + 1 ) - 1 ]
[ ( [ 17,727,293.82 X $ 10.73] ) ]
= 4.49%
The following is a 30-day yield as of May 31, 1997, for the Class B Shares
of the Fund:
[ ( [$ 1,099.41 - $316.54] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 23,397.44 X $ 10.28] ) ]
= 3.94%
The following is a 30-day yield as of May 31, 1997, for the Class C Shares
of the Fund:
[ ( [$ 32,576.45 - $8,215.63] ) 6 ]
Yield = 2 [ ( ------------------------- + 1 ) - 1 ]
[ ( [ 694,593.42 X $ 10.26] ) ]
= 4.14%
The following is a 30-day yield as of May 31, 1997, for the Class R Shares
of the Fund:
[ ( [$ 1,850.94 - $218.59] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 39,406.08 X $ 10.28] ) ]
= 4.88%
5. South Carolina Municipal Bond Fund
The following is a 30-day yield as of May 31, 1997, for the Class A Shares
of the Fund:
[ ( [$ 47,545.21 - $3,282.38] ) 6 ]
Yield = 2 [ ( --------------------------- + 1 ) - 1 ]
[ ( [ 1,053,266.88 X $ 9.95] ) ]
= 5.12%
The following is a 30-day yield as of May 31, 1997, for the Class B Shares
of the Fund:
[ ( [$ 760.50 - $151.00] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 16,859.20 X $ 9.52] ) ]
= 4.60%
The following is a 30-day yield as of May 31, 1997, for the Class C Shares
of the Fund:
[ ( [$ 804.50 - $131.62] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 17,778.66 X $ 9.52] ) ]
= 4.82%
The following is a 30-day yield as of May 31, 1997, for the Class R Shares
of the Fund:
[ ( [$ 118.43 - $4.15] ) 6 ]
Yield = 2 [ ( ------------------- + 1 ) - 1 ]
[ ( [ 2,621.01 X $9.54] ) ]
= 5.55%
6. Tennessee Municipal Bond Fund
The following is a 30-day yield as of May 31, 1997, for the Class A Shares
of the Fund:
[ ( [$ 1,181,561.96 - $108,918.30] ) 6 ]
Yield = 2 [ ( ------------------------------ + 1 ) - 1 ]
[ ( [ 23,309,172.64 X $ 11.54] ) ]
= 4.83%
3
<PAGE>
The following is a 30-day yield as of May 31, 1997, for the Class B Shares
of the Fund:
[ ( [$ 2,309.62 - $518.57] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 45,533.30 X $ 11.06] ) ]
= 4.31%
The following is a 30-day yield as of May 31, 1997, for the Class C Shares
of the Fund:
[ ( [$ 69,101.85 - $13,244.25] ) 6 ]
Yield = 2 [ ( ---------------------------- + 1 ) - 1 ]
[ ( [ 1,371,834.87 X $ 11.05] ) ]
= 4.49%
The following is a 30-day yield as of May 31, 1997, for the Class R Shares
of the Fund:
[ ( [$ 948.26 - $47.43] ) 6 ]
Yield = 2 [ ( ---------------------- + 1 ) - 1 ]
[ ( [ 18,731.70 X $ 11.04] ) ]
= 5.28%
II. TAXABLE EQUIVALENT YIELD
A. Taxable Equivalent Yield Formula
The Taxable Equivalent Yield Formula is as follows:
Tax Exempt Yield
Taxable Equivalent -------------------------------------
Yield = (1 - combined federal and state in-
come tax rate)
B. Taxable Equivalent Yield Calculations
Based on combined federal and state income tax rates of 41.5% for Alabama,
43.0% for Georgia and Tennessee, 42.0% for Louisiana, 44.5% for North Carolina,
and 44.0% for South Carolina, the Taxable Equivalent Yields for the Class A
Shares, Class B Shares, Class C Shares and Class R Shares, where applicable,
for the 30-day period ended May 31, 1997, are as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares Class R Shares
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Alabama Municipal
Bond Fund: 4.94% 4.29% 4.64% 5.43%
-------- = 8.44% -------- = 7.33% -------- = 7.93% -------- = 9.28%
1 - .415 1 - .415 1 - .415 1 - .415
Georgia Municipal
Bond Fund: 4.97% 4.44% 4.64% 5.39%
-------- = 8.72% -------- = 7.79% -------- = 8.14% -------- = 9.46%
1 - .430 1 - .430 1 - .430 1 - .430
Louisiana Municipal
Bond Fund: 4.87% 4.35% 4.54% 5.71%
-------- = 8.40% -------- = 7.50% -------- = 7.83% -------- = 9.84%
1 - .420 1 - .420 1 - .420 1 - .420
North Carolina Municipal
Bond Fund: 4.49% 3.94% 4.14% 4.88%
-------- = 8.09% -------- = 7.10% -------- = 7.46% -------- = 8.79%
1 - .445 1 - .445 1 - .445 1 - .445
South Carolina Municipal
Bond Fund: 5.12% 4.60% 4.82% 5.55%
-------- = 9.14% -------- = 8.21% -------- = 8.61% -------- = 9.91%
1 - .440 1 - .440 1 - .440 1 - .440
Tennessee Municipal
Bond Fund: 4.83% 4.31% 4.49% 5.28%
-------- = 8.47% -------- = 7.56% -------- = 7.88% -------- = 9.26%
1 - .430 1 - .430 1 - .430 1 - .430
</TABLE>
4
<PAGE>
III. DISTRIBUTION RATE
A. Distribution Rate Formula
The formula for calculation of distribution rate is as follows:
Distribution Rate = 12 X most recent tax-exempt income dividend per share
-----------------------------------------------------
share price
B. Distribution Rate Calculations
1. Alabama Municipal Bond Fund:
The following is the distribution rate as of May 31, 1997, based on the maxi-
mum public offering price for the Alabama Municipal Bond Fund.
Class A Distribution Rate = 12 X $.0442
-----------
$10.56
= 5.02%
Class B Distribution Rate = 12 X $.0379
-----------
$10.14
= 4.49%
Class C Distribution Rate = 12 X $.0396
-----------
$10.14
= 4.69%
Class R Distribution Rate = 12 X $.0459
-----------
$10.13
= 5.44%
2. Georgia Municipal Bond Fund:
The following is the distribution rate as of May 31, 1997, based on the maxi-
mum public offering price for the Georgia Municipal Bond Fund.
Class A Distribution Rate = 12 X $.0471
-----------
$11.03
= 5.12%
Class B Distribution Rate = 12 X $.0405
-----------
$10.57
= 4.60%
Class C Distribution Rate = 12 X $.0422
-----------
$10.55
= 4.80%
Class R Distribution Rate = 12 X $.0489
-----------
$10.57
= 5.55%
5
<PAGE>
3. Louisiana Municipal Bond Fund:
The following is the distribution rate as of May 31, 1997, based on maximum
public offering price for the Louisiana Municipal Bond Fund.
Class A Distribution Rate = 12 X $.049
----------
$11.59
= 5.07%
Class B Distribution Rate = 12 X $.0421
-----------
$11.09
= 4.56%
Class C Distribution Rate = 12 X $.0438
-----------
$11.09
= 4.74%
Class R Distribution Rate = 12 X $.0508
-----------
$11.09
= 5.50%
4. North Carolina Municipal Bond Fund:
The following is the distribution rate as of May 31, 1997, based on maximum
public offering price for the North Carolina Municipal Bond Fund.
Class A Distribution Rate = 12 X $.0445
-----------
$10.73
= 4.98%
Class B Distribution Rate = 12 X $.0381
-----------
$10.28
= 4.45%
Class C Distribution Rate = 12 X $.0397
-----------
$10.26
= 4.64%
Class R Distribution Rate = 12 X $.0462
-----------
$10.28
= 5.39%
5. South Carolina Municipal Bond Fund
The following is the distribution rate as of May 31, 1997, based on the maxi-
mum public offering price for the South Carolina Municipal Bond Fund:
Class A Distribution Rate = 12 X $.0417
-----------
$9.95
= 5.03%
6
<PAGE>
Class B Distribution Rate = 12 X $.0358
-----------
$9.52
= 4.51%
Class C Distribution Rate = 12 X $.0373
-----------
$9.52
= 4.70%
Class R Distribution Rate = 12 X $.0433
-----------
$9.54
= 5.45%
6. Tennessee Municipal Bond Fund
The following is the distribution rate as of May 31, 1997, based on the maxi-
mum public offering price for the Tennessee Municipal Bond Fund:
Class A Distribution Rate = 12 X $.0488
-----------
$11.54
= 5.07%
Class B Distribution Rate = 12 X $.0419
-----------
$11.06
= 4.55%
Class C Distribution Rate = 12 X $.0437
-----------
$11.05
= 4.75%
Class R Distribution Rate = 12 X $.0506
-----------
$11.04
= 5.50%
IV. AVERAGE ANNUAL TOTAL RETURN
A. Average Annual Total Return Formula
Average Annual Total Return is computed according to the following formula:
/1/N/
ERV
T = --- -1
P
Where: T = average annual total return.
P = a hypothetical initial payment of $1,000.
N = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10-year (or fractional portion thereof) pe-
riods at the end of such 1, 5 or 10-year (or fractional portion
thereof) periods.
7
<PAGE>
B. Average Annual Total Return Calculations
The following are the average annual total returns for Class A, B, C and R
Shares of the Funds for the period from inception and the 1, 5 and 10-year pe-
riods ended May 31, 1997, whichever applicable, including the current maximum
sales charge. Class B, C and R total returns reflect actual performance for pe-
riods since class inception and Class A performance for periods prior to class
inception, adjusted for the differences in sales charges (and for Class B and
C, fees) between the classes.
ANNUAL CLASS A TOTAL RETURN INCLUDING CURRENT MAXIMUM SALES CHARGE OF 4.20%:
1. Alabama Municipal Bond Fund:
( $1,046 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 4.63%
( $1,000 ) =====
( $1,194 ) 1/3.138
B. Inception through May 31, 1997 = ( -------- ) -1 = 5.83%
( $1,000 ) =====
2. Georgia Municipal Bond Fund:
( $1,048 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 4.79%
( $1,000 ) =====
( $1,320 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.71%
( $1,000 ) =====
( $2,039 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.39%
= ( $1,000 ) =====
( $2,139 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.99%
( $1,000 ) =====
3. Louisiana Municipal Bond Fund:
( $1,048 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 4.78%
( $1,000 ) =====
( $1,380 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.65%
( $1,000 ) =====
( $1,777 ) 1/7.715
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.74%
( $1,000 ) =====
4. North Carolina Municipal Bond Fund:
( $1,033 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 3.26%
( $1,000 ) =====
( $1,301 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.40%
( $1,000 ) =====
( $2,040 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.39%
( $1,000 ) =====
( $2,024 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.51%
( $1,000 ) =====
8
<PAGE>
5. South Carolina Municipal Bond Fund:
( $1,037 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 3.73%
( $1,000 ) =====
( $1,167 ) 1/3.901
B. Inception through May 31, 1997 = ( -------- ) -1 = 4.04%
( $1,000 ) =====
6. Tennessee Municipal Bond Fund:
( $1,032 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 3.18%
( $1,000 ) =====
( $1,323 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.76%
( $1,000 ) =====
( $1,973 ) 1/9.577
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.35%
( $1,000 ) =====
ANNUAL CLASS B TOTAL RETURN
1. Alabama Municipal Bond Fund:
( $1,048 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 4.79%
( $1,000 ) =====
( $1,197 ) 1/3.138
B. Inception through May 31, 1997 = ( -------- ) -1 = 5.91%
( $1,000 ) =====
2. Georgia Municipal Bond Fund:
( $1,047 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 4.73%
( $1,000 ) =====
( $1,330 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.87%
( $1,000 ) =====
( $2,037 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.38%
( $1,000 ) =====
( $2,137 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.98%
( $1,000 ) =====
9
<PAGE>
3. Louisiana Municipal Bond Fund:
A. 1 year ended May 31, 1997 ( $1,046 ) 1/1
= ( -------- ) -1 = 4.61%
( $1,000 ) =====
( $1,390 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.80%
( $1,000 ) =====
( $1,776 ) 1/7.715
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.73%
( $1,000 ) =====
4. North Carolina Municipal Bond Fund:
( $1,031 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 3.14%
( $1,000 ) =====
( $1,311 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.56%
( $1,000 ) =====
( $2,039 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.38%
( $1,000 ) =====
( $2,022 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.50%
( $1,000 ) =====
5. South Carolina Municipal Bond Fund:
( $1,035 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 3.52%
( $1,000 ) =====
( $1,161 ) 1/3.901
B. Inception through May 31, 1997 = ( -------- ) -1 = 3.89%
( $1,000 ) =====
6. Tennessee Municipal Bond Fund:
( $1,031 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 3.07%
( $1,000 ) =====
( $1,333 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.92%
( $1,000 ) =====
( $1,971 ) 1/9.577
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.34%
( $1,000 ) =====
ANNUAL CLASS C TOTAL RETURNS
1. Alabama Municipal Bond Fund:
( $1,090 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 9.00%
( $1,000 ) =====
( $1,235 ) 1/3.138
B. Inception through May 31, 1997 = ( -------- ) -1 = 6.95%
( $1,000 ) =====
10
<PAGE>
2. Georgia Municipal Bond Fund:
( $1,088 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 8.80%
( $1,000 ) =====
( $1,338 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.00%
( $1,000 ) =====
( $2,011 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.24%
( $1,000 ) =====
( $2,085 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.80%
( $1,000 ) =====
3. Louisiana Municipal Bond Fund:
( $1,088 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 8.78%
( $1,000 ) =====
( $1,400 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.97%
( $1,000 ) =====
( $1,777 ) 1/7.715
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.73%
( $1,000 ) =====
4. North Carolina Municipal Bond Fund:
( $1,072 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 7.20%
( $1,000 ) =====
( $1,319 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 5.69%
( $1,000 ) =====
( $2,012 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.24%
( $1,000 ) =====
( $1,983 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.31%
( $1,000 ) =====
5. South Carolina Municipal Bond Fund:
( $1,077 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 7.73%
( $1,000 ) =====
( $1,200 ) 1/3.901
B. Inception through May 31, 1997 = ( -------- ) -1 = 4.78%
( $1,000 ) =====
6. Tennessee Municipal Bond Fund:
( $1,071 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 7.12%
( $1,000 ) =====
( $1,342 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.07%
( $1,000 ) =====
( $1,952 ) 1/9.577
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.23%
( $1,000 ) =====
11
<PAGE>
ANNUAL CLASS R TOTAL RETURNS
1. Alabama Municipal Bond Fund:
( $1,094 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 9.38%
( $1,000 ) =====
( $1,249 ) 1/3.138
B. Inception through May 31, 1997 = ( -------- ) -1 = 7.34%
( $1,000 ) =====
2. Georgia Municipal Bond Fund:
( $1,095 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 9.46%
( $1,000 ) =====
( $1,379 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.64%
( $1,000 ) =====
( $2,130 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.86%
( $1,000 ) =====
( $2,224 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 7.41%
( $1,000 ) =====
3. Louisiana Municipal Bond Fund:
( $1,093 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 9.33%
( $1,000 ) =====
( $1,440 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 7.56%
( $1,000 ) =====
( $1,854 ) 1/7.715
C. Inception through May 31, 1997 = ( -------- ) -1 = 8.33%
( $1,000 ) =====
4. North Carolina Municipal Bond Fund:
( $1,079 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 7.86%
( $1,000 ) =====
( $1,359 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.33%
( $1,000 ) =====
( $2,131 ) 1/10
C. 10 years ended May 31, 1997 = ( -------- ) -1 = 7.86%
( $1,000 ) =====
( $2,114 ) 1/11.179
D. Inception through May 31, 1997 = ( -------- ) -1 = 6.93%
( $1,000 ) =====
5. South Carolina Municipal Bond Fund:
( $1,085 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 8.45%
( $1,000 ) =====
( $1,220 ) 1/3.901
B. Inception through May 31, 1997 = ( -------- ) -1 = 5.23%
( $1,000 ) =====
12
<PAGE>
6. Tennessee Municipal Bond Fund:
( $1,076 ) 1/1
A. 1 year ended May 31, 1997 = ( -------- ) -1 = 7.58%
( $1,000 ) =====
( $1,379 ) 1/5
B. 5 years ended May 31, 1997 = ( -------- ) -1 = 6.64%
( $1,000 ) =====
( $2,057 ) 1/9.577
C. Inception through May 31, 1997 = ( -------- ) -1 = 7.82%
( $1,000 ) =====
With respect to the Alabama, Georgia, Louisiana, North Carolina, South Carolina
and Tennessee Funds, Class A total returns reflect actual performance for all
periods; Classes B, C and R total returns reflect actual performance since
inception, and Class A performance for periods prior to class inception,
adjusted for the differences in sales charges (and for Class B and C, fees)
between the classes.
V. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
ERV - P
T = -------
P
Where: T = cumulative total return.
P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
inception of the Fund or at the first day of a specified 1-year, 5-
year or 10-year period.
B. Cumulative Total Return Calculation
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, for the one-year and ten-year
five-year periods (as applicable) ended November 30 1996, and for the period
since inception (on April 11, 1994 with respect to the Alabama Fund Class A
Shares; on March 27, 1986 with respect to the Georgia Fund Class A Shares and
on January 4, 1994 with respect to the Georgia Fund Class C Shares; on Septem-
ber 12, 1989 with respect to the Louisiana Fund Class A Shares on February 2,
1994 with respect to the Louisiana Fund Class C Shares; on March 27, 1986 with
respect to the North Carolina Fund Class A Shares and on October 4, 1993 with
respect to the North Carolina Fund Class C Shares; on July 6, 1993 with respect
to the South Carolina Fund Class A Shares; and on November 2, 1987 with respect
to the Tennessee Fund Class A Shares and on October 4, 1993 with respect to the
Tennessee Fund Class C Shares) through May 31, 1997 were as follows:
CUMULATIVE CLASS A TOTAL RETURNS INCLUDING CURRENT MAXIMUM SALES CHARGE OF
4.20%:
1. Alabama Municipal Bond Fund:
( $1,046 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 4.63%
( $1,000 ) =====
( $1,194 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 19.45%
( $1,000 ) ======
13
<PAGE>
2. Georgia Municipal Bond Fund:
( $1,048 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 4.79%
( $1,000 ) =====
( $1,320 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 32.00%
( $1,000 ) ======
( $2,039 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 103.92%
( $1,000 ) =======
( $2,129 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 112.88%
= ( $1,000 ) =======
3. Louisiana Municipal Bond Fund:
A. 1 year ended May 31, 1997 ( $1,048 - $1,000 )
= ( ----------------- ) = 4.78%
( $1,000 ) =====
( $1,380 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 37.99%
( $1,000 ) ======
( $1,777 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 77.69%
( $1,000 ) ======
4. North Carolina Municipal Bond Fund:
( $1,033 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 3.26%
( $1,000 ) =====
( $1,301 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 30.09%
( $1,000 ) ======
( $2,040 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 104.00%
( $1,000 ) =======
( $2,024 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 102.38%
( $1,000 ) =======
5. South Carolina Municipal Bond Fund:
( $1,037 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 3.73%
( $1,000 ) =====
( $1,167 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 16.72%
( $1,000 ) ======
6. Tennessee Municipal Bond Fund:
( $1,032 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 3.18%
( $1,000 ) =====
( $1,323 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 32.28%
( $1,000 ) ======
( $1,973 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 97.26%
( $1,000 ) ======
14
<PAGE>
CUMULATIVE CLASS B TOTAL RETURNS.*
1. Alabama Municipal Bond Fund:
( $1,048 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 4.79%
( $1,000 ) =====
( $1,197 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 19.73%
( $1,000 ) ======
2. Georgia Municipal Bond Fund:
( $1,047 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 4.73%
( $1,000 ) =====
( $1,330 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 32.99%
( $1,000 ) ======
( $2,037 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 103.73%
( $1,000 ) =======
( $2,127 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 112.69%
( $1,000 ) =======
3. Louisiana Municipal Bond Fund:
( $1,046 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 4.61%
( $1,000 ) =====
( $1,390 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 38.97%
( $1,000 ) ======
( $1,776 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 77.58%
( $1,000 ) ======
4. North Carolina Municipal Bond Fund:
( $1,031 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 3.14%
( $1,000 ) =====
( $1,311 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 31,08%
( $1,000 ) ======
( $2,039 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 103.87%
( $1,000 ) =======
( $2,022 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 102.25%
( $1,000 ) =======
5. South Carolina Municipal Bond Fund:
( $1,035 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 3.52%
( $1,000 ) =====
( $1,161 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 16.06%
( $1,000 ) ======
15
<PAGE>
6. Tennessee Municipal Bond Fund:
( $1,031 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 3.07%
( $1,000 ) =====
( $1,333 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 33.30%
( $1,000 ) ======
( $1,971 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 97.09%
( $1,000 ) ======
CUMULATIVE CLASS C TOTAL RETURNS
1. Alabama Municipal Bond Fund:
( $1,090 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 9.00%
( $1,000 ) =====
( $1,235 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 23.47%
( $1,000 ) ======
2. Georgia Municipal Bond Fund:
( $1,088 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 8.80%
( $1,000 ) =====
( $1,338 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 33.82%
( $1,000 ) ======
( $2,011 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 101.14%
( $1,000 ) =======
( $2,085 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 108.54%
( $1,000 ) =======
3. Louisiana Municipal Bond Fund:
( $1,088 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 8.78%
( $1,000 ) =====
( $1,400 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 40.03%
( $1,000 ) ======
( $1,777 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 77.66%
( $1,000 ) ======
4. North Carolina Municipal Bond Fund:
( $1,072 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 7.20%
( $1,000 ) =====
( $1,319 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 31.86%
( $1,000 ) ======
( $2,012 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 101.22%
( $1,000 ) =======
( $1,983 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 98.26%
( $1,000 ) ======
16
<PAGE>
5. South Carolina Municipal Bond Fund:
( $1,077 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 7.73%
( $1,000 ) =====
( $1,200 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 19.99%
( $1,000 ) ======
6. Tennessee Municipal Bond Fund:
( $1,071 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 7.12%
( $1,000 ) =====
( $1,342 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 34.24%
( $1,000 ) ======
( $1,952 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 95.21%
( $1,000 ) ======
CUMULATIVE CLASS R TOTAL RETURNS
1. Alabama Municipal Bond Fund:
( $1,094 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 9.38%
( $1,000 ) =====
( $1,249 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 24.87%
( $1,000 ) ======
2. Georgia Municipal Bond Fund:
( $1,095 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 9.46%
( $1,000 ) =====
( $1,379 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 37.88%
( $1,000 ) ======
( $2,130 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 113.01%
( $1,000 ) =======
( $2,224 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 122.36%
( $1,000 ) =======
17
<PAGE>
3. Louisiana Municipal Bond Fund:
( $1,093 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 9.33%
( $1,000 ) =====
( $1,440 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 43.98%
( $1,000 ) ======
( $1,854 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 85.40%
( $1,000 ) ======
4. North Carolina Municipal Bond Fund:
( $1,079 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 7.86%
( $1,000 ) =====
( $1,359 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 35.89%
( $1,000 ) ======
( $2,131 - $1,000 )
C. 10 years ended May 31, 1997 = ( ----------------- ) = 113.08%
( $1,000 ) =======
( $2,114 - $1,000 )
D. Inception through May 31, 1997 = ( ----------------- ) = 111.40%
( $1,000 ) =======
5. South Carolina Municipal Bond Fund:
( $1,085 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 8.45%
( $1,000 ) =====
( $1,220 - $1,000 )
B. Inception through May 31, 1997 = ( ----------------- ) = 22.02%
( $1,000 ) ======
6. Tennessee Municipal Bond Fund:
( $1,076 - $1,000 )
A. 1 year ended May 31, 1997 = ( ----------------- ) = 7.58%
( $1,000 ) =====
( $1,379 - $1,000 )
B. 5 years ended May 31, 1997 = ( ----------------- ) = 37.93%
( $1,000 ) ======
( $2,057 - $1,000 )
C. Inception through May 31, 1997 = ( ----------------- ) = 105.68%
( $1,000 ) =======
With respect to the Alabama, Georgia, Louisiana, North Carolina, South
Carolina and Tennessee Funds, Class A total returns reflect actual
performance for all periods; Classes B, C and R total returns reflect actual
performance since class inception, and Class A performance for periods prior to
class inception, adjusted for the differences in sales charges (and for Class B
and C, fees) between the classes.
18
<PAGE>
VI. TAXABLE EQUIVALENT TOTAL RETURN
A. Taxable Equivalent Total Return Formula
Each Fund's taxable equivalent total return for a specific period is calcu-
lated by first taking a hypothetical initial investment in the Fund's shares on
the first day of the period, computing the Fund's total return for each fiscal
year in the period according to the above formula, and increasing the total re-
turn for each such fiscal year by the amount of additional income that a tax-
able fund would need to have generated to equal the income of the Fund on an
after-tax basis, at a specified tax rate (usually the highest marginal federal
or combined federal and state tax rate), calculated pursuant to the formula
presented above under "taxable equivalent yield." The resulting amount for the
fiscal year is then divided by the initial investment amount to arrive at a
"taxable equivalent total return factor" for the fiscal year. The taxable
equivalent total return factors for all the fiscal years in the period are then
multiplied together and the result is then annualized by taking its Nth root (N
representing the number of years in the period) and subtracting 1, which pro-
vides a taxable equivalent total return expressed as a percentage.
B. Taxable Equivalent Total Return Calculations
The taxable equivalent total return calculations for the Class A Shares of
the Alabama Fund for the one-year period ended May 31, 1997 is set forth on the
following pages assuming a combined federal and state income tax rate of 41.5%
based on 1997 rates.
Fund Name: Alabama Municipal Bond Fund Class A
Since June 1, 1996
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/31/96 9.77 1,024 $10,000.00
6/30/96 9.87 0.0434 $44.463 $ -- $44.463 $ 44.463 1,028 $10,146.82 9.87
7/31/96 9.94 0.0449 $46.149 $ -- $46.149 $ 90.612 1,033 $10,264.93 9.94
8/31/96 9.86 0.0449 $46.357 $ -- $46.357 $136.969 1,037 $10,228.67 9.86
9/30/96 9.99 0.0434 $45.064 $ -- $45.064 $182.033 1,042 $10,408.60 9.99
10/31/96 10.06 0.0449 $46.771 $ -- $46.771 $228.804 1,047 $10,528.30 10.06
11/30/96 10.19 0.0434 $45.462 $ -- $45.462 $274.266 1,051 $10,709.81 10.19
12/31/96 10.10 0.0449 0.0000 $47.180 $ -- $47.180 $321.446 1,056 $10,662.40 10.10
1/31/97 10.06 0.0450 $47.516 $ -- $47.516 $368.963 1,060 $10,667.69 10.06
2/28/97 10.11 0.0442 $46.870 $ -- $46.870 $415.833 1,065 $10,767.72 10.08
3/31/97 9.93 0.0442 $47.075 $ -- $47.075 $462.908 1,070 $10,623.09 9.93
4/30/97 9.99 0.0442 $47.285 $ -- $47.285 $510.193 1,075 $10,734.47 10.01
5/31/97 10.12 0.0442 $47.494 $ -- $47.494 $557.687 $395.6 1,075 $11,317.27
</TABLE>
<TABLE>
<S> <C>
Tax Rate: 41.50%
Load: 0.00%
1 Year: 13.17%
Annualized: 13.17%
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND- Class A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 4865
<INVESTMENTS-AT-VALUE> 5012
<RECEIVABLES> 78
<ASSETS-OTHER> 496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5586
<PAYABLE-FOR-SECURITIES> 298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5109
<SHARES-COMMON-STOCK> 439
<SHARES-COMMON-PRIOR> 376
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147
<NET-ASSETS> 4445
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76
<OTHER-INCOME> 0
<EXPENSES-NET> 4
<NET-INVESTMENT-INCOME> 72
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 36
<NET-CHANGE-FROM-OPS> 104
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 69
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67
<NUMBER-OF-SHARES-REDEEMED> 7
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 1455
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32
<AVERAGE-NET-ASSETS> 3962
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.176
<PER-SHARE-GAIN-APPREC> 0.061
<PER-SHARE-DIVIDEND> (0.177)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 0.291
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND- Class B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 4865
<INVESTMENTS-AT-VALUE> 5012
<RECEIVABLES> 78
<ASSETS-OTHER> 496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5586
<PAYABLE-FOR-SECURITIES> 298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5109
<SHARES-COMMON-STOCK> 58
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147
<NET-ASSETS> 591
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76
<OTHER-INCOME> 0
<EXPENSES-NET> 4
<NET-INVESTMENT-INCOME> 72
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 36
<NET-CHANGE-FROM-OPS> 104
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1455
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32
<AVERAGE-NET-ASSETS> 149
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> 0.113
<PER-SHARE-GAIN-APPREC> (.019)
<PER-SHARE-DIVIDEND> (.114)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 0.705
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND- Class C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 4865
<INVESTMENTS-AT-VALUE> 5012
<RECEIVABLES> 78
<ASSETS-OTHER> 496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5586
<PAYABLE-FOR-SECURITIES> 298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5109
<SHARES-COMMON-STOCK> 20
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147
<NET-ASSETS> 205
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76
<OTHER-INCOME> 0
<EXPENSES-NET> 4
<NET-INVESTMENT-INCOME> 72
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 36
<NET-CHANGE-FROM-OPS> 104
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1455
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32
<AVERAGE-NET-ASSETS> 36
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> 0.121
<PER-SHARE-GAIN-APPREC> (.022)
<PER-SHARE-DIVIDEND> (.119)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND- Class R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 4865
<INVESTMENTS-AT-VALUE> 5012
<RECEIVABLES> 78
<ASSETS-OTHER> 496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5586
<PAYABLE-FOR-SECURITIES> 298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5109
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 76
<OTHER-INCOME> 0
<EXPENSES-NET> 4
<NET-INVESTMENT-INCOME> 72
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 36
<NET-CHANGE-FROM-OPS> 104
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1455
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> 0.162
<PER-SHARE-GAIN-APPREC> (.054)
<PER-SHARE-DIVIDEND> (.138)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND--CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 115759
<INVESTMENTS-AT-VALUE> 122097
<RECEIVABLES> 2799
<ASSETS-OTHER> 417
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 125313
<PAYABLE-FOR-SECURITIES> 990
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 866
<TOTAL-LIABILITIES> 1856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119726
<SHARES-COMMON-STOCK> 10551
<SHARES-COMMON-PRIOR> 10494
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2608)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6339
<NET-ASSETS> 111518
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2487
<OTHER-INCOME> 0
<EXPENSES-NET> 266
<NET-INVESTMENT-INCOME> 2221
<REALIZED-GAINS-CURRENT> 119
<APPREC-INCREASE-CURRENT> 503
<NET-CHANGE-FROM-OPS> 2843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1989
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 543
<NUMBER-OF-SHARES-REDEEMED> 551
<SHARES-REINVESTED> 65
<NET-CHANGE-IN-ASSETS> 2349
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2727)
<OVERDISTRIB-NII-PRIOR> (44)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 376
<AVERAGE-NET-ASSETS> 110620
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .192
<PER-SHARE-GAIN-APPREC> .056
<PER-SHARE-DIVIDEND> (0.188)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 0.608
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND--CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 115759
<INVESTMENTS-AT-VALUE> 122097
<RECEIVABLES> 2799
<ASSETS-OTHER> 417
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 125313
<PAYABLE-FOR-SECURITIES> 990
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 866
<TOTAL-LIABILITIES> 1856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119726
<SHARES-COMMON-STOCK> 11
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2608)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6339
<NET-ASSETS> 113
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2487
<OTHER-INCOME> 0
<EXPENSES-NET> 266
<NET-INVESTMENT-INCOME> 2221
<REALIZED-GAINS-CURRENT> 119
<APPREC-INCREASE-CURRENT> 503
<NET-CHANGE-FROM-OPS> 2843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2349
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2727)
<OVERDISTRIB-NII-PRIOR> (44)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 376
<AVERAGE-NET-ASSETS> 64
<PER-SHARE-NAV-BEGIN> 10.66
<PER-SHARE-NII> .142
<PER-SHARE-GAIN-APPREC> (.11)
<PER-SHARE-DIVIDEND> (.122)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 115759
<INVESTMENTS-AT-VALUE> 122097
<RECEIVABLES> 2799
<ASSETS-OTHER> 417
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 125313
<PAYABLE-FOR-SECURITIES> 990
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 866
<TOTAL-LIABILITIES> 1856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119726
<SHARES-COMMON-STOCK> 1119
<SHARES-COMMON-PRIOR> 1037
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2608)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6339
<NET-ASSETS> 11803
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2487
<OTHER-INCOME> 0
<EXPENSES-NET> 266
<NET-INVESTMENT-INCOME> 2221
<REALIZED-GAINS-CURRENT> 119
<APPREC-INCREASE-CURRENT> 503
<NET-CHANGE-FROM-OPS> 2843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 187
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150
<NUMBER-OF-SHARES-REDEEMED> 74
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> 2349
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2727)
<OVERDISTRIB-NII-PRIOR> (44)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 376
<AVERAGE-NET-ASSETS> 11583
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .173
<PER-SHARE-GAIN-APPREC> .056
<PER-SHARE-DIVIDEND> (0.169)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.157
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 024
<NAME> NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 115759
<INVESTMENTS-AT-VALUE> 122097
<RECEIVABLES> 2799
<ASSETS-OTHER> 417
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 125313
<PAYABLE-FOR-SECURITIES> 990
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 866
<TOTAL-LIABILITIES> 1856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119726
<SHARES-COMMON-STOCK> 2
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2608)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6339
<NET-ASSETS> 22432
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2487
<OTHER-INCOME> 0
<EXPENSES-NET> 266
<NET-INVESTMENT-INCOME> 2221
<REALIZED-GAINS-CURRENT> 119
<APPREC-INCREASE-CURRENT> 503
<NET-CHANGE-FROM-OPS> 2843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2349
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2727)
<OVERDISTRIB-NII-PRIOR> (44)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 376
<AVERAGE-NET-ASSETS> 17
<PER-SHARE-NAV-BEGIN> 10.65
<PER-SHARE-NII> .175
<PER-SHARE-GAIN-APPREC> (.059)
<PER-SHARE-DIVIDEND> (.196)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 0.383
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 80227
<INVESTMENTS-AT-VALUE> 85653
<RECEIVABLES> 2478
<ASSETS-OTHER> 717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88848
<PAYABLE-FOR-SECURITIES> 3600
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 655
<TOTAL-LIABILITIES> 4255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79047
<SHARES-COMMON-STOCK> 6852
<SHARES-COMMON-PRIOR> 6738
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 120
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5426
<NET-ASSETS> 76030
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1688
<OTHER-INCOME> 0
<EXPENSES-NET> 212
<NET-INVESTMENT-INCOME> 1476
<REALIZED-GAINS-CURRENT> 35
<APPREC-INCREASE-CURRENT> 295
<NET-CHANGE-FROM-OPS> 1806
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1332
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 369
<NUMBER-OF-SHARES-REDEEMED> 294
<SHARES-REINVESTED> 39
<NET-CHANGE-IN-ASSETS> 3832
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 87
<OVERDISTRIB-NII-PRIOR> (26)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258
<AVERAGE-NET-ASSETS> 74966
<PER-SHARE-NAV-BEGIN> 11.05
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.10
<EXPENSE-RATIO> .73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 80227
<INVESTMENTS-AT-VALUE> 85653
<RECEIVABLES> 2478
<ASSETS-OTHER> 717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88848
<PAYABLE-FOR-SECURITIES> 3600
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 655
<TOTAL-LIABILITIES> 4255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79047
<SHARES-COMMON-STOCK> 83
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 120
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5426
<NET-ASSETS> 917
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1688
<OTHER-INCOME> 0
<EXPENSES-NET> 212
<NET-INVESTMENT-INCOME> 1476
<REALIZED-GAINS-CURRENT> 35
<APPREC-INCREASE-CURRENT> 295
<NET-CHANGE-FROM-OPS> 1806
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 83
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3832
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 87
<OVERDISTRIB-NII-PRIOR> (26)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258
<AVERAGE-NET-ASSETS> 524
<PER-SHARE-NAV-BEGIN> 11.10
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> .00
<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.09
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 033
<NAME> NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 80227
<INVESTMENTS-AT-VALUE> 85653
<RECEIVABLES> 2478
<ASSETS-OTHER> 717
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88848
<PAYABLE-FOR-SECURITIES> 3600
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 655
<TOTAL-LIABILITIES> 4255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79047
<SHARES-COMMON-STOCK> 689
<SHARES-COMMON-PRIOR> 567
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 120
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5426
<NET-ASSETS> 7645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1688
<OTHER-INCOME> 0
<EXPENSES-NET> 212
<NET-INVESTMENT-INCOME> 1476
<REALIZED-GAINS-CURRENT> 35
<APPREC-INCREASE-CURRENT> 295
<NET-CHANGE-FROM-OPS> 1806
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 110
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 128
<NUMBER-OF-SHARES-REDEEMED> 9
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 3832
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 87
<OVERDISTRIB-NII-PRIOR> (26)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258
<AVERAGE-NET-ASSETS> 7012
<PER-SHARE-NAV-BEGIN> 11.04
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> (.18)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.09
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 034
<NAME> NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 80227
<INVESTMENTS-AT-VALUE> 85653
<RECEIVABLES> 2478
<ASSETS-OTHER> 717
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<TOTAL-ASSETS> 88848
<PAYABLE-FOR-SECURITIES> 3600
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 655
<TOTAL-LIABILITIES> 4255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79047
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 120
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5426
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1688
<OTHER-INCOME> 0
<EXPENSES-NET> 212
<NET-INVESTMENT-INCOME> 1476
<REALIZED-GAINS-CURRENT> 35
<APPREC-INCREASE-CURRENT> 295
<NET-CHANGE-FROM-OPS> 1806
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3832
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 87
<OVERDISTRIB-NII-PRIOR> (26)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.17
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> (.08)
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.09
<EXPENSE-RATIO> .04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 041
<NAME> NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 178110
<INVESTMENTS-AT-VALUE> 186622
<RECEIVABLES> 3809
<ASSETS-OTHER> 126
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190557
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1221
<TOTAL-LIABILITIES> 1221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181800
<SHARES-COMMON-STOCK> 17671
<SHARES-COMMON-PRIOR> 17976
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8513
<NET-ASSETS> 181595
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3899
<OTHER-INCOME> 0
<EXPENSES-NET> 550
<NET-INVESTMENT-INCOME> 3349
<REALIZED-GAINS-CURRENT> 233
<APPREC-INCREASE-CURRENT> 395
<NET-CHANGE-FROM-OPS> 3977
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3163
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 398
<NUMBER-OF-SHARES-REDEEMED> 846
<SHARES-REINVESTED> 143
<NET-CHANGE-IN-ASSETS> (1767)
<ACCUMULATED-NII-PRIOR> 19
<ACCUMULATED-GAINS-PRIOR> (1282)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 338
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 550
<AVERAGE-NET-ASSETS> 181101
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> .182
<PER-SHARE-GAIN-APPREC> .036
<PER-SHARE-DIVIDEND> (.178)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> .866
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 042
<NAME> NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 178110
<INVESTMENTS-AT-VALUE> 186622
<RECEIVABLES> 3809
<ASSETS-OTHER> 126
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<TOTAL-ASSETS> 190557
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1221
<TOTAL-LIABILITIES> 1221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181800
<SHARES-COMMON-STOCK> 26
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8513
<NET-ASSETS> 271
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3899
<OTHER-INCOME> 0
<EXPENSES-NET> 550
<NET-INVESTMENT-INCOME> 3349
<REALIZED-GAINS-CURRENT> 233
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<NET-CHANGE-FROM-OPS> 3977
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 26
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1767)
<ACCUMULATED-NII-PRIOR> 19
<ACCUMULATED-GAINS-PRIOR> (1282)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 338
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 550
<AVERAGE-NET-ASSETS> 179
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .123
<PER-SHARE-GAIN-APPREC> (.059)
<PER-SHARE-DIVIDEND> (.114)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 1.615
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 043
<NAME> NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 178110
<INVESTMENTS-AT-VALUE> 186622
<RECEIVABLES> 3809
<ASSETS-OTHER> 126
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190557
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1221
<TOTAL-LIABILITIES> 1221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181800
<SHARES-COMMON-STOCK> 689
<SHARES-COMMON-PRIOR> 689
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8513
<NET-ASSETS> 7065
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3899
<OTHER-INCOME> 0
<EXPENSES-NET> 550
<NET-INVESTMENT-INCOME> 3349
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<APPREC-INCREASE-CURRENT> 395
<NET-CHANGE-FROM-OPS> 3977
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 38
<NUMBER-OF-SHARES-REDEEMED> 44
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> (1767)
<ACCUMULATED-NII-PRIOR> 19
<ACCUMULATED-GAINS-PRIOR> (1282)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 338
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 550
<AVERAGE-NET-ASSETS> 7115
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> .163
<PER-SHARE-GAIN-APPREC> .026
<PER-SHARE-DIVIDEND> (.159)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 1.416
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 044
<NAME> NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 178110
<INVESTMENTS-AT-VALUE> 186622
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<TOTAL-ASSETS> 190557
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<TOTAL-LIABILITIES> 1221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181800
<SHARES-COMMON-STOCK> 39
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8513
<NET-ASSETS> 405
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 550
<NET-INVESTMENT-INCOME> 3349
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1767)
<ACCUMULATED-NII-PRIOR> 19
<ACCUMULATED-GAINS-PRIOR> (1282)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 338
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 550
<AVERAGE-NET-ASSETS> 250
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .180
<PER-SHARE-GAIN-APPREC> .015
<PER-SHARE-DIVIDEND> (.185)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> .665
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 051
<NAME> NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND FUND--CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 9847
<INVESTMENTS-AT-VALUE> 10272
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<TOTAL-LIABILITIES> 572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10115
<SHARES-COMMON-STOCK> 1011
<SHARES-COMMON-PRIOR> 1203
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (307)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 425
<NET-ASSETS> 9629
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 52
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<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> (1154)
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<ACCUMULATED-GAINS-PRIOR> (303)
<OVERDISTRIB-NII-PRIOR> (6)
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<GROSS-ADVISORY-FEES> 19
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<GROSS-EXPENSE> 48
<AVERAGE-NET-ASSETS> 10495
<PER-SHARE-NAV-BEGIN> 9.49
<PER-SHARE-NII> .18
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<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 9.53
<EXPENSE-RATIO> .31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND FUND--CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 9847
<INVESTMENTS-AT-VALUE> 10272
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<TOTAL-ASSETS> 10807
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<TOTAL-LIABILITIES> 572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10115
<SHARES-COMMON-STOCK> 17
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (307)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 425
<NET-ASSETS> 160
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 210
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 52
<NET-CHANGE-FROM-OPS> 247
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 17
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1154)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (303)
<OVERDISTRIB-NII-PRIOR> (6)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48
<AVERAGE-NET-ASSETS> 136
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (.11)
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 053
<NAME> NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND FUND--CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 9847
<INVESTMENTS-AT-VALUE> 10272
<RECEIVABLES> 210
<ASSETS-OTHER> 325
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572
<TOTAL-LIABILITIES> 572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10115
<SHARES-COMMON-STOCK> 44
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (307)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 425
<NET-ASSETS> 420
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 210
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 52
<NET-CHANGE-FROM-OPS> 247
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1154)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (303)
<OVERDISTRIB-NII-PRIOR> 6
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48
<AVERAGE-NET-ASSETS> 105
<PER-SHARE-NAV-BEGIN> 9.63
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 054
<NAME> NUVEEN FLAGSHIP SOUTH CAROLINA MUNICIPAL BOND FUND--CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 9847
<INVESTMENTS-AT-VALUE> 10272
<RECEIVABLES> 210
<ASSETS-OTHER> 325
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10807
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572
<TOTAL-LIABILITIES> 572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10115
<SHARES-COMMON-STOCK> 3
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (307)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 425
<NET-ASSETS> 25
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 210
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 52
<NET-CHANGE-FROM-OPS> 247
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1154)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (303)
<OVERDISTRIB-NII-PRIOR> 6
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48
<AVERAGE-NET-ASSETS> 23
<PER-SHARE-NAV-BEGIN> 9.60
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> (.08)
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.53
<EXPENSE-RATIO> .14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 061
<NAME> NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 255393
<INVESTMENTS-AT-VALUE> 269246
<RECEIVABLES> 5117
<ASSETS-OTHER> 642
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 275005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1696
<TOTAL-LIABILITIES> 1696
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263450
<SHARES-COMMON-STOCK> 23281
<SHARES-COMMON-PRIOR> 38826
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3997)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13853
<NET-ASSETS> 257475
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5598
<OTHER-INCOME> 0
<EXPENSES-NET> 658
<NET-INVESTMENT-INCOME> 4940
<REALIZED-GAINS-CURRENT> 404
<APPREC-INCREASE-CURRENT> (105)
<NET-CHANGE-FROM-OPS> 5239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4552
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 683
<NUMBER-OF-SHARES-REDEEMED> 845
<SHARES-REINVESTED> 184
<NET-CHANGE-IN-ASSETS> 953
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (156)
<OVERDISTRIB-NII-PRIOR> (116)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 790
<AVERAGE-NET-ASSETS> 256533
<PER-SHARE-NAV-BEGIN> 11.04
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 062
<NAME> NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 255393
<INVESTMENTS-AT-VALUE> 269246
<RECEIVABLES> 5117
<ASSETS-OTHER> 642
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 275005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1696
<TOTAL-LIABILITIES> 1696
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263450
<SHARES-COMMON-STOCK> 49
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3997)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13853
<NET-ASSETS> 537
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5598
<OTHER-INCOME> 0
<EXPENSES-NET> 658
<NET-INVESTMENT-INCOME> 4940
<REALIZED-GAINS-CURRENT> 404
<APPREC-INCREASE-CURRENT> (105)
<NET-CHANGE-FROM-OPS> 5239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 953
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (156)
<OVERDISTRIB-NII-PRIOR> (116)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 790
<AVERAGE-NET-ASSETS> 305
<PER-SHARE-NAV-BEGIN> 11.14
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> 1.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 063
<NAME> NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 255393
<INVESTMENTS-AT-VALUE> 269246
<RECEIVABLES> 5117
<ASSETS-OTHER> 642
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 275005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1696
<TOTAL-LIABILITIES> 1696
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263450
<SHARES-COMMON-STOCK> 1362
<SHARES-COMMON-PRIOR> 2257
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3997)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13853
<NET-ASSETS> 15049
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5598
<OTHER-INCOME> 0
<EXPENSES-NET> 658
<NET-INVESTMENT-INCOME> 4940
<REALIZED-GAINS-CURRENT> 404
<APPREC-INCREASE-CURRENT> (105)
<NET-CHANGE-FROM-OPS> 5239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 244
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 140
<NUMBER-OF-SHARES-REDEEMED> 192
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 953
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (156)
<OVERDISTRIB-NII-PRIOR> (116)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 790
<AVERAGE-NET-ASSETS> 15294
<PER-SHARE-NAV-BEGIN> 11.03
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.05
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 064
<NAME> NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 255393
<INVESTMENTS-AT-VALUE> 269246
<RECEIVABLES> 5117
<ASSETS-OTHER> 642
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 275005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1696
<TOTAL-LIABILITIES> 1696
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263450
<SHARES-COMMON-STOCK> 22
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3997)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13853
<NET-ASSETS> 248
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5598
<OTHER-INCOME> 0
<EXPENSES-NET> 658
<NET-INVESTMENT-INCOME> 4940
<REALIZED-GAINS-CURRENT> 404
<APPREC-INCREASE-CURRENT> (105)
<NET-CHANGE-FROM-OPS> 5239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 953
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (156)
<OVERDISTRIB-NII-PRIOR> (116)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 790
<AVERAGE-NET-ASSETS> 139
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99(a)
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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 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 30th day of January, 1997.
/s/ Timothy R. Schwertfeger
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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 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 30th day of January, 1997.
/s/ Anthony T. Dean
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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 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 30th day of January, 1997.
/s/ Lawrence H. Brown
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) her true and lawful attorney-in-fact and agent, for her on her
behalf and in her name, place and stead, in any and all capacities, to sign,
execute and affix her seal thereto and file one or more Registration Statements
on Form N-1A, 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 order to effectuate the same as fully to all intents and purposes
as she 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 her hand this 30th day of January, 1997.
/s/ Anne E. Impellizzeri
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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 her voluntary act and deed for
the intent and purposes therein set forth.
- --------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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 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 30th day of January, 1997.
/s/ Peter R. Sawers
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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 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 30th day of January, 1997.
/s/ Robert P. Bremner
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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 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 30th day of January, 1997.
/s/ William J. Schneider
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
---------------
POWER OF ATTORNEY
---------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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-1A, 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, 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 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 1st day of July, 1997.
/s/ Judith M. Stockdale
------------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 1st day of July, 1997, 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
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
------------------------------
My Commission Expires: 10/26/97
<PAGE>
EXHIBIT 99(b)
Certified Resolution
The undersigned, Gifford R. Zimmerman, hereby certifies, on behalf of Nuveen
Flagship Multistate Trust III (the "Fund"), (1) that he is the duly elected,
qualified and acting Assistant Secretary of the Fund, and that as such Assistant
Secretary he has custody of its corporate books and records, (2) that attached
to this Certificate is a true and correct copy of a resolution duly adopted by
the Board of Trustees of the Fund at a meeting held on January 30, 1997, and (3)
that said resolution has not been amended or rescinded and remains in full force
and effect.
July 15, 1997
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Assistant Secretary
<PAGE>
FURTHER RESOLVED, that each member of the Board and officer of the Fund who may
be required to execute the registration statement on Form N-1A, or any amendment
or amendments thereto, be, and each of them hereby is, authorized to execute a
power of attorney appointing Timothy R. Schwertfeger, Anthony T. Dean, Bruce P.
Bedford, Larry W. Martin, Gifford R. Zimmerman, and Thomas S. Harman, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the registration statement, and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done, as fully to all intents and purposes as he might or could
do in person, and ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
<PAGE>
EXHIBIT 99(c)
NUVEEN UNIT TRUSTS
NUVEEN MUTUAL FUNDS
NUVEEN EXCHANGE-TRADED FUNDS
NUVEEN ADVISORY CORP.
NUVEEN INSTITUTIONAL ADVISORY CORP.
NUVEEN ASSET MANAGEMENT INC.
JOHN NUVEEN & CO. INCORPORATED
----------------------------
Standards and Procedures
Regarding
Conflicts of Interest
----------------------------
Code of Ethics
And
Reporting Requirements
The Securities and Exchange Commission, in Investment Company Act Release No.
11421, has adopted Rule 17j-1 "to provide guidance to investment companies as to
the minimum standards of conduct appropriate for persons who have access to
information regarding the purchase and sale of portfolio securities by
investment companies." The Rule requires registered investment companies, their
investment advisers and their principal underwriters to adopt codes of ethics
and reporting requirements to guard against violations of the standards set
forth in the Rule and the principles provided below and to establish guidelines
for the conduct of persons who (1) may obtain material non-public information
concerning securities held by or considered for purchase or sale by any series
of the Nuveen Unit Trusts (the "Trusts") or by any of the Nuveen-sponsored
registered management investment companies (the "Funds") or non-management
investment company clients ("Clients") to which Nuveen Advisory Corp., Nuveen
Asset Management Inc. or Nuveen Institutional Advisory Corp. act as investment
advisers or (2) may make any recommendation or participate in the determination
of which recommendation shall be made concerning the purchase or sale of any
securities by a Trust, Fund or Client. The equity Funds advised pursuant to
subadvisory agreements with non-controlled advisers ("Subadvised Funds")
acknowledge that, in lieu of being subject to this Code of Ethics, all employees
and other persons affiliated with such subadvisers shall be subject to the
subadviser's Code of Ethics. In addition, due to limited access to information
regarding the subadvisers' portfolio activities concerning equity securities,
Nuveen personnel who are access persons of the Subadvised Funds shall not be
required to preclear any transactions solely for being access persons of such
Funds. This Code of Ethics (the "Code") consists of six sections--1. Statement
of General Principles; 2. Definitions; 3. Exempted Transactions; 4.
Prohibitions; 5. Reporting Requirements; and 6. Sanctions.
<PAGE>
2
I. Statement of General Principles
The Code is based upon the principle that the officers, directors and
employees of a Fund, Nuveen Advisory Corp., Nuveen Institutional Advisory
Corp., Nuveen Asset Management Inc. and John Nuveen & Co. Incorporated owe
a fiduciary duty to, among others, the unitholders and shareholders of the
Trusts and Funds and the Clients, to conduct their personal securities
transactions in a manner which does not interfere with Trust, Fund or
Client portfolio transactions or otherwise take unfair advantage of their
relationship to the Trusts, Funds or Clients. In accordance with this
general principle, persons covered by the Code must: (1) place the
interests of unitholders and shareholders of the Trusts and Funds and the
Clients first; (2) execute personal securities transactions in compliance
with the Code; (3) avoid any actual or potential conflict of interest and
any abuse of their positions of trust and responsibility; and (4) not take
inappropriate advantage of their positions. It bears emphasis that
technical compliance with the Code's procedures will not automatically
insulate from scrutiny trades which show a pattern of abuse of the
individual's fiduciary duties to the Trust, Fund or Client. In addition, a
violation of the general principles of the Code may constitute a punishable
violation.
II. Definitions
As used herein:
(1) "Access person" shall mean:
(a) Any director, officer or advisory person of any Fund or Trust or
of Nuveen Advisory Corp., Nuveen Institutional Advisory Corp. or
Nuveen Asset Management Inc.
(b) Any director or officer of John Nuveen & Co. Incorporated who in
the ordinary course of his business makes, participates in or
obtains information regarding the purchase or sale of securities
for the Funds, Trusts or Clients or whose functions or duties as
part of the ordinary course of his business relate to the making
of any recommendation to such Fund, Trust or Client regarding the
purchase or sale of securities.
A list of access persons of all entities other than the Flagship
Utility Income Fund ("Utility Fund") is attached as Exhibit A. A list
of persons deemed to be access persons of the Utility Fund is attached
as Exhibit B ("Utility Fund Access Persons").
<PAGE>
3
For purposes of this section "advisory person" shall mean:
(a) Any employee of a Fund, of Nuveen Advisory Corp., of Nuveen
Institutional Advisory Corp., of Nuveen Asset Management Inc. or of
John Nuveen & Co. Incorporated who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information, regarding the purchase or sale of a security by a Trust,
Fund or Client or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
(b) Any director or officer of John Nuveen & Co. Incorporated who obtains
information concerning recommendations made to such Trust, Fund or
Client with respect to the purchase or sale of a security.
(2) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the recommendation,
when such person considers making such recommendation.
(3) Beneficial ownership shall be interpreted in accordance with the definition
set forth in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934.
Section 16a-1(a)(2) specifies that a person will be deemed to be the
"beneficial owner" of securities that such individual, directly or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise has or shares in the opportunity to profit or share in any
profit derived from a transaction in the subject security. In addition, a
person will be deemed to be the beneficial owner of securities:
(a) held by members of such person's immediate family sharing the same
household;
(b) held by a general or limited partnership for which such person is a
general partner;
(c) held in a trust:
(i) of which such person is trustee and the trustee or members of
his or her immediate family have a pecuniary interest in the
trust;
(ii) in which such person has a vested beneficial interest or shares
in investment control with the trustee;
<PAGE>
4
(iii) of which such person is settlor and which the settlor has
the power to revoke the trust without consent of the
beneficiaries; or
(iv) certain other trusts as set forth in Rule 16a-1(a)(2)
under the Securities Exchange Act of 1934.
A person will not be deemed to be the beneficial owner of
securities held in the portfolio of a registered investment
company solely by reason of his or her ownership of shares or
units of such registered investment company.
(4) "Security" shall mean any stock, bond, debenture, evidence of
indebtedness or in general any other instrument defined to be a
security in Section 2(a)(36) of the Investment Company Act of 1940
except that it shall not include securities issued by the Government
of the United States, short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies.
(5) "Purchase of sale of a security" shall include any transaction in
which a beneficial interest in a security is acquired or disposed of,
including but not limited to the writing of an option to purchase or
sell a security or the cancellation of a good-until-canceled order.
(6) "Control" shall have the same meaning as set forth in Section 2(a) (9)
of the Investment Company Act of 1940.
(7) "Investment personnel" shall mean any employee of Nuveen Advisory
Corp., Nuveen Institutional Advisory Corp., Nuveen Asset Management
Inc. or John Nuveen and Co. Incorporated who acts as a portfolio
manager or as an analyst or trader who provides information or advice
to the portfolio manager or who helps execute the portfolio manager's
decisions. A list of investment personnel of all entities other than
the Utility Fund is included in Exhibit A. A list of persons deemed to
be investment personnel of the Utility Fund is included in Exhibit B.
Investment personnel are also access persons by definition.
(8) "Portfolio manager" shall mean any employee of Nuveen Advisory Corp.,
Nuveen Institutional Advisory Corp., Nuveen Asset Management Inc. or
John Nuveen & Co. Incorporated who is entrusted with the direct
responsibility and authority to make investment decisions affecting a
Trust, Fund or Client. A list of portfolio managers of all entities
other than the Utility Fund is included in Exhibit A. A list
<PAGE>
5
of persons deemed to be portfolio managers of the Utility Fund is
included in Exhibit B. Portfolio managers are also investment
personnel and access persons by definition.
(9) "Utility Fund Eligible Securities" shall include preferred and common
stock of companies in the public utilities industry, such as companies
principally engaged in the production, transmission or distribution of
electric energy, gas, water, or communications services or in solid
waste disposal.
III. Exempted Transactions
The prohibitions of Section IV of this Code shall not apply to:
(1) Purchases or sales affecting any account over which the party involved
has no direct or indirect influence or control;
(2) Purchases or sales which are non-volitional on the part of either the
party involved or a Trust, Fund or Client;
(3) Purchases which are part of an automatic dividend reinvestment plan.
(4) Purchases effected upon the exercise or rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
IV. Prohibitions
(1) Unless such transaction is exempted above or is previously cleared in
the manner described in paragraph (9) below, no access person shall
purchase or sell the following securities for his or her own account
or for any account in which he or she has any beneficial ownership:
(a) securities offered in a private placement;
(b) shares of The John Nuveen Company;
(c) municipal securities (other than variable rate securities with
reset periods of 6 months or less);
(d) shares of a Nuveen-sponsored exchange-traded fund (excluding
preferred shares of those funds); or
(e) Utility fund Eligible Securities (for Utility Fund Access Persons
only).
<PAGE>
6
The purchase of securities identified in paragraph (1)(a) by
investment personnel must also comply with paragraph (4) below.
Directors of the Funds who are not "interested persons" of the Funds
are not subject to the prohibition of subparagraph (a) above and are
only subject to subparagraphs (c) and (e) to the extent such
director purchases or sells a security that he knows, or reasonably
should have known, is being considered for purchase or sale by a
Trust, Fund or Client. Individuals who are only non-interested
directors of the Nuveen open-end Funds shall not be subject to the
prohibition of subparagraph (d) above.
(2) No portfolio manager shall execute a securities transaction on a day
during which a Trust, Fund or Client that is managed or surveyed by
the company he is employed by has a pending "buy" or "sell" order in
that same security until that order is executed or withdrawn.
However, this prohibition shall not apply to securities transactions
involving a security held by a Fund and invested and managed under a
subadvisory agreement unless the portfolio manager knows, or
reasonably should have known, that the Fund has a pending "buy" or
"sell" order involving such security. No other access person shall
execute a securities transaction on a day during which a Trust, Fund
or Client has a pending "buy" or "sell" order in that same security
until that order is executed or withdrawn if that person knows, or
reasonably should have known, an order is pending. In addition, only
Utility Fund Access Persons shall be subject to the restrictions
imposed by this paragraph for securities held or considered for
purchase by Utility Fund. Trades made in violation of this
prohibition shall be unwound or, if that is impractical, any profits
realized must be disgorged to a charitable organization.
(3) Investment personnel shall not purchase any securities in an initial
public offering other than an offering of securities issued by
municipal or United States government entities.
(4) Unless such transaction is previously approved in the manner
described in paragraph (10) below and the criteria set forth in that
paragraph are followed, investment personnel shall not purchase any
security in a private placement.
(5) Investment personnel shall not profit in the purchase and sale, or
sale and purchase, of the same (or equivalent) security within 60
calendar days if such security is a municipal security or shares
issued by a Nuveen-sponsored exchange-traded fund. In addition,
Utility Fund investment personnel shall not profit in such purchases
or sales or sales and purchases of the same (or equivalent) security
within 60 calendar days is such security is a Utility Fund Eligible
Security. Trades made in violation of this prohibition shall be
unwound or, if that is impractical, any profits realized must be
disgorged to a charitable organization.
<PAGE>
7
(6) Investment personnel shall not accept any gift or other thing of
material value from any person or entity that does business with or
on behalf of a Trust, Fund or Client. For purposes of this
prohibition the term "material value" shall have the same meaning
expressed in Rule 2830 of the National Association of Securities
Dealers, Inc.'s Conduct Rules.
(7) Unless such service is previously cleared in the manner described in
paragraph (11) below and the criteria set forth in that paragraph are
followed, investment personnel shall not serve as board members or
other decision-makers for entities that issue municipal securities.
In addition, Utility Fund investment personnel shall not serve as a
board member or decision-maker for a company that issues Utility Fund
Eligible Securities without preclearance.
(8) No portfolio manager of a Trust, Fund or Client shall purchase or
sell any security within seven calendar days before or after the
Trust, Fund or Client he surveys or manages trades or considers to
purchase or sell such security. This prohibition shall not apply to
securities invested and managed under a subadvisory agreement. Trades
made in violation of this prohibition should be unwound or, if that
is impractical, any profits realized must be disgorged to a
charitable organization.
(9) An access person may request clearance of a transaction otherwise
prohibited by paragraph (1) above prior to the placement of any order
in connection therewith by submitting a written or oral request for
clearance to the General Counsel of John Nuveen & Co. Incorporated or
his designee. Unless specifically exempted herein, no such
transaction may be effected without the prior clearance of the
transaction. Clearance may be reflected in a written or an electronic
report. Clearance shall be valid for three business days. Clearance
shall not be granted for municipal security limit orders.
(10) Investment personnel may request approval of a transaction otherwise
prohibited by paragraph (4) above prior to the placement of any order
in connection therewith by submitting a written request for approval
to the General Counsel of John Nuveen & Co. Incorporated or his
designee. Unless specifically exempted herein, no such transaction
may be effected without the prior clearance of the transaction.
Clearance may be reflected in a written or an electronic report. Any
approval shall be valid for three business days. Transactions may be
approved only if the party clearing the transaction takes into
account, among other factors, whether the investment opportunity
should be reserved for a Trust, Fund or Client and whether the
opportunity is being offered to an individual by virtue of his or her
position. In addition, investment personnel who receive authorization
to purchase securities in
<PAGE>
8
a private placement have an affirmative duty to disclose that
position to the General Counsel or his designee if he or she plays
a role in a Trust's, Fund's or Client's subsequent investment
decision regarding the same issuer. Once such disclosure is made,
the General Counsel or his designee shall assemble a commission of
investment personnel with no personal interest in the issuer
involved to independently review the Trust's, Fund's or Client's
investment decision.
(11) Investment personnel may request clearance of service otherwise
prohibited by paragraph (7) above, prior to acceptance of any such
position, by submitting a written request for clearance to the
General Counsel of John Nuveen & Co. Incorporated or his designee.
Such request shall state the position sought, the reason service is
desired and any possible conflicts of interest known at the time of
the request. No such position may be accepted without prior
clearance. Clearance may be reflected in a written or an electronic
report. Service may be cleared only if the party clearing the
transaction determines that service in that capacity would not be
inconsistent with the interests of the Trusts, Funds or Clients.
In addition, investment personnel who receive authorization to
serve in such a capacity must be isolated through "Chinese Wall"
procedures from those making investment decisions regarding
securities issued by the entity involved.
V. Reporting Requirements
(1) Every access person (other than directors of a Fund who are not
"interested persons" of such Fund) shall report to the Legal
Department of John Nuveen & Co. Incorporated details of each
transaction by reason of which he or she acquires any direct or
indirect beneficial ownership of any security (as defined in
Section II herein). Notwithstanding the foregoing, an access person
need not make a report pursuant hereto where such report would
duplicate information recorded pursuant to Rules 204-2(a)(12) or
204-2(a)(13) under the Investment Advisers Act of 1940. In addition
to the reporting requirement expressed above, access persons (other
than directors who are not "interested persons") shall authorize
the Legal Department to direct their broker or brokers to supply to
the Legal Department, on a timely basis, duplicate copies of
confirmations of all securities transactions and copies of periodic
statements for all securities accounts involving securities in
which such access person acquires or disposes of direct or indirect
beneficial ownership. Such duplicate confirmations and periodic
statements received during the prescribed period shall satisfy the
reporting requirements set forth in this paragraph. Also, trades
executed through Nuveen or in an account in which Nuveen is the
broker of record shall be deemed to have been reported for purposes
of this paragraph. Notwithstanding the provisions of this
paragraph, a report shall
<PAGE>
9
not be required for purchases and sales in any account over which
the party involved does not have direct or indirect influence or
control.
(2) Every director of a Fund who is not an "interested person" of such
Fund shall be required to report the details of each transaction
with respect to which such director knew or, in the ordinary course
of fulfilling his or her official duties as a director of the Fund,
should have known that during the 15 day period immediately
preceding or after the date of the transaction in a security by the
director such security is or was purchased or sold by the Fund or
such purchase or sale by the Fund is or was considered by the Fund
or its investment adviser.
(3) Every report required to be made pursuant to paragraphs 1 and 2 of
this Section (other than duplicate copies of confirmations and
periodic statements) shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information:
(a) the date of the transaction, the title and the number of
shares, or principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom
the transaction was effected.
Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he
or she has or disposed of any direct or indirect beneficial
ownership in the security to which the report relates.
(4) The reporting requirements established pursuant to paragraphs 1 and
2 of this Section (other than duplicate copies of confirmations and
periodic statements) shall apply only to transactions by an access
person in securities in which such access person has, or by reason
of such transaction acquires or disposes of, any direct or indirect
beneficial ownership in the security.
(5) Investment personnel shall disclose to the General Counsel of John
Nuveen & Co. Incorporated all personal securities holdings within 10
days of commencement of employment as an investment person and shall
continue to disclose such holdings on an annual basis.
<PAGE>
10
VI. Sanctions
Upon discovery of a violation of this Code, including either
violations of the enumerated provisions or the general principles
provided, any Fund, Nuveen Advisory Corp., Nuveen Institutional
Advisory Corp., Nuveen Asset Management Inc. or John Nuveen & Co.
Incorporated may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or
termination of the employment of the violator. All material violations
of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the board of directors of the management
investment company with respect to securities of which the violation
occurred, or to the Executive Committee of John Nuveen & Co.
Incorporated if the violation was with respect to securities of any
series of the Nuveen Unit Trusts, or to the board of directors of
Nuveen Institutional Advisory Corp., Nuveen Asset Management Inc. or
Nuveen Advisory Corp. with respect to securities of non-management
investment company clients advised by these entities.
Revised December 31, 1996
