<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998.
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. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 3 [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
With a copy to:
Gifford R. Zimmerman, Esq.--Vice Thomas S. Harman
President and Secretary
333 West Wacker Drive Morgan Lewis & Bockius LLP
Chicago, Illinois 60606 1800 M. Street, N.W.
(Name and Address of Agent for Washington, D.C. 20036
Service)
It is proposed that this filing will become effective (check appropriate box):
[X]
Immediately upon filing pursu- [_]on (date) pursuant to paragraph
ant to paragraph (b) (a)(1)
75 days after filing pursuant to
on September 30, 1998 pursuant paragraph (a)(2)
to paragraph (b)
[_]
[_]
[_] 60 days after filing pursuant [_] on (date) pursuant to paragraph
to paragraph (a)(1) (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a previ-
ously filed post-effective amendment.
<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>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MULTISTATE TRUST III
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
NUVEEN
Municipal
Bond Funds
September 30, 1998
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
Georgia
Louisiana
North Carolina
Tennessee
NOT FDIC- May lose value
INSURED No bank guarantee
Like all mutual fund shares these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
<TABLE>
<CAPTION>
<S> <C>
Introduction 1
.......................................................................................................
Nuveen Flagship Georgia Municipal Bond Fund 2
.......................................................................................................
Nuveen Flagship Louisiana Municipal Bond Fund 4
.......................................................................................................
Nuveen Flagship North Carolina Municipal Bond Fund 6
.......................................................................................................
Nuveen Flagship Tennessee Municipal Bond Fund 8
.......................................................................................................
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk management strategies.
Who Manages the Funds 10
.......................................................................................................
Management Fees 10
.......................................................................................................
What Securities We Invest In 11
.......................................................................................................
How We Select Investments 12
.......................................................................................................
What the Risks Are 12
.......................................................................................................
How We Manage Risk 13
.......................................................................................................
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your account.
How to Choose a Share Class 15
.......................................................................................................
How to Reduce Your Sales Charge 17
.......................................................................................................
How to Buy Shares 17
.......................................................................................................
Systematic Investing 18
.......................................................................................................
Systematic Withdrawal 19
.......................................................................................................
Special Services 19
.......................................................................................................
How to Sell Shares 20
.......................................................................................................
Section 4 General Information
This section summarizes the funds' distribution policies and other general fund information.
Distributions and Taxes 22
.......................................................................................................
Distribution and Service Plans 23
.......................................................................................................
Net Asset Value 24
.......................................................................................................
Fund Service Providers 24
.......................................................................................................
Section 5 Financial Highlights
This section provides the funds' financial performance for the past 5 years. 25
.......................................................................................................
Appendix Additional State Information 29
.......................................................................................................
</TABLE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information
you need.
. Investment Strategy
. Risks
. Fees, Charges
and Expenses
. Shareholder
Instructions
. Performance and
Current Portfolio
Information
<PAGE>
September 30, 1998
Section 1 The Funds
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
Prospectus
This prospectus is intended to provide important information to help you
evaluate whether one of the Nuveen Mutual Funds listed above may be right for
you. Please read it carefully before investing and keep it for future reference.
To learn more about how Nuveen Mutual Funds can help you achieve your financial
goals, talk with your financial adviser. Or call us at (800) 257-8787 for more
information.
A Century of Investment Experience
Since our founding in 1898, John Nuveen & Co. Incorporated has been synonymous
with investments that withstand the test of time. Today we offer a broad range
of quality investments designed for individuals seeking to build and maintain
wealth.
Section 1 The Funds 1
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Georgia bonds. The fund is non-diversified, and may invest more of
its assets in a single issuer than a diversified fund. Greater concentration may
increase risk. As with any mutual fund investment, loss of money is a risk of
investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser/SM/ for municipal bond investing. The chart and table below illustrate
annual fund returns for each of the past ten years as well as annualized fund,
peer group and market benchmark returns for the one-, five- and ten-year periods
ending December 31, 1997. This information is intended to help you assess the
variability of fund returns over the past ten years (and consequently, the
potential rewards and risks of a fund investment).
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
<TABLE>
<S> <C>
1988 12.5%
1989 8.6%
1990 6.6%
1991 11.7%
1992 7.9%
1993 11.7%
1994 -6.1%
1995 17.0%
1996 3.8%
1997 11.9%
</TABLE>
During the ten years ending December 31, 1997, the highest and lowest quarterly
returns were 6.96% and -5.67%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the 1-, 5- and 10-year average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
....................................
Class 1 Year 5 Year 10 Year
- ------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 7.19% 6.42% 7.91%
Class A (NAV) 11.86% 7.33% 8.37%
Class B 7.19% 6.57% 7.90%
Class C 11.18% 6.69% 7.75%
Class R 11.69% 7.29% 8.35%
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 9.15% 6.93% 8.41%
</TABLE>
2 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
<TABLE>
<CAPTION>
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<S> <C> <C> <C> <C>
Share Class A B C R/5/
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
................................................................................
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
................................................................................
Exchange Fees None None None None
................................................................................
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
................................................................................
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- --------------------------------------------------------------------------------
Management Fees .55% .55% .55% .55%
................................................................................
12b-1 Distribution and Service Fees .20% .95% .75% --%
................................................................................
Other Expenses .12% .12% .12% .12%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
- ---------------------------
Expenses Gross+ .87% 1.62% 1.42% .67%
- --------------
+After Expense Reimbursements
- -----------------------------
................................................................................
Reimbursements (.21%) (.24%) (.21%) (.22%)
- --------------------------------------------------------------------------------
................................................................................
Total Annual Fund Operating Expense Net .66% 1.38% 1.21% .45%
- --------------------------------------------------------------------------------
................................................................................
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you invest
$10,000 in the fund for the time period indicated and then either redeem or do
not redeem your shares at the end of a period. The example assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 505 $ 560 $ 145 $ 68 $ 505 $ 165 $ 145 $ 68
...............................................................................
3 Years $ 686 $ 830 $ 449 $214 $ 686 $ 511 $ 449 $214
...............................................................................
5 Years $ 882 $ 996 $ 776 $373 $ 882 $ 881 $ 776 $373
...............................................................................
10 Years $1,448 $1,721 $1,702 $835 $1,448 $1,721 $1,702 $835
...............................................................................
</TABLE>
<TABLE>
<CAPTION>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
<S> <C>
Weighted Average Maturity 21.3 years
................................................................................
Weighted Average Duration 8.4 years
................................................................................
Weighted Average Credit Quality AA
................................................................................
Number of Issues 91
................................................................................
Credit Quality
AAA 59%
................................................................................
AA 15%
................................................................................
A 22%
................................................................................
BBB 4%
................................................................................
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Tax Obligation Limited (18%)
Other (30%)
Housing - Single-Family (10%)
Health Care (9%)
U.S. Guaranteed (20%)
Housing - Multi Family (13%)
</TABLE>
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance for
periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/98 was 1.89%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Georgia Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers and
other firms may charge additional fees for shareholder transactions or for
advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC of
5% during the first year, 4% during the second and third years, 3% during the
fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases
local, income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Louisiana bonds. The fund is non-diversified, and may invest more
of its assets in a single issuer than a diversified fund. Greater concentration
may increase risk. As with any mutual fund investment, loss of money is a risk
of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for
retirement, estate planning or college funding.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth
investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser/SM/ for municipal bond investing. The chart and table below illustrate
annual fund returns for each of the past eight years as well as annualized fund,
peer group and market benchmark returns for the one-, five-year and inception
periods ending December 31, 1997. This information is intended to help you
assess the variability of fund returns over the past eight years (and
consequently, the potential rewards and risks of a fund investment).
Total Returns/1/
Class A Annual Returns
1990 7.2%
1991 13.8%
1992 9.0%
1993 13.2%
1994 -6.2%
1995 18.8%
1996 4.8%
1997 9.7%
From inception in September 1989 to December 31, 1997, the highest and lowest
quarterly returns were 7.34% and -5.86%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
....................................
<S> <C> <C> <C>
Class 1 Year 5 Year Inception
- --------------------------------------------------------------------------------
Class A (Offer) 5.09% 6.82% 8.18%
Class A (NAV) 9.73% 7.74% 8.74%
Class B 4.94% 6.96% 8.14%
Class C 9.24% 7.15% 8.15%
Class R 10.01% 7.79% 8.78%
- --------------------------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.36%
Lipper
Peer Group/3/ 8.66% 6.79% 7.99%
</TABLE>
4 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
<TABLE>
<CAPTION>
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
..........................................................................
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
..........................................................................
Exchange Fees None None None None
..........................................................................
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
..........................................................................
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- --------------------------------------------------------------------------
Management Fees .55% .55% .55% .55%
...........................................................................
12b-1 Distribution and Service Fees .20% .95% .75% N%
...........................................................................
Other Expenses .13% .12% .12% .12%
...........................................................................
Total Annual Fund Operating
Expenses--Gross+ .88% 1.62% 1.42% .67%
+ After Expense Reimbursements
...........................................................................
Reimbursements (.13%) (.17%) (.13%) (.15%)
...........................................................................
Total Annual Fund Operating Expenses--Net .75% 1.45% 1.29% .52%
...........................................................................
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 506 $ 560 $ 145 $ 68 $ 506 $ 165 $ 145 $ 68
..........................................................................................................
3 Years $ 689 $ 830 $ 449 $214 $ 689 $ 511 $ 449 $214
..........................................................................................................
5 Years $ 887 $ 996 $ 776 $373 $ 887 $ 881 $ 776 $373
..........................................................................................................
10 Years $1,459 $1,724 $1,702 $835 $1,459 $1,724 $1,702 $835
..........................................................................................................
</TABLE>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
Weighted Average Maturity 21.7 years
................................................................................
Weighted Average Duration 7.7 years
................................................................................
Weighted Average Credit Quality AA+
................................................................................
Number of Issues 77
................................................................................
Credit Quality
AAA 71%
................................................................................
AA 8%
................................................................................
A 12%
................................................................................
BBB/NR 9%
................................................................................
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Other (33%)
Housing-Single Family (12%)
Health Care (18%)
U.S. Guaranteed (11%)
Tax Obligation-General (14%)
Tax Obligation-Limited (12%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance for
periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/98 was 2.55%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Louisiana Debt Category. Returns assume reinvestment of dividends
and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers and
other firms may charge additional fees for shareholder transactions or for
advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC of
5% during the first year, 4% during the second and third years, 3% during the
fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 5
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in North Carolina bonds. The fund is non-diversified, and may invest
more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for
retirement, estate planning or college funding.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser/SM/ for municipal bond investing. The chart and table below illustrate
annual fund returns for each of the past ten years as well as annualized fund,
peer group and market benchmark returns for the one-, five- and ten-year periods
ending December 31, 1997. This information is intended to help you assess the
variability of fund returns over the past ten years (and consequently, the
potential rewards and risks of a fund investment).
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1988 12.6%
1989 10.1%
1990 5.8%
1991 11.7%
1992 8.8%
1993 11.3%
1994 -5.6%
1995 15.5%
1996 3.0%
1997 8.9%
During the ten years ending December 31, 1997, the highest and lowest quarterly
returns were 5.83% and -5.32%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the 1-, 5- and 10-year average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
....................................
Class 1 Year 5 Year 10 Year
- ------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 4.32% 5.43% 7.57%
Class A (NAV) 8.89% 6.34% 8.03%
Class B 4.12% 5.57% 7.57%
Class C 8.19% 5.72% 7.42%
Class R 9.07% 6.38% 8.05%
- ------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 8.84% 6.56% 7.78%
</TABLE>
6 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
<TABLE>
<CAPTION>
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
........................................................................
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
........................................................................
Exchange Fees None None None None
........................................................................
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
........................................................................
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- ------------------------------------------------------------------------
Management Fees .55% .55% .55% .55%
........................................................................
12b-1 Distribution and Service Fees .20% .95% .75% --%
........................................................................
Other Expenses .11% .11% .11% .11%
........................................................................
Total Operating Expenses .86% 1.61% 1.41% .66%
........................................................................
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated and then either redeem
or do not redeem your shares at the end of a period. The example assumes that
your investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 504 $ 559 $ 144 $ 67 $ 504 $ 164 $ 144 $ 67
.........................................................................................................
3 Years $ 683 $ 827 $ 446 $211 $ 683 $ 508 $ 446 $211
.........................................................................................................
5 Years $ 877 $ 991 $ 771 $368 $ 877 $ 876 $ 771 $368
.........................................................................................................
10 Years $1,436 $1,710 $1,691 $822 $1,436 $1,710 $1,691 $822
.........................................................................................................
</TABLE>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
Weighted Average Maturity 20.4 years
.....................................................
Weighted Average Duration 7.4 years
.....................................................
Weighted Average Credit Quality AA-
.....................................................
Number of Issues 103
.....................................................
Credit Quality
AAA 35%
.....................................................
AA 33%
.....................................................
A 16%
.....................................................
BBB/NR 16%
.....................................................
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation-Limited (18%)
Other (25%)
Utilities (16%)
Health Care (18%)
U.S. Guaranteed (12%)
Housing-Single-Family (11%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/98 was 2.45%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper North Carolina Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales
charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 7
<PAGE>
Nuveen Flagship Tennessee Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases
local, income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Louisiana bonds. The fund is nondiversified, and may invest more of
its assets in a single issuer than a diversified fund. Greater concentration may
increase risk. As with any mutual fund investment, loss of money is a risk of
investing.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for
retirement, estate planning or college funding.
You should not invest in this fund if you seek to:
. Pursue an aggressive, high-growth
investment strategy;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The fund's investment adviser is Nuveen Advisory Corp., Nuveen's Premier
Adviser/SM/ for municipal bond investing. The chart and table below illustrate
annual fund returns for each of the past ten years as well as annualized fund,
peer group and market benchmark returns for the one-, five- and ten-year periods
ending December 31, 1997. This information is intended to help you assess the
variability of fund returns over the past ten years (and consequently, the
potential rewards and risks of a fund investment).
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1988 12.4%
1989 9.8%
1990 5.8%
1991 11.6%
1992 9.1%
1993 11.8%
1994 -5.5%
1995 15.8%
1996 3.5%
1997 9.1%
During the ten years ending December 31, 1997, the highest and lowest quarterly
returns were 6.30% and -5.42%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the 1-, 5- and 10-year average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1997
....................................
<S> <C> <C> <C>
Class 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------
Class A (Offer) 4.47% 5.73% 7.71%
Class A (NAV) 9.09% 6.65% 8.18%
Class B 4.41% 5.89% 7.70%
Class C 8.57% 6.06% 7.58%
Class R 9.17% 6.66% 8.18%
- --------------------------------------------------------------------------------
LB Market
Benchmark/2/ 9.19% 7.36% 8.58%
Lipper
Peer Group/3/ 8.86% 6.59% 8.18%
</TABLE>
8 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
<TABLE>
<CAPTION>
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<S> <C> <C> <C> <C>
Share Class A B C R/5/
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
................................................................................
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
................................................................................
Exchange Fees None None None None
................................................................................
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
................................................................................
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- --------------------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
................................................................................
12b-1 Distribution and Service Fees .20% .95% .75% --%
................................................................................
Other Expenses .10% .10% .10% .10%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
- ---------------------------
Expenses Gross+ .84% 1.59% 1.39% .64%
- --------------
+After Expense Reimbursements
- -----------------------------
................................................................................
Reimbursements (.02%) (.01%) (.02%) (.02%)
- --------------------------------------------------------------------------------
................................................................................
Total Annual Fund Operating Expense Net .82% 1.58% 1.37% .62%
- --------------------------------------------------------------------------------
................................................................................
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. It assumes you invest
$10,000 in the fund for the time period indicated and then either redeem or do
not redeem your shares at the end of a period. The example assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Your actual returns and costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 502 $ 557 $ 142 $ 65 $ 502 $ 162 $ 142 $ 65
................................................................................
3 Years $ 677 $ 821 $ 440 $205 $ 677 $ 502 $ 440 $205
................................................................................
5 Years $ 866 $ 980 $ 761 $357 $ 866 $ 866 $ 761 $357
................................................................................
10 Years $1,414 $1,688 $1,669 $798 $1,414 $1,688 $1,669 $798
................................................................................
</TABLE>
<TABLE>
<CAPTION>
How the Fund Is Invested (as of 5/31/98)
Portfolio Statistics
<S> <C>
Weighted Average Maturity 19.4 years
................................................................................
Weighted Average Duration 7.6 years
................................................................................
Weighted Average Credit Quality AA
................................................................................
Number of Issues 112
................................................................................
Credit Quality
AAA 49%
................................................................................
AA 26%
................................................................................
A 15%
................................................................................
BBB/NR 10%
................................................................................
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Other (36%)
U.S. Guaranteed (18%)
Tax Obligation-Limited (15%)
Health Care (13%)
Utilities (11%)
Tax Obligation-General (7%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance for
periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/98 was 2.13%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Tennessee Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized Dealers and
other firms may charge additional fees for shareholder transactions or for
advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC of
5% during the first year, 4% during the second and third years, 3% during the
fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 9
<PAGE>
Section 2 How We Manage Your Money
To help you understand the funds better, this section includes a detailed
discussion of our investment and risk management strategies. For a more complete
discussion of these matters, please consult the Statement of Additional
Information.
Who Manages the Funds
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, IL 60606, ("Nuveen
Advisory"), serves as the investment adviser to the funds. In this capacity,
Nuveen Advisory is responsible for the selection and on-going monitoring of the
municipal bonds in each fund's investment portfolio, managing the funds'
business affairs and providing certain clerical, bookkeeping and other
administrative services. Nuveen Advisory serves as investment adviser to
investment portfolios with more than $35 billion in municipal assets under
management.
Overall investment management strategy and operating policies for the funds are
set by the Investment Policy Committee of Nuveen Advisory. The Investment Policy
Committee is comprised of the principal executive officers and portfolio
managers of Nuveen Advisory and meets regularly to review economic conditions,
the outlook for the financial markets in general and the status of the municipal
markets in particular. Day-to-day operation of each fund and the execution of
its specific investment strategies is the responsibility of the designated
portfolio manager described below.
Thomas J. O'Shaughnessy has been the portfolio manager for the Georgia, North
Carolina, and Tennessee Funds since July 1998. Mr. O'Shaughnessy has been a
portfolio manager for Nuveen Advisory since 1983, and currently manages
investments for fourteen Nuveen-sponsored investment companies, including the
Florida, Kentucky, and Pennsylvania Funds. Michael S. Davern has been the
portfolio manager for the Louisiana Fund since 1998, and he previously managed
the Georgia and Alabama Funds. Mr. Davern became a Vice President of Flagship
Financial Inc. in 1991, and subsequently became a Vice President of Nuveen
Advisory upon the acquisition of Flagship Resources Inc. by The John Nuveen
Company in January 1997. Mr. Davern currently manages investments for seventeen
Nuveen-sponsored investment companies, including the Arizona, Colorado, Kansas,
Michigan, Missouri, and Wisconsin Funds.
Management Fees
For providing these services, Nuveen Advisory is paid an annual management fee.
The following schedule applies to each fund described in this prospectus:
10 Section 2 How We Manage Your Money
<PAGE>
Management Fees
For providing these services, Nuveen Advisory is paid an annual management fee.
The following schedule applies to each fund described in this prospectus:
Average Daily Net Asset Value Management Fee
For the first $125 million 0.5500%
...............................................................................
For the next $125 million 0.5375%
...............................................................................
For the next $250 million 0.5250%
...............................................................................
For the next $500 million 0.5125%
...............................................................................
For the next $1 billion 0.5000%
...............................................................................
For assets over $2 billion 0.4750%
...............................................................................
For the most recent fiscal year, the funds paid after expense reimbursements the
following management fees to Nuveen Advisory, as a percentage of average net
assets:
Nuveen Flagship Georgia Municipal Bond Fund .34%
...............................................................................
Nuveen Flagship Louisiana Municipal Bond Fund .42%
...............................................................................
Nuveen Flagship North Carolina Municipal Bond Fund .55%
...............................................................................
Nuveen Flagship Tennessee Municipal Bond Fund .52%
...............................................................................
What Securities We Invest In
Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal, state and, in some cases, local income tax. Income from
these bonds may be subject to the federal alternative minimum tax.
States, local governments and municipalities issue municipal bonds to
raise money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating
expenses.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase these bonds where the issuer has a
strong incentive to continue making appropriations until maturity.
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade
Section 2 How We Manage Your Money 11
<PAGE>
Portfolio Maturity
Each fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Short-term Investments
Under normal market conditions, each fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk--Hedging and
Other Defensive Investment Strategies." The funds may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. For more information on eligible
short-term investments, see the Statement of Additional Information.
Delayed Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. Such transactions involve an element of risk because
the value of the security to be purchased may decline before the settlement
date.
How We Select Investments
Nuveen Advisory selects municipal obligations for the funds based upon its
assessment of a bond's relative value in terms of current yield, price, credit
quality and future prospects. Nuveen Advisory is supported by Nuveen's award-
winning team of specialized research analysts who review municipal securities
available for purchase, monitor the continued creditworthiness of each fund's
municipal investments, and analyze economic, political and demographic trends
affecting the municipal markets. We utilize these resources to identify
municipal obligations with favorable characteristics we believe are not yet
recognized by the market. We then select those higher-yielding and undervalued
municipal obligations that we believe represent the most attractive values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund N even the most
conservative N involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in
12 Section 2 How We Manage Your Money
<PAGE>
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund--even the most
conservative--involves risk, including risk thta you may receive little or no
return on your inveestment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment.
Interest rate risk: the risk that the value of the fund's portfolio will decline
because of rising market interest rates (bond prices move in the opposite
direction of interest rates). The longer the average maturity (duration) of a
fund's portfolio, the greater its interest rate risk. See "What Securities We
Invest In--Portfolio Maturity."
Income risk: the risk that the income from the fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate.
Credit risk: the risk that an issuer of a bond is unable to meet its obligation
to make interest and principal payments due to changing market conditions.
Generally, lower rated bonds provide higher current income but are considered to
carry greater credit risk than higher rated bonds. Year 2000 issues may affect
the ability of municipal issuers to meet their payment obligations to their bond
holders, and may adversely affect their credit ratings.
State Concentration risk: because the funds primarily purchase municipal bonds
from a specific state, each fund also bears investment risk from the economic,
political or regulatory changes that could adversely affect municipal bond
issuers in that state and therefore the value of the fund's investment
portfolio. See "Appendix--Additional State Information." These risks may be
greater for the Georgia, Louisiana, and North 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.
Inflation risk: the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the fund's assets can decline as can the value
of the fund's distributions.
How We Manage Risk
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The funds limit this
investment risk generally by restricting the type and maturities of municipal
bonds they purchase, and by diversifying their investment portfolios
geographically as well as across different industry sectors.
Section 2 How We Manage Your Money 13
<PAGE>
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
As 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).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have no
present intent to use these strategies.
14 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
You can choose from four classes of fund shares, each with a different
combination of sales charges, fees, eligibility requirements and other features.
Your financial adviser can help you determine which class is best for you. We
offer a number of features for your convenience. Please see the Statement of
Additional Information for further details.
How to Choose a Share Class
In deciding whether to purchase Class A, Class B, Class C or Class R shares, you
should consider:
. the amount of your purchase;
. any current holdings of fund shares;
. how long you expect to hold the shares;
. the amount of any up-front sales charge;
. whether a contingent deferred sales charge
(CDSC) would apply upon redemption;
. the amount of any distribution or service
fees that you may incur while you own the shares;
. whether you will be reinvesting income or
capital gain distributions in additional shares;
. whether you qualify for a sales charge
waiver or reduction.
For a summary of the charges and expenses for each class, please see "What are
the Costs of Investing?".
Class A Shares
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described in "How to Reduce Your
Sales Charge." Class A shares are also subject to an annual service fee of .20%
which compensates your financial adviser for providing ongoing service to you.
The up-front Class A sales charge for all funds described in the prospectus is
as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
.....................................................................................................
$50,000 but less than $100,000 4.00% 4.18% 3.50%
.....................................................................................................
$100,000 but less than $250,000 3.50% 3.63% 3.00%
.....................................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
.....................................................................................................
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
.....................................................................................................
$1,000,000 and over --(1) -- 1.00%(1)
.....................................................................................................
</TABLE>
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
(1) You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus .50%
of the next $2.5 million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have to pay a CDSC of
1% of either your purchase price or your redemption proceeds, whichever is
lower. You do not have to pay this CDSC if your financial adviser has made
arrangements with Nuveen and agrees to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .95% of average daily assets. The annual .20% service fee
compensates your financial adviser for providing ongoing service to you. The
annual .75% distribution fee compensates Nuveen for paying your financial
adviser a 4% up-front sales commission, which includes an advance of the first
year's service fee. If you sell your shares within six years of purchase, you
will have to pay a CDSC based on either your purchase price or what you sell
your shares for, whichever amount is lower, according to the following schedule.
You do not pay a CDSC on any Class B shares you purchase by reinvesting
dividends.
Class B shares automatically convert to Class A shares eight years after
you buy them so that the distribution fees you pay over the life of your
investment are limited. You will continue to pay an annual service fee on any
converted Class B shares.
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
CDSC 5% 4% 4% 3% 2% 1%
................................................................................
Class C Shares
You can buy Class C shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of 1%. The annual .20% service fee compensates your financial
adviser for providing ongoing service to you. The annual .55% distribution fee
reimburses Nuveen for paying your financial adviser an ongoing sales commission.
Nuveen advances the first year's service and distribution fees. If you sell your
shares within 12 months of purchase, you may have to pay a 1% CDSC based on
either your purchase price or what you sell your shares for, whichever amount is
lower.
Class R Shares
Under limited circumstances, you may purchase Class R shares at the offering
price, which is the net asset value on the day of purchase. In order to qualify,
you must be eligible under one of the programs described in "How to Reduce Your
Sales Charge" (below) or meet certain other purchase size criteria. Class R
shares are not subject to sales charges or ongoing service or distribution fees.
Class R shares have lower ongoing expenses than the other classes.
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
How to Reduce Your Sales Charge
We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.
<TABLE>
<CAPTION>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
<S> <C> <C>
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and
. Letter of intent reinvestment directors of Nuveen or
. Group purchase . Purchases using employees of authorized
redemptions from dealers
unrelated funds . Bank trust departments
. Retirement plans
. Certain employees and
directors of Nuveen or
employees of authorized
dealers
. Bank trust departments
</TABLE>
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisers, certified financial planners
and registered broker-dealers who charge asset-based or comprehensive "wrap"
fees for their services. Please refer to the Statement of Additional Information
for detailed program descriptions and eligibility requirements. Additional
information is available from your financial adviser or by calling (800) 257-
8787. Your financial adviser can also help you prepare any necessary application
forms. You or your financial adviser must notify Nuveen at the time of each
purchase if you are eligible for any of these programs. The funds may modify or
discontinue these programs at any time.
How to Buy Shares
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. There is no minimum if you are
reinvesting Nuveen Defined Portfolio distributions. The share price you pay will
depend on when Nuveen receives your order. Orders received before the close of
trading on a business day will receive that day's closing share price, otherwise
you will receive the next business day's price. A business day is any day the
New York Stock Exchange is open for business and normally ends at 4 P.M. New
York time.
Through a Financial Adviser
You may buy shares through your financial adviser, who can handle all
the details for you, including opening a new account. Financial advisers can
also help you review your financial needs and formulate long-term investment
goals and objectives. In addition, financial advisers generally can help you
develop a customized financial plan, select investments and monitor and review
your portfolio on an ongoing basis to help assure your investments continue to
meet your needs as circumstances change. Financial advisers are paid either from
fund sales charges and fees or by charging you a separate fee in lieu of a sales
charge for ongoing investment advice and services. If you do not have a
financial adviser, call (800) 257-8787 and Nuveen can refer you to one in your
area.
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186.
Systematic Investing
Once you have established a fund account, systematic investing allows
you to make regular investments through automatic deductions from your bank
account (simply complete the appropriate section of the account application
form) or directly from your paycheck. To invest directly from your paycheck,
contact your financial adviser or call Nuveen at (800) 257-8787. Systematic
investing may also make you eligible for reduced sales charges.
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
[GRAPH APPEARS HERE]
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.
Systematic Investment Plan
You can make regular investments of $50 or more per month by authorizing us to
draw preauthorized checks on your bank account. You can stop the withdrawals at
any time. There is no charge for this plan.
18 Section 3 How You Can Buy and Sell Shares
<PAGE>
Payroll Direct Deposit Plan
You can, with your employer's consent, make regular investments of $25 or more
per pay period (meeting the monthly minimum of $50) by authorizing your employer
to deduct this amount automatically from your paycheck. You can stop the
deductions at any time. There is no charge for this plan.
Systematic Withdrawal
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Special Services--Fund Direct" below), paid to a third party or sent
payable to you at an address other than your address of record. You must
complete the appropriate section of the account application or Account Update
Form to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any time
for the same class of another Nuveen mutual fund available in your state. Your
exchange must meet the minimum purchase requirements of the fund into which you
are exchanging. Because an exchange is treated for tax purposes as a concurrent
sale and purchase, and any gain may be subject to tax, you should consult your
tax adviser about the tax consequences of any contemplated exchange.
The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
Fund Direct
You may link your fund account to your bank account and transfer money
electronically between these accounts and perform a variety of account
transactions, including buying shares by telephone and systematic investment.
You may also have dividends, distributions, redemption payments or systematic
withdrawals sent directly to your bank account.
Your financial adviser can help you complete the forms for these services, or
you can call Nuveen at (800) 257-8787 for copies of the necessary forms.
How to Sell Shares
You may use one of the following ways to sell (redeem) your shares on any day
the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your properly completed redemption request.
Your redemption request must be received before the close of trading for you to
receive that day's price. While the funds do not charge a redemption fee, you
may be assessed a CDSC, if applicable. When you redeem Class A, Class B, or
Class C shares subject to a CDSC, the fund will first redeem any shares that are
not subject to a CDSC or that represent an increase in the value of your fund
account due to capital appreciation, and then redeem the shares you have owned
for the longest period of time, unless you ask the fund to redeem your shares in
a different order. No CDSC is imposed on shares you buy through the reinvestment
of dividends and capital gains. The holding period is calculated on a monthly
basis and begins on the first day of the month in which you buy shares. When you
redeem shares subject to a CDSC, the CDSC is calculated on the lower of your
purchase price or redemption proceeds, deducted from your redemption proceeds,
and paid to Nuveen. The CDSC may be waived under certain special circumstances
as described in the Statement of Additional Information.
Through Your Financial Adviser
You may sell your shares through your financial adviser who can prepare the
necessary documentation. Your financial adviser may charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by telephone up to $50,000. You may not redeem by telephone shares held
in certificate form. Checks will be issued only to the shareholder of record and
mailed to the address of record. If you have established electronic funds
transfer privileges, you may have redemption proceeds transferred electronically
to your bank account. We will normally mail your check the next business day.
Nuveen and Chase Global Funds Services will be liable for losses resulting from
unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immediately
verify your trade confirmations when you receive them.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. Your request must include the following
information:
. The fund's name;
. Your name and account number;
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 day's written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
Nuveen Defined Portfolio reinvestment account. You will not be assessed a CDSC
on an involuntary redemption.
20 Section 3 How You Can Buy and Sell Shares
<PAGE>
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other than
the address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of record has been
changed within the last 60 days). Signature guarantees must be obtained from a
bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by a fund. A
notary public cannot provide a signature guarantee.
Section 3 How You Can Buy and Sell Shares 21
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions to
shareholders. We discuss some other fund policies, as well.
Distributions and Taxes
The funds pay tax-free dividends monthly and any taxable capital gains or other
taxable distributions once a year in December. The funds declare dividends
monthly to shareholders of record as of the ninth of each month, payable the
first business day of the following month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund shares unless
you request otherwise. You may request to have your dividends paid to you by
check, deposited directly into your bank account, paid to a third party, sent to
an address other than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your financial adviser or
call Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest in municipal bonds, the regular monthly dividends you
receive will be exempt from regular federal income tax. All or a portion of
these dividends, however, may be subject to state and local taxes or to the
federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how long
you have owned your investment. Taxable dividends do not qualify for a dividends
received deduction if you are a corporate shareholder.
Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains, including any percentage of your fund
dividends attributable to municipal obligations, that you were paid during the
prior year. You will receive this statement from the firm where you purchased
your fund shares if you hold your investment in street name. Nuveen will send
you this statement if you hold your shares in registered form. The tax status of
your dividends is not affected by whether you reinvest your dividends or receive
them in cash. If you receive social security benefits, you should be aware that
any tax-free income is taken into account in calculating the amount of these
benefits that may be subject to federal income tax.
22 Section 4 General Information
<PAGE>
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires us to withhold
federal income tax from your distributions and redemption proceeds at a rate of
31%.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents a return of
your purchase price. Similarly, if you sell or exchange fund shares shortly
before the record date for a tax-exempt dividend, a portion of the price you
receive may be treated as a taxable capital gain even though it reflects tax-
free income earned but not yet distributed by the fund.
Taxable Equivalent Yields
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like the
funds with taxable alternative investments, the table below presents the taxable
equivalent yields for a range of hypothetical tax-free yields and tax rates:
Taxable Equivalent Of Tax-Free Yields
<TABLE>
Tax-Free Yield
Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00%
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
..........................................................
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
..........................................................
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
..........................................................
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
..........................................................
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
Distribution and Service Plans
John Nuveen & Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order to
reimburse Nuveen for its costs in connection with these activities, including
compensation paid to authorized dealers, each fund has adopted a distribution
and service plan under Rule 12b-1 under the Investment Company Act of 1940. (See
"How to Choose a Share Class" for a description of the distribution and service
fees paid under this plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to authorized dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the service fee for
Class A, Class B, and Class C shares to compensate authorized dealers, including
Nuveen, for providing account services to
Section 4 General Information 23
<PAGE>
shareholders. These services may include establishing and maintaining
shareholder accounts, answering shareholder inquiries, and providing other
personal services to shareholders. These fees also compensate Nuveen for other
expenses, including printing and distributing prospectuses to persons other than
shareholders, and preparing, printing, and distributing advertising and sales
literature and reports to shareholders used in connection with the sale of
shares. Because these fees are paid out of the funds' assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
Net Asset Value
The price you pay for your shares is based on the fund's net asset value per
share which is determined as of the close of trading (normally 4:00 p.m. eastern
time) on each day the New York Stock Exchange is open for business. Net asset
value is calculated for each class by taking the fair value of the class' total
assets, including interest or dividends accrued but not yet collected, less all
liabilities, and dividing by the total number of shares outstanding. The result,
rounded to the nearest cent, is the net asset value per share. All valuations
are subject to review by the funds' Board of Trustees or its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. The prices of municipal bonds are provided by a pricing service
and based on the mean between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal securities), the
pricing service establishes fair market value based on prices of comparable
municipal bonds.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the funds. The funds' transfer, shareholder services and dividend paying
agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY 10274-
5186, performs bookkeeping, data processing and administrative services for the
maintenance of shareholder accounts.
Nuveen Advisory and Chase Global Funds Services each rely on computer systems to
manage the funds' investments, process shareholder transactions and provide
shareholder account maintenance. Because of the way computers historically have
stored dates, some of these systems currently may not be able to correctly
process activity occurring in the year 2000. Nuveen Advisory is working with the
funds' service providers to adapt their systems to address this "Year 2000"
issue. Nuveen Advisory and the funds expect, but there can be no absolute
assurance, that the necessary work will be completed on a timely basis.
24 Section 4 General Information
<PAGE>
Section 5 Financial Highlights
The following tables are intended to help you better understand each fund's
recent past performance. The tables are excerpted from each fund's latest
financial statements audited by Arthur Andersen LLP. You may obtain the complete
statements along with the auditor's report by requesting from Nuveen a free copy
of the fund's latest annual shareholder report.
Georgia Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
---------------------------------- --------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1998 $10.57 $.56 $ .62 $1.18 $(.56) $ -- $(.56) $11.19 11.37%
1997 10.20 .57 .37 .94 (.57) -- (.57) 10.57 9.39
1996 10.46 .57 (.25) .32 (.58) -- (.58) 10.20 3.05
1995 10.23 .58 .23 .81 (.58) -- (.58) 10.46 8.31
1994 10.62 .59 (.39) .20 (.59) -- (.59) 10.23 1.83
Class B (2/97)
1998 10.57 .48 .63 1.11 (.48) -- (.48) 11.20 10.66
1997(c) 10.66 .14 (.11) .03 (.12) -- (.12) 10.57 .31
Class C (1/94)
1998 10.55 .50 .62 1.12 (.50) -- (.50) 11.17 10.79
1997 10.18 .51 .37 .88 (.51) -- (.51) 10.55 8.80
1996 10.44 .51 (.25) .26 (.52) -- (.52) 10.18 2.48
1995 10.21 .52 .23 .75 (.52) -- (.52) 10.44 7.72
1994(c) 10.91 .19 (.69) (.50) (.20) -- (.20) 10.21 (10.96)*
Class R (2/97)
1998 10.57 .58 .59 1.17 (.59) -- (.59) 11.15 11.23
1997(c) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------
Class
(Inception
Date) Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets(a) Assets(a) Rate
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (3/86)
1998 $120,545 .66% 5.09% 25%
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
Class B (2/97)
1998 3,518 1.38 4.32 25
1997(c) 113 1.32* 4.80* 39
Class C (1/94)
1998 18,770 1.21 4.54 25
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)
1998 245 .45 5.26 25
1997(c) 22 .38* 5.71* 39
- ---------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 25
<PAGE>
Louisiana Municipal Bond Fund **
<TABLE>
<CAPTION>
Investment Operations Less Distributions
---------------------------------- --------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/89)
1998 $11.10 $.59 $ .49 $1.08 $(.59) $(.04) $(.63) $11.55 9.88%
1997 10.71 .59 .39 .98 (.59) -- (.59) 11.10 9.37
1996 10.80 .59 (.08) .51 (.60) -- (.60) 10.71 4.77
1995 10.48 .60 .32 .92 (.60) -- (.60) 10.80 9.20
1994 10.93 .61 (.40) .21 (.62) (.04)+ (.66) 10.48 1.77
Class B (2/97)
1998 11.09 .50 .50 1.00 (.50) (.04) (.54) 11.55 9.18
1997(c) 11.10 .16 -- .16 (.17) -- (.17) 11.09 1.44
Class C (2/94)
1998 11.09 .52 .50 1.02 (.53) (.04) (.57) 11.54 9.32
1997 10.70 .53 .39 .92 (.53) -- (.53) 11.09 8.78
1996 10.80 .53 (.09) .44 (.54) -- (.54) 10.70 4.12
1995 10.48 .54 .32 .86 (.54) -- (.54) 10.80 8.59
1994(c) 11.29 .16 (.81) (.65) (.16) -- (.16) 10.48 (17.21)*
Class R (2/97)
1998 11.09 .61 .50 1.11 (.61) (.04) (.65) 11.55 10.21
1997(c) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
- -------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
----------------------------------------
Class
(Inception
Date) Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets(a) Assets(a) Rate
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/89)
1998 $89,143 .75% 5.13% 15%
1997 76,030 .79 5.38 25
1996 72,005 .80 5.46 26
1995 68,145 .83 5.80 44
1994(c) 66,281 .66 5.56 22
Class B (2/97)
1998 8,999 1.45 4.38 15
1997(c) 917 1.46* 4.69* 25
Class C (2/94)
1998 13,682 1.29 4.58 15
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)
1998 28 .52 5.32 15
1997(c) -- .04* 5.31* 25
- ---------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship Louisiana.
+ The amount shown includes a distribution in excess of capital gains of $.01
per share.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
26 Section 5 Financial Highlights
<PAGE>
North Carolina Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
-------------------------------- --------------------------
Class
(Inception
Date)
Net
Realized
and Ending Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1998 $10.28 $.53 $ .34 $.87 $(.53) -- $(.53) $10.62 8.69% $186,340
1997 10.05 .54 .23 .77 (.54) -- (.54) 10.28 7.79 181,595
1996 10.23 .55 (.18) .37 (.55) -- (.55) 10.05 3.67 185,016
1995 10.08 .57 .15 .72 (.57) -- (.57) 10.23 7.45 191,850
1994 10.51 .57 (.42) .15 (.58) -- (.58) 10.08 1.30 196,087
Class B (2/97)
1998 10.28 .45 .35 .80 (.46) -- (.46) 10.62 7.89 3,609
1997(c) 10.33 .12 (.06) .06 (.11) -- (.11) 10.28 .64 271
Class C (10/93)
1998 10.26 .47 .34 .81 (.47) -- (.47) 10.60 8.09 8,291
1997 10.03 .48 .23 .71 (.48) -- (.48) 10.26 7.20 7,065
1996 10.22 .49 (.18) .31 (.50) -- (.50) 10.03 3.01 6,589
1995 10.06 .51 .16 .67 (.51) -- (.51) 10.22 6.97 6,049
1994(c) 10.84 .32 (.78) (.46) (.32) -- (.32) 10.06 (6.26)* 4,161
Class R (2/97)
1998 10.28 .55 .34 .89 (.55) -- (.55) 10.62 8.88 848
1997(c) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92 405
Ratios/Supplemental Data
-------------------------------------
Ratio of Net
Ratio of Investment
Expenses Income
to Average to Average Portfolio
Net Net Turnover
Assets(a) Assets(a) Rate
- ----------------------------------------------
<C> <C> <C>
Class A (3/86)
1998 .86% 5.06% 29%
1997 .93 5.31 23
1996 .90 5.32 54
1995 .91 5.73 35
1994 .89 5.41 21
Class B (2/97)
1998 1.61 4.23 29
1997(c) 1.62* 4.60* 23
Class C (10/93)
1998 1.41 4.50 29
1997 1.48 4.76 23
1996 1.45 4.77 54
1995 1.46 5.13 35
1994(c) 1.49* 4.65* 21
Class R (2/97)
1998 .66 5.24 29
1997(c) .66* 5.57* 23
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship North Carolina.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 27
<PAGE>
Tennessee Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------ ----------------------------
Class
(Inception
Date)
Net
Realized
and Ending Ending
Year Beginning Net Unrealized Net Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total Assets
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/87)
1998 $11.06 $.58 $ .40 $.98 $(.58) $ -- $(.58) $11.46 9.01% $278,232
1997 10.83 .59 .23 .82 (.59) -- (.59) 11.06 7.71 257,475
1996 11.01 .59 (.18) .41 (.59) -- (.59) 10.83 3.78 250,886
1995 10.78 .60 .23 .83 (.60) -- (.60) 11.01 8.04 241,778
1994 11.23 .61 (.43) .18 (.61) (.02) (.63) 10.78 1.55 236,230
Class B (2/97)
1998 11.06 .49 .40 .89 (.49) -- (.49) 11.46 8.21 5,775
1997(c) 11.14 .14 (.09) .05 (.13) -- (.13) 11.06 .42 537
Class C (10/93)
1998 11.05 .52 .39 .91 (.51) -- (.51) 11.45 8.39 20,673
1997 10.82 .53 .23 .76 (.53) -- (.53) 11.05 7.12 15,049
1996 11.00 .53 (.18) .35 (.53) -- (.53) 10.82 3.22 15,483
1995 10.78 .54 .22 .76 (.54) -- (.54) 11.00 7.35 12,494
1994(c) 11.61 .35 (.83) (.48) (.34) (.01) (.35) 10.78 (5.92)* 10,652
Class R (2/97)
1998 11.04 .60 .40 1.00 (.60) -- (.60) 11.44 9.20 534
1997(c) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40 248
Ratios/Supplemental Data
------------------------------------
Ratio of Net
Ratio of Investment
Expenses Income
Year to to Average Portfolio
Ending Net Net Turnover
May 31, Assets(a) Assets(a) Rate
- --------------------------------------------------------
<C> <C> <C> <C>
Class A (11/87)
1998 .82% 5.11% 15%
1997 .85 5.35 23
1996 .88 5.30 38
1995 .89 5.64 23
1994 .76 5.42 17
Class B (2/97)
1998 1.58 4.31 15
1997(c) 1.37* 4.72* 23
Class C (10/93)
1998 1.37 4.55 15
1997 1.40 4.80 23
1996 1.43 4.75 38
1995 1.44 5.08 23
1994(c) 1.23* 4.80* 17
Class R (2/97)
1998 .62 5.29 15
1997(c) .46* 5.75* 23
- --------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship Tennessee.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
28 Section 5 Financial Highlights
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from a specific state, each
fund also bears investment risks from economic, political or regulatory changes
that could adversely affect municipal bond issuers in that state and therefore
the value of the fund's investment portfolio. The following discussion of
special state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The
discussion includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should consult
your tax adviser about the state tax consequences of a specific fund investment.
See the Statement of Additional Information for further information.
Georgia
One of the nation's fastest growing states in terms of population, Georgia has
benefitted 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.
The State's unemployment level is low at 4.1% in June 1998, below the national
average of 4.5% in June 1998 and down from the State's 4.7% rate in June 1997.
Per capita income in 1997 was $24,061, approximately 94% of the national
average.
Georgia's tight financial policies and conservative management resulted in an
unreserved, undesignated General Fund balance of $776 million in fiscal 1997. An
additional source of financial flexibility, the Revenue Shortfall Reserve fund
totaled $334 million in fiscal 1997, up significantly from the early 1990's when
it was drawn down to zero. As of July 31, 1998, Georgia's general obligation
debt carries AAA ratings 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 tax 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 tax, however, to the extent the Georgia Fund distributes any
taxable income or realized capital gains, or if you sell or exchange 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.
Appendix 29
<PAGE>
Louisiana
Louisiana's economic base has experienced some improvement after the recession
of the 1980's. Per capita personal income grew 5.0% to $20,680 in 1997, but
remains at 81% of the national average. The unemployment rate for the State was
5.2% in June 1998, above the national average of 4.5%.
The State possesses natural resources which have played a significant role in
driving the economy. Chemicals provide the largest employment in the
manufacturing industry. Tourism is the second largest industry in the State,
adding $7 billion to the economy and generating $468 million in State and local
taxes by the end of 1996. 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.
The State's general obligation bond rating by Moody's, Standard & Poor's and
Fitch is A2, A- and A, respectively.
Tax Treatment
The Louisiana Fund's regular monthly dividends will not be subject to Louisiana
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 gains 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 growth. While
manufacturing remains an important 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 employment losses in the textile, apparel, and tobacco
industries.
The State's unemployment rate was 3.0% in June 1998, below the national average
of 4.5% in June 1998 and down from the State's 3.6% rate in June 1997. Per
capita income in 1997 was $23,345, approximately 91% of the national average.
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 1992-1997. Moody's, Standard
& Poor's, and Fitch all rate the State AAA.
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
30 Appendix
<PAGE>
U.S. government. 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 realize a capital gain on the transaction.
The treatment of corporate shareholders of the North 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 industries.
Tennessee's average unemployment rate in June 1998 was 3.9%, compared to the
national average of 4.5% in June 1998, and the State's 5.6% average in June
1997. Per capita income was $23,018 in 1997, about 90% of the national average.
Tennessee's Constitution requires that a fiscal year's expenditures not exceed
that year's revenues and available reserves. In 1996, Tennessee adopted
legislation that set a target level for the State's undesignated reserve that
represents 5% of estimated State tax revenues for the general and education
trust funds. On June 30, 1997, the reserve balance reached approximately 3.8% of
such tax revenues. To help accomplish its 5% goal, beginning in fiscal 1999, the
State will allocate at least 10% of the annual growth in sales tax revenues to
the undesignated reserve account until the target is reached. Tennessee's solid
fiscal budget management is reflected in its general obligation ratings of
Aaa/AAA+/AAA by Moody's, Standard & Poor's and Fitch, respectively. Standard &
Poor's upgraded the State from AA+ to AAA in May 1998.
Tax Treatment
The Tennessee Fund's regular monthly dividends will not be subject to Tennessee
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 Tennessee
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. Corporate shareholders should refer to the Statement of
Additional Information for more detailed information.
Appendix 31
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Municipal Bond Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona
California/1/
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky/2/
Louisiana
Maryland
Massachusetts/1/
Michigan
Missouri
New Jersey
New Mexico
New York/1/
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Shareholder
reports contain management's discussion of market conditions, investment
strategies and performance results as of the fund's latest semi-annual or annual
fiscal year end. Call Nuveen at (800) 257-8787 to request a free copy of any of
these materials or other fund information.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549. The funds'
Investment Company file number is 811-07943.
1. Long-term and insured long-term portfolios.
2. Long-term and limited-term portfolios.
VPR-MS2-NA 9-98
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
SEPTEMBER 30, 1998
NUVEEN FLAGSHIP MULTISTATE TRUST III
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NORTH 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 30, 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) 257-8787.
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-21
Portfolio Transactions..................................................... S-22
Net Asset Value............................................................ S-23
Tax Matters................................................................ S-23
Performance Information.................................................... S-30
Additional Information on the Purchase and Redemption of Fund Shares....... S-36
Distribution and Service Plan.............................................. S-43
Independent Public Accountants and Custodian............................... S-45
Financial Statements....................................................... S-45
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 four
series: the Nuveen Flagship Georgia Municipal Bond Fund (formerly the
S-3
<PAGE>
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); 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. 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,
S-4
<PAGE>
disposition of the property in the event of foreclosure might prove difficult.
A Fund will seek to minimize the special risks associated with such securities
by only investing in those nonappropriation leases where Nuveen Advisory has
determined that the issuer has a strong incentive to continue making
appropriations and timely payment until the security's maturity. Some lease
obligations may be illiquid under certain circumstances. Lease obligations
normally provide a premium interest rate which along with regular amortization
of the principal may make them attractive for a portion of the assets of the
Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
YEAR 2000 ISSUES
The "Year 2000" problem refers to the fact that many computer programs use
only the last two digits of a year, and do not recognize a year that begins
with "20" instead of "19." If this problem is not corrected, computers could
function improperly or not at all, which could affect the global economy. The
SEC has urged securities issuers to disclose the steps they are taking to
correct any Year 2000 problems.
The Funds invest primarily in municipal securities. If municipal issuers do
not correct any Year 2000 problems in a timely manner, they could experience
problems in conducting their operations or in making payments on their
securities, which could cause the value of these securities to decline.
Municipal issuers could experience three types of Year 2000 problems. First, if
an issuer's internal computer systems experience Year 2000 problems, this could
disrupt an issuer's operations (such as its ability to collect local taxes or
fees). Second, an issuer may rely on other parties for the payments that
support its debt service, such as servicers that collect mortgage or student
loan payments, and those third parties may have Year 2000 problems that
interfere with their ability to forward payments to the issuer. Third, an
issuer may have mechanical problems in sending payments to its securities
holders.
Nuveen Advisory is obtaining information about the Year 2000 readiness of the
issuers of its portfolio securities.
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.
S-5
<PAGE>
The portfolio turnover rates for the 1997 and 1998 fiscal years for the Funds
were:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1997 1998
----------- -----------
<S> <C> <C>
Nuveen Flagship Georgia Municipal Bond Fund...... 39% 25%
Nuveen Flagship Louisiana Municipal Bond Fund.... 25% 15%
Nuveen Flagship North Carolina Municipal Bond
Fund............................................ 23% 29%
Nuveen Flagship Tennessee Municipal Bond Fund.... 23% 15%
</TABLE>
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a delayed delivery commitment are ignored
in calculating net asset value so long as the commitment remains in effect. The
Funds will maintain designated readily marketable assets at least equal in
value to commitments to purchase when-issued or delayed delivery securities,
such assets to be segregated by the Custodian specifically for the settlement
of such commitments. The Funds will only make commitments to purchase Municipal
Obligations on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities, but the Funds reserve the right to sell
these securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be tax-
exempt. The Funds commonly engage in when-issued transactions in order to
purchase or sell newly-issued Municipal Obligations, and may engage in delayed
delivery transactions in order to manage 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.
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.
The State's unemployment level is low at 4.1% in June 1998, below the
national average of 4.5% in June 1998, and down from the State's 4.7% rate in
June 1997. Per capita income in 1997 was $24,061 approximately 94% of the
national average.
Georgia's tight financial policies and conservative management resulting in a
substantial unreserved, undesignated General Fund balance of $776 million in
fiscal 1997. Despite a reduction in the sales tax on food, tax revenue grew by
6.5%. The sales tax on food is being eliminated in Georgia and in preparation
for the loss of this revenue source, the State set aside some of its fiscal
1996 surplus. An additional source of financial flexibility, the Revenue
Shortfall Reserve totaled $334 million in fiscal 1997, up significantly from
the early 1990's when it was drawn down to zero. As of July 31, 1998, Georgia's
general obligation debt carries AAA 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 3.1% since 1990
after ten years of zero growth. Per capita personal income has increased and
was $20,680 in 1997, but remains at about 81% of the national average. The
unemployment rate for the State was 5.2% in June 1998, above the national
average of 4.5%.
The State possesses natural resources which have played a significant role in
driving the economy. Chemicals provide the largest employment in the
manufacturing industry. Tourism is the second largest industry in the State,
adding $7 billion to the economy and generating $468 million in state and local
taxes by the end of 1996. 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.
The State's general obligation bond rating by Moody's, Standard & Poor's and
Fitch is A2, A- and A, respectively.
S-7
<PAGE>
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
growth. While manufacturing remains an important 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.
The State's unemployment rate was 3.0% in June 1998, below the national
average of 4.5% in June 1998 and down from the State's 3.6% rate in June 1997.
Per capita income in 1997 was $23,345, approximately 91% of the national
average.
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 from 1992-1997. Moody's, S&P,
and Fitch all rate the State AAA.
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 unemployment rate in June 1998 was 3.9%,
compared to the national average of 4.5% in June 1998 and the State's 5.6%
average in June 1997. Per capita income was $23,018 in 1997, about 90% of the
national average.
Tennessee's Constitution requires that a fiscal year's expenditures not
exceed that year's revenues and available reserves. In 1996, Tennessee adopted
legislation that set a target level for the State's undesignated reserve that
represents 5% of estimated State tax revenues for the general and education
trust funds. On June 30, 1997, the reserve balance reached approximately 3.8%
of such tax revenues. To help accomplish its 5% goal, beginning in fiscal 1999,
the State will allocate at least 10% of the annual growth in sales tax revenues
to the undesignated reserve account until the target is reached. Tennessee's
solid fiscal budget management is reflected in its general obligation ratings
of Aaa/AAA+/AAA by Moody's, S&P and Fitch, respectively. Standard & Poor's
upgraded the State from AA+ to AAA in May 1998.
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
S-8
<PAGE>
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 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.
S-9
<PAGE>
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
S-10
<PAGE>
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. 49 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. and Nuveen Institutional Advisory
Corp.; Chairman and Director (since January
1997) of Nuveen Asset Management, Inc.;
Director (since 1996) of Institutional
Capital Corporation.
Anthony T. Dean* 53 President and President since July 1, 1996 of The John
333 West Wacker Drive Trustee Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.; prior
thereto, Executive Vice President and
Director of The John Nuveen Company, John
Nuveen & Co. Incorporated, Nuveen Advisory
Corp. and Nuveen Institutional Advisory
Corp.; President and Director (since
January 1997) of Nuveen Asset Management,
Inc.; Chairman and Director (since 1997) of
Rittenhouse Financial Services, Inc.
Robert P. Bremner 58 Trustee Private Investor and Management Consultant.
3725 Huntington
Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 64 Trustee Retired (August 1989) as Senior Vice
201 Michigan Avenue President of The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri 65 Trustee Executive Director of Manitoga (Center for
3 West 29th Street Russel Wright's Design with Nature);
New York, NY 10001 formerly President and Chief Executive
Officer of Blanton-Peale Institute of
Religion and Health.
</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>
Peter R. 65 Trustee Adjunct Professor of Business and Economics,
Sawers University of Dubuque, Iowa; Adjunct
22 The Professor, Lake Forest Graduate School of
Landmark Management, Lake Forest, Illinois;
Northfield, Chartered Financial Analyst; Certified
IL 60093 Management Consultant.
William J. 54 Trustee Senior Partner, Miller-Valentine Partners,
Schneider Vice President, Miller-Valentine Group.
4000
Miller-
Valentine
Ct.
P.O. Box
744
Dayton, OH
45401
Judith M. 50 Trustee Executive Director, Gaylord and Dorothy
Stockdale Donnelley Foundation (since 1994); prior
35 E. thereto, Executive Director, Great Lakes
Wacker Protection Fund (from 1990 to 1994).
Drive
Suite 2600
Chicago,
IL 60601
Alan G. 37 Vice President and Vice President and General Counsel (since
Berkshire Assistant Secretary September 1997) and Secretary (since May
333 West 1998) of The John Nuveen Company, John
Wacker Nuveen & Co. Incorporated, Nuveen-Advisory
Drive Corp. and Nuveen Institutional Advisory
Chicago, Corp., prior thereto, Partner in the law
IL 60606 firm of Kirkland & Ellis.
Michael S. 41 Vice President Vice President of Nuveen Advisory Corp.
Davern (since January 1997); prior thereto, Vice
One South President and Portfolio Manager of Flagship
Main Financial.
Street
Dayton, OH
45402
Lorna C. 53 Vice President Vice President of John Nuveen & Co.
Ferguson incorporated; Vice President (since January
333 West 1998) of Nuveen Advisory Corp. and Nuveen
Wacker Institutional Advisory Corp.
Drive
Chicago,
IL 60606
William M. 34 Vice President Vice President of Nuveen Advisory Corp.
Fitzgerald (since December 1995); Assistant Vice
333 West President of Nuveen Advisory Corp. (from
Wacker September 1992 to December 1995), prior
Drive thereto, Assistant Portfolio Manager of
Chicago, Nuveen Advisory Corp.
IL 60606
Stephen D. 44 Vice President and Vice President of John Nuveen & Co.
Foy Controller Incorporated
333 West
Wacker
Drive
Chicago,
IL 60606
J. Thomas 43 Vice President Vice President of Nuveen Advisory Corp.
Futrell
333 West
Wacker
Drive
Chicago,
IL 60606
Richard A. 35 Vice President Vice President of Nuveen Advisory Corp.
Huber (since January 1997); prior thereto, Vice
333 West President and Portfolio Manager of Flagship
Wacker Financial.
Drive
Chicago,
IL 60606
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Steven J. Krupa 41 Vice President Vice President of Nuveen Advisory Corp.
333 West
Wacker Drive
Chicago, IL
60606
Larry W. Martin 47 Vice President Vice President, Assistant Secretary and
333 West Assistant General Counsel of John Nuveen &
Wacker Drive Co. Incorporated; Vice President and
Chicago, IL Assistant Secretary of Nuveen Advisory
60606 Corp.; Vice President and Assistant
Secretary of Nuveen Institutional Advisory
Corp.; Assistant Secretary of The John
Nuveen Company.
Edward F. 33 Vice President Vice President (since September 1996),
Neild, IV previously Assistant Vice President (since
333 West December 1993) of Nuveen Advisory Corp.,
Wacker Drive portfolio manager prior thereto; Vice
Chicago, IL President (since September 1996),
60606 previously Assistant Vice President (since
May 1995) of Nuveen Institutional Advisory
Corp., portfolio manager prior thereto.
Stephen S. 40 Vice President Vice President (since September 1997),
Peterson previously Assistant Vice President (since
333 West September 1996) of Nuveen Advisory Corp.,
Wacker Drive Portfolio Manager prior thereto.
Chicago, IL
60606
Stuart W. 42 Vice President Vice President of John Nuveen & Co.
Rogers Incorporated.
333 West
Wacker Drive
Chicago, IL
60606
Thomas C. 47 Vice President Vice President of Nuveen Advisory Corp. and
Spalding, Jr. Nuveen Institutional Advisory Corp.;
333 West Chartered Financial Analyst.
Wacker Drive
Chicago, IL
60606
H. William 64 Vice President Vice President and Treasurer of The John
Stabenow Nuveen Company, John Nuveen & Co.
333 West Incorporated, Nuveen Advisory Corp. and
Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL
60606
William S. 33 Vice President Vice President of John Nuveen & Co.
Swanson Incorporated (since October 1997), prior
333 West thereto, Assistant Vice President (since
Wacker Drive September 1996); formerly, Associate of
Chicago, IL John Nuveen & Co. Incorporated.
60606
Gifford R. 42 Vice President Vice President, Secretary and Associate
Zimmerman and Secretary General Counsel of John Nuveen & Co.
333 West Incorporated; Vice President and Assistant
Wacker Drive Secretary of Nuveen Advisory Corp.; Vice
Chicago, IL President and Assistant Secretary of Nuveen
60606 Institutional Advisory Corp; Assistant
Secretary of The John Nuveen Company (since
May 1994).
</TABLE>
S-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 directors or trustees, as the case may be, of
37 Nuveen open-end funds and 52 Nuveen closed-end funds advised by Nuveen
Advisory Corp.
The following table sets forth compensation paid by the Trust to each of the
trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended May 31, 1998. The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust. Trustees Brown, Impellizzeri, Rosenheim and Sawers
became trustees of this Trust on February 1, 1997.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- ----------------
<S> <C> <C>
Robert P. Bremner........................ $3,017 $66,446
Lawrence H. Brown........................ $3,205 $79,000
Anne E. Impellizzeri..................... $3,017 $73,000
Margaret K. Rosenheim*................... $1,023 $29,506(1)
Peter R. Sawers.......................... $3,017 $73,000
William J. Schneider..................... $3,017 $66,446
Judith M. Stockdale**.................... $2,164 $49,000
</TABLE>
- --------
*Former trustee; retired July 1997.
**Elected to the Board in July 1997.
(1) Includes $1,256 in interest accrued on deferred compensation from prior
years; former trustee, retired 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.
S-15
<PAGE>
The following table sets forth the percentage ownership of each person, who,
as of September 1, 1998, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Georgia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 35.58%
Class A Shares............ 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 Merrill Lynch, Pierce, Fenner & Smith 27.75
Class B Shares............ For the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
Reliance Trust Co 8.85
FBO Reeves E TUA U-A DTD 9-14-89
PO Box 48449
Atlanta, GA 30362-1449
Trustman Sun Trust Bank Atlanta FBOTR 5.46
UA 6-6-96 Mary Helen Butler
Acct11023442
PO Box 105870 Ctr 3144
Atlanta, GA 30348-0000
Nuveen Flagship Georgia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 53.91
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 33.75
Class R Shares............ Carolyn P. Fellows LVG Trust
U/A DTD 5-25-90
415 Sassafras Rd
Roswell, GA 30076-3669
Verna J Brown 22.02
Alan James Brown TRS
Alan J Brown & Verna J Brown Fam TR
UA DTD 05/13/92
432 Calton Hill Ct
Alpharetta, GA 30004-6993
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Louise S. Brooks 19.14%
P.O. Box 818
Valdosta, GA 31603-0818
Albert D. Cannon 6.56
1958 Overbrooke Way
Austell, GA 30001-1129
Kurt Vogt 6.27
and Inge Vogt
JT WROS
1118 Reading Dr NW
Acworth, GA 30102-3426
Nuveen Flagship Louisiana
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 40.22
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 61.35
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 71.75
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 Merrill Lynch, Pierce, Fenner & Smith 17.29
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-17
<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 MLPF&S 10.64%
Fund Class B Shares..... for the sole benefit of its customers
Attn Fund Admin SEC 97NC8
4800 Deer Lake Dr., E Fl 3
Jacksonville, Fl 32246-6484
Gladys P. Keplinger TOD 5.61
Beulah P. Horton 30%
Gloria P. Carons 70%
9101 Hood Rd.
Charlotte, NC 28215-8763
Nuveen Flagship North
Carolina Municipal Bond Merrill Lynch, Pierce, Fenner & Smith 22.66
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
Interstate/Johnson Lane FBO 6.50
403-73979-18
Interstate Tower
P.O. Box 1220
Charlotte, NC 28201-1220
Nuveen Flagship North
Carolina Municipal Bond John R. Campbell 9.84
Fund Class R Shares..... 2701 St. Claire Rd
Winston-Salem, NC 27106-5022
Harry W. Barrick Jr. 6.59
1900 Highland Pl.
Raleigh, NC 27607-3102
James H. Ward 6.43
P.O. Box 67
Plymouth, NC 27962-0067
Louise S. Allen 6.23
157 Sitterson Loop
Plymouth, NC 27962-9566
Maryellen D. Casler 6.04
1726 Seabrook Ave.
Cary, NC 27511-5625
Donald M. Gilbert 5.11
TRST Leroy C. Gilbert LVG Trust U-A DTD
12-8-86
2324 2 41st St. Apt. 103
Wilimington, NC 27403-0000
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nyal W. Watson 5.08%
P.O. Box 99
Plymouth, NC 27962-0099
Nuveen Flagship Tennessee
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 22.13
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 14.76
Class B Shares............ For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr., E FL 3
Jacksonville, FL 32246-6484
BHC Securities Inc. 5.63
FAO 52197563
Attn: Mutual Funds Dept.
One Commerce Sq.
2005 Market St., Suite 1200
Philadelphia, PA 19103-7042
Nuveen Flagship Tennessee
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 46.49
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 22.67
Class R Shares............ P.O. Box 305
Piney Flats, TN 37686-0305
Hugh A Stephenson 18.22
and Ina G Stephenson
JT WROS
111 Galway Rd
Bristol, TN 37620-3037
J.C. Bradford & Co. Cust FBO 11.40
Jeffrey L. Cooper
330 Commerce St.
Nashville, TN 37201-1805
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
NAME
OF
FUND
AND PERCENTAGE
CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ----- ------------------------- ------------
<S> <C> <C>
J C Hawk 9.94%
and Ruth L Hawk
JT WROS
2015 Sherwood Dr
Johnson City, TN 37601-3236
Henry Bartosch 9.15
Georgia J. Bartosch JT WROS
3535 Kirby Rd., Apt A121
Memphis, TN 38115-3710
Walter Wolentarski & 7.47
Patricia A. Wolentarski
JT TEN
665 Rebel Road
Old Hickory, TN 37138-1045
Terry F Heffstetler 5.49
Helen B Heffstetler
JT WROS
3942 US Hwy 411 S
Maryville, TN 37801-7646
</TABLE>
S-20
<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
--------------------------- -----------------------
5/31/96 5/31/97 5/31/98 5/31/96 5/31/97 5/31/98
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Georgia Municipal Bond
Fund...................... 235,562 338,940 461,866 366,193 283,341 278,606
Louisiana Municipal Bond
Fund...................... 148,090 223,450 412,374 222,310 193,709 122,920
North Carolina Municipal
Bond Fund................. 674,110 850,815 1,064,856 318,954 133,892 --
Tennessee Municipal Bond
Fund...................... 921,400 1,051,491 1,508,648 389,150 341,259 56,952
</TABLE>
In addition to the management fee of Nuveen Advisory, each Fund pays all
other costs and expenses of its operations and a portion of the Trust's general
administrative expenses allocated in proportion to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. Nuveen is the
sponsor of the Nuveen Defined Portfolios, and is the principal underwriter for
the Nuveen Mutual Funds, and has served as co-managing underwriter for the
shares of the Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have
invested to date in Nuveen's funds and Defined Portfolios. Founded in 1898,
Nuveen is a subsidiary of The John Nuveen Company which, in turn, is
approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul
is located in St. Paul, Minnesota and is principally engaged in providing
property-liability insurance through subsidiaries. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
S-21
<PAGE>
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to
pay any brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price. Given the
best price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers and general economic reports) and statistical and
other services to Nuveen Advisory. It is not possible to place a dollar value
on information and statistical and other services received from dealers. Since
it is only supplementary to Nuveen Advisory's own research efforts, the receipt
of research information is not expected to reduce significantly Nuveen
Advisory's expenses. While Nuveen Advisory will be primarily responsible for
the placement of the business of the Funds, the policies and practices of
Nuveen Advisory in this regard must be consistent with the foregoing and will,
at all times, be subject to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to a Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
S-22
<PAGE>
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Funds' shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the Exchange is normally open for
trading. The Exchange is not open for trading on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of a class of shares of a
Fund will be computed by dividing the value of the Fund's assets attributable
to the class, less the liabilities attributable to the class, by the number of
shares of the class outstanding.
In determining net asset value for the Funds, the Funds' custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. Securities for which quotations are not readily available
(which constitute a majority of the securities held by the Funds) are valued at
fair value as determined by the pricing service using methods which include
consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Board of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Morgan, Lewis & Bockius LLP, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second,
for taxable years beginning on or before August 5, 1997, a Fund must derive
less than 30% of its annual gross income from the sale or other disposition of
any of the following which was held for less than three months: (i) stock or
securities and (ii) certain options, futures, or forward contracts (the "short-
short test"). The short-short test will not be a requirement for qualification
as a regulated investment company for taxable years beginning after August 5,
1997. Third, a Fund must diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
is comprised of cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of a Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
the total assets is invested in the securities of any one issuer (other than
United States Government securities and securities of other regulated
investment companies) or two or more issuers controlled by a Fund and engaged
in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities
S-23
<PAGE>
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 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
S-24
<PAGE>
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 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
S-25
<PAGE>
distribution of such income. Because such accrued tax-exempt income is included
in the net asset value per share (which equals the redemption or exchange
value), such a redemption could result in treatment of the portion of the sales
or redemption proceeds equal to the accrued tax-exempt interest as taxable gain
(to the extent the redemption or exchange price exceeds the shareholder's tax
basis in the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
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
S-26
<PAGE>
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.
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
S-27
<PAGE>
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.
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.
S-28
<PAGE>
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 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 corporate 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 corporate
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.
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.
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.
S-29
<PAGE>
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:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20%.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
S-30
<PAGE>
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
Georgia Municipal Bond Fund
Class A Shares............. 4.51% 43.20% 7.94%
Class B Shares............. 3.96% 43.20% 6.97%
Class C Shares............. 4.16% 43.20% 7.32%
Class R Shares............. 4.91% 43.20% 8.64%
Louisiana Municipal Bond Fund
Class A Shares............. 4.65% 41.80% 7.99%
Class B Shares............. 4.11% 41.80% 7.06%
Class C Shares............. 4.31% 41.80% 7.41%
Class R Shares............. 5.06% 41.80% 8.69%
North Carolina Municipal Bond
Fund
Class A Shares............. 3.98% 44.30% 7.15%
Class B Shares............. 3.41% 44.30% 6.12%
Class C Shares............. 3.61% 44.30% 6.48%
Class R Shares............. 4.36% 44.30% 7.83%
Tennessee Municipal Bond Fund
Class A Shares............. 3.97% 43.20% 6.99%
Class B Shares............. 3.40% 43.20% 5.99%
Class C Shares............. 3.60% 43.20% 6.34%
Class R Shares............. 4.34% 43.20% 7.64%
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields 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.
S-31
<PAGE>
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20%, were as follows:
<TABLE>
<CAPTION>
MAY 31, 1998
-------------------------------
DISTRIBUTION RATES
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Georgia Municipal Bond Fund............... 4.73% 4.18% 4.40% 5.17%
Louisiana Municipal Bond Fund............. 4.78% 4.26% 4.47% 5.19%
North Carolina Municipal Bond Fund ....... 4.82% 4.29% 4.47% 5.20%
Tennessee Municipal Bond Fund............. 4.89% 4.34% 4.50% 5.26%
</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 Georgia, Louisiana, North 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.
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
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
Louisiana 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
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-32
<PAGE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A shares, and applicable CDSC for Class B
Shares, for the one-year, five-year and ten-year periods (as applicable) ended
May 31, 1998 and for the period from inception through May 31, 1998,
respectively, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
--------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, MAY 31, MAY 31, MAY 31,
1998 1998 1998 1998
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Georgia Municipal Bond Fund
Class A Shares............ 6.73% 5.80% 7.65% 7.34%
Class B Shares............ 6.66% 5.95% 7.65% 7.34%
Class C Shares............ 10.79% 6.11% 7.51% 7.12%
Class R Shares............ 11.23% 6.71% 8.11% 7.72%
Louisiana Municipal Bond
Fund
Class A Shares............ 5.24% 6.04% N/A 7.98%
Class B Shares............ 5.18% 6.16% N/A 7.95%
Class C Shares............ 9.32% 6.35% N/A 7.91%
Class R Shares............ 10.21% 7.01% N/A 8.55%
North Carolina Municipal
Bond Fund
Class A Shares............ 4.13% 4.84% 7.38% 6.69%
Class B Shares............ 3.89% 4.95% 7.38% 6.68%
Class C Shares............ 8.09% 5.12% 7.23% 6.46%
Class R Shares............ 8.88% 5.79% 7.87% 7.09%
Tennessee Municipal Bond
Fund
Class A Shares............ 4.48% 5.08% 7.50% 7.51%
Class B Shares............ 4.21% 5.19% 7.48% 7.50%
Class C Shares............ 8.39% 5.38% 7.35% 7.34%
Class R Shares............ 9.20% 5.99% 7.96% 7.95%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
S-33
<PAGE>
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, and applicable CDSC for Class
B Shares, for the one-year, five-year and ten-year periods (as applicable)
ended May 31, 1998, and for the period since inception through May 31, 1998,
respectively, using the performance of the oldest class for periods prior to
the inception of the newer classes, as described above, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
MAY 31, MAY 31, MAY 31, MAY 31,
1998 1998 1998 1998
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Georgia Municipal Bond
Fund
Class A Shares.......... 6.73% 32.59% 109.06% 136.98%
Class B Shares.......... 6.66% 33.51% 108.91% 136.87%
Class C Shares.......... 10.79% 34.50% 106.31% 131.05%
Class R Shares.......... 11.23% 38.38% 118.14% 147.33%
Louisiana Municipal Bond
Fund
Class A Shares.......... 5.24% 34.05% N/A 95.31%
Class B Shares.......... 5.18% 34.85% N/A 94.78%
Class C Shares.......... 9.32% 36.07% N/A 94.21%
Class R Shares.......... 10.21% 40.29% N/A 104.34%
North Carolina Municipal
Bond Fund
Class A Shares.......... 4.13% 26.66% 103.88% 120.04%
Class B Shares.......... 3.89% 27.33% 103.74% 192.82%
Class C Shares.......... 8.09% 28.35% 101.06% 114.30%
Class R Shares.......... 8.88% 32.52% 113.29% 130.17%
Tennessee Municipal Bond
Fund
Class A Shares.......... 4.48% 28.10% 106.01% 115.03%
Class B Shares.......... 4.21% 28.77% 105.76% 114.85%
Class C Shares.......... 8.39% 29.93% 103.28% 111.58%
Class R Shares.......... 9.20% 33.77% 115.10% 124.60%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 43.2% maximum combined marginal federal and State tax rate for
1998, the annual taxable equivalent total return for the Georgia Municipal
Fund's Class A shares for the one-year period ended May 31, 1998 was 15.51%.
S-34
<PAGE>
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper 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
S-35
<PAGE>
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.
Class A Shares may be purchased at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. Shareholders may qualify
for a reduced sales charge, or the sales charge may be waived in its entirety,
as described below. Class A Shares also subject to an annual service fee of
.20%. See "Description and Service Plans." Set forth below is an example of the
method of computing the offering price of the Class A shares of a Fund. The
example assumes a purchase on April 30, 1998 of Class A shares from the Nuveen
Municipal Bond Fund aggregating less than $50,000 subject to the schedule of
sales charges set forth in the Prospectus at a price based upon the net asset
value of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per share.......................................... $9.46
Per Share Sales Charge--4.20% of public offering price (4.38% of
net asset value per share)........................................ .41
-----
Per Share Offering Price to the Public............................. $9.87
</TABLE>
S-36
<PAGE>
The Funds receive the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
<TABLE>
<CAPTION>
AUTHORIZED DEALER
SALES CHARGE AS % OF SALES CHARGE AS % OF COMMISSION AS % OF
AMOUNT OF PURCHASE PUBLIC OFFERING PRICE* NET AMOUNT INVESTED PUBLIC OFFERING PRICE
------------------ ---------------------- -------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....... 4.20% 4.38% 3.70%
$50,000 but less than
$100,000............... 4.00% 4.18% 3.50%
$100,000 but less than
$250,000............... 3.50% 3.63% 3.00%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.50%
$1,000,000 and over..... --* -- --(1)
</TABLE>
- --------
(1) You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% (0.75% and 0.50%, respectively,
for the Intermediate and Limited Term Funds) of the first $2.5 million,
plus .50% of the next $2.5 million, plus .25% (0.50% for the Intermediate
Fund) of the amount over $5.0 million. If you redeem your shares within 18
months of purchase, you may have to pay a CDSC of 1% (0.75% and 0.50%,
respectively, for the Intermediate and Limited Term Funds) of either your
purchase price or your redemption proceeds, whichever is lower. You do not
have to pay this CDSC if your financial adviser has made arrangements with
Nuveen and agrees to waive the commission.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R
SHARES 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 Nuveen exchange-traded fund, or units
of a Nuveen Defined Portfolio, on which an up-front sales charge or ongoing
distribution fee is imposed, or is normally imposed, falls within the amounts
stated in the Class A Sales Charges and Commissions table in "How You Can Buy
and Sell Shares" in the Prospectus. You or your financial adviser must notify
Nuveen or the Fund's transfer agent of any cumulative discount whenever you
plan to purchase Class A Shares of a Fund that you wish to qualify for a
reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How You
Can Buy and Sell Shares" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A Shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Mutual Fund
that you already own on which you paid an up-front sales charge or an ongoing
distribution fee and any Class B or C Shares of a Nuveen Mutual Fund that you
purchase over the next 13 months towards completion of your investment program,
but you will receive a reduced sales charge only on new Class A Shares you
purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without
a sales charge through investment of distributions from a Nuveen Mutual Fund or
a Nuveen Defined Portfolio, or otherwise.
S-37
<PAGE>
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount specified, you must pay
Nuveen an amount equal to the difference between the amounts paid for these
purchases and the amounts which would have been paid if the higher sales charge
had been applied. If you do not pay the additional amount within 20 days after
written request by Nuveen or your financial adviser, Nuveen will redeem an
appropriate number of your escrowed Class A Shares to meet the required
payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as
attorney to give instructions to redeem any or all of your escrowed shares,
with full power of substitution in the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Defined Portfolio Distributions. You may purchase
Class A Shares without an up-front sales charge by reinvestment of
distributions from any of the various Defined Portfolios sponsored by Nuveen.
There is no initial or subsequent minimum investment requirement for such
reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten or more participating members, has agreed to
include Fund sales publications in mailings to members and has agreed to comply
with certain administrative requirements relating to its group purchases.
Under any group purchase program, the minimum initial investment in Class A
Shares of any particular Fund or portfolio for each participant in the program
is $3,000 and the minimum monthly investment in Class A Shares of any
particular Fund or portfolio by each participant is $50. No certificates will
be issued for any participant's account. All dividends and other distributions
by a Fund will be reinvested in additional Class A Shares of the same Fund. No
participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by calling Nuveen
toll-free (800) 257-8787.
Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also
purchase Class A Shares at net asset value without a sales charge if the
purchase takes place through a broker-dealer and represents the reinvestment of
the proceeds of the redemption of shares of one or more registered investment
companies not affiliated with Nuveen. You must provide appropriate
documentation that the redemption occurred not more than one year prior to the
reinvestment of the proceeds in Class A Shares, and that you either paid an up-
front sales charge or were subject to a contingent deferred sales charge in
respect of the redemption of such shares of such other investment company.
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<PAGE>
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:
. investors purchasing $1,000,000 or more ($2,500,000 for R shares);
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
. any eligible employer-sponsored qualified defined contribution retirement
plan. Eligible plans are those with at least 25 employees and which
either (a) make an initial purchase of one or more Nuveen Mutual Funds
aggregating $500,000 or more or (b) execute a Letter of Intent to
purchase in the aggregate $500,000 or more of fund shares. Nuveen will
pay authorized dealers a sales commission on such purchases equal to 1%
of the first $2.5 million, plus 2.5% of any amount purchased over $5.0
million. For this category of investors a contingent deferred sales
charge of 1% will be assessed on redemptions within 18 months of
purchase, unless waived. Municipal bond funds are not a suitable
investment for individuals investing in retirement plans.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. Holders of Class C Shares purchased after that date will not have
the option to convert those shares to Class A Shares.
Class B Shares will automatically convert to Class A Shares eight years after
purchase. The purpose of the conversion is to limit the distribution fees you
pay over the life of your investment. All conversions will be done at net asset
value without the imposition of any sales load, fee, or other charge, so that
the value of each shareholder's account immediately before conversion will be
the same as the value of the account immediately after conversion. Class B
Shares acquired through reinvestment of distributions will convert into Class A
Shares based on the date of e initial purchase to which such shares relate. For
this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. A
Class B Shares that are converted to Class A Shares will remain subject to an
annual service fee that is identical in amount for both Class B Shares and
Class A Shares. Since net asset value per share of the Class B Shares and the
Class A Shares may differ at the time of conversion, a shareholder may receive
more or fewer Class A Shares than the number of Class B Shares converted. Any
conversion of Class B Shares into Class A Shares will be subject to the
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<PAGE>
continuing availability of an opinion of counsel or a private letter ruling
from the Internal Revenue Service to the effect that the conversion of shares
would not constitute a taxable event under federal income tax law. Conversion
of Class B Shares into Class A Shares might be suspended if such an opinion or
ruling were no longer available.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $2.5 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
and their immediate family members of trustees/directors of any fund,
sponsored by Nuveen, any parent company of Nuveen and subsidiaries
thereof and their immediate family members;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
. any shares purchased by investors falling within any of the first four
categories listed above must be acquired for investment purposes and on
the condition that they will not be transferred or resold except through
redemption by the fund.
In addition, purchasers of Nuveen Defined Portfolios may reinvest their
distributions from such Defined Portfolios in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions
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<PAGE>
in Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund
shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into
Class R Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 257-8787.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18
months of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged 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 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
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<PAGE>
CDSC, such waiver or reduction would be uniformly applied to all Fund shares in
the particular category. In waiving or reducing a CDSC, the Funds will comply
with the requirements of Rule 22d-1 of the Investment Company Act of 1940, as
amended.
GENERAL MATTERS
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen mutual funds
during specified time periods.
To help advisers and investors better understand and most efficiently use the
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 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
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shares to or through brokers, dealers, banks or other qualified financial
intermediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of the Trust.
Pursuant to the Distribution Agreement, Nuveen, at its own expense, finances
certain activities incident to the sale and distribution of the Funds' shares,
including printing and distributing of prospectuses and statements of
additional information to other than existing shareholders, the printing and
distributing of sales literature, advertising and payment of compensation and
giving of concessions to Dealers. Nuveen receives for its services the excess,
if any, of the sales price of the Funds' shares less the net asset value of
those shares, and reallows a majority or all of such amounts to the Dealers who
sold the shares; Nuveen may act as such a Dealer. Nuveen also receives
compensation pursuant to a distribution plan adopted by the Trust pursuant to
Rule 12b-1 and described herein under "Distribution and Service Plan." Nuveen
receives any CDSCs imposed on redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Financial, Inc., which Nuveen acquired on
January 1, 1997) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Georgia Fund............ 300 41 293 39 347 47
Louisiana Fund.......... 367 39 254 33 247 32
North Carolina Fund..... 289 40 358 49 439 47
Tennessee Fund.......... 662 67 639 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
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1% per year of the average daily net assets of Class C Shares as a distribution
fee and up to .20 of 1% per year of the average daily net assets of Class C
Shares as a service fee under the Plan applicable to Class C Shares.
For the fiscal year ended May 31, 1998, 100% of service fees and distribution
fees were paid out as compensation to Authorized Dealers. 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 1998
----------------------
<S> <C>
Georgia Municipal Bond Fund
Class A................................................ $235,172
Class B................................................ $ 14,815
Class C................................................ $116,640
Louisiana Municipal Bond Fund
Class A................................................ $164,872
Class B................................................ $ 40,431
Class C................................................ $ 79,636
North Carolina Municipal Bond Fund
Class A................................................ $371,113
Class B................................................ $ 13,177
Class C................................................ $ 56,974
Tennessee Municipal Bond Fund
Class A................................................ $537,896
Class B................................................ $ 24,120
Class C................................................ $130,791
</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.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 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, and portfolio accounting services.
The Fund's transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports; and are incorporated herein by reference.
The Annual Reports accompany this Statement of Additional Information.
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<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>
VAI-MS3-9-98
<PAGE>
NUVEEN
Municipal
Bond Funds
May 31, 1998
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
Alabama
Georgia
Louisiana
North
Carolina
South
Carolina
Tennessee
<PAGE>
Highlights
As of May 31, 1998
For Class A shares on net asset value
Credit Quality Performance Highlights
Nuveen Flagship Alabama Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 63%
AA 15%
A 20%
BBB/NR 2%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. One-year total return of 10.22%
. Taxable-equivalent yield of 7.52%*
Nuveen Flagship Georgia Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 59%
AA 15%
A 22%
BBB/NR 4%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. Ranked the fifth best-performing tax-free fund in the country for 1997 in
Business Week**
. One-year total return of 11.37%
Nuveen Flagship Louisiana Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 71%
AA 8%
A 12%
BBB/NR 9%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. One-year total return of 9.88%
. Taxable-equivalent yield of 7.37%*
Nuveen Flagship North Carolina Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 35%
AA 33%
A 16%
BBB/NR 16%
. One-year total return of 8.69%
. Taxable-equivalent yield of 6.59%*
. Steady dividend for 16 consecutive months
Nuveen Flagship South Carolina Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 62%
AA 26%
A 10%
BBB/NR 2%
. Outperformed Lehman Brothers Municipal Bond Index and Lipper peer group
average for the one-year period
. One-year total return of 9.95%
. Taxable-equivalent yield of 7.59%*
Nuveen Flagship Tennessee Municipal Bond Fund
[PIE CHART APPEARS HERE]
AAA/Pre-refunded 49%
AA 26%
A 15%
BBB/NR 10%
. Outperformed Lipper peer group average for the one-year period
. One-year total return of 9.01%
. Taxable-equivalent yield of 6.46%*
* For investors in the 31% federal and applicable state income tax bracket.
See your fund's performance overview for more information.
** An article in the December 29, 1997, issue of Business Week ranked the
Nuveen Flagship Georgia Municipal Bond Fund fifth out of 1,391 tax-free
mutual funds based on total returns for the period from January 1,
1997--December 12, 1997. The total return data was provided by Morningstar,
Inc., an independent investment information service, and reflects
appreciation plus reinvestment of dividends and capital gains before taxes.
Contents
1 Dear Shareholder
4 Alabama Commentary
and Overview
6 Georgia Commentary
and Overview
8 Louisiana Commentary
and Overview
10 North Carolina Commentary
and Overview
12 South Carolina Commentary
and Overview
14 Tennessee Commentary
and Overview
16 Report of Independent Public Accountants
17 Portfolio of Investments
41 Statement of Net Assets
43 Statement of Operations
45 Statement of Changes in Net Assets
47 Notes to Financial Statements
54 Financial Highlights
60 Building Better Portfolios
61 Fund Information
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
I'm pleased to share with you this performance report for your Nuveen municipal
bond fund. Over the past 12 months, each of the funds in this report continued
to perform well and meet their objectives of providing you with attractive tax-
free income and strong after-tax total returns.
For many of our shareholders, this annual report represents the first time you
have received a consolidated report covering performance data for other Nuveen
funds in addition to your own. These consolidated reports are part of our
continuing efforts to control fund expenses; we achieve greater economies of
scale for our shareholders through reducing paper, printing and mailing costs.
By consolidating reports by region and incorporating several funds into one
booklet, we have lowered these administrative expenses and made owning shares in
a Nuveen fund more cost-efficient for you.
Fund Update
Earlier this year, the Board of Trustees approved reorganizations of the Alabama
and South Carolina funds, subject to shareholder approval at a special meeting
on August 13. If approved, the Nuveen Flagship Alabama Municipal Bond Fund and
the Nuveen Flagship South Carolina Municipal Bond Fund will be merged into the
Nuveen Flagship All-American Municipal Bond Fund, effective August 21, 1998. The
merger of these funds -- with their similar philosophies and management --
offers shareholders several potential benefits, including lower costs, greater
portfolio flexibility and higher after-tax dividends. Mergers reduce
administrative expenses by consolidating fund reporting, record-keeping and
other operational functions. The combined fund will have a larger asset base,
enabling us to buy and sell larger blocks of bonds, thereby lowering trading
costs and enhancing portfolio liquidity. Although dividends will no longer be
exempt from state income taxes, we anticipate that the proposed merger will
result in higher after-tax dividends for Alabama and South Carolina
shareholders.
The Economy in Review
Fixed-income investments enjoyed bullish performance over the past year, as
declining interest rates and low inflation spurred a bond market rally. The
equity markets also exhibited continued strength despite recent volatility
sparked by Asia's financial problems and their possible effects on U.S.
corporate earnings. Although interest rates have trended slightly upward in
recent months, a year-to-date comparison shows that today's rates are
significantly lower than they
1
<PAGE>
were one year ago. As shown in the accompanying chart, between the end of May
1997 and May 1998, the yield on the Bond Buyer 40, an unmanaged index of long-
term municipal bonds, fell from 5.74% to 5.22%.
Much of the decline in interest rates resulted from expectations that the
financial problems of Asia would restrain the prices of imported goods and
reduce foreign demand for U.S. products and services, thereby keeping inflation
at moderate levels. These inflation expectations were largely fulfilled, as the
Consumer Price Index rose only 1.5% for the 12 months ended May 1998, remaining
at one of its lowest levels in years. The Asian situation also provided
additional strength to the bond market rally, as many investors made a "flight
to quality" by moving assets into high-quality U.S. bonds in the face of the
uncertainty in that region.
In coming months, we will continue to watch closely several key factors that are
likely to affect the future of the economy, including the demand for goods and
services, the availability of qualified employees, the strength of the dollar,
and indications from the Federal Reserve. With many investors still waiting for
the full impact of Asia's difficulties to show up in U.S. economic statistics,
the potential long-term effect of this crisis on American markets continues to
cause concern. We expect that the development of these factors will continue to
influence the tone of the fixed-income markets during the remainder of the year.
Municipal Market Review
As interest rates continued to decline over the past year, bond prices rose.
This price appreciation for the bonds in our portfolios contributed to strong
total returns for the year.
Another major factor in bond performance over the last 12 months was the
continued strength of the U.S. economy, which helped boost the credit quality of
many municipal bonds. With the improvements in the fundamental financial health
of many municipalities and revenue projects financed by bonds, major credit
rating agencies upgraded the credit quality of thousands of issuers over the
past year, while downgrading relatively few. These boosts in credit quality also
contributed to the funds' performance as upgraded bonds increased in value.
The combination of low interest rates and a strong economy set new issuance on a
record pace and stimulated a dramatic increase in the refinancing of existing
bonds as issuers sought to lower their interest costs. The first quarter of 1998
saw $68 billion of new municipal issuance, up 70% from the same period in 1997.
The flood of new issues continued with May's long-awaited sale of the first
segment of Long Island (New York) Power Authority's $7 billion offering, the
largest issuance in municipal
"Another major factor in bond performance over the last 12 months was the
continued strength of the U.S. economy, which helped boost the credit quality
of many municipal bonds."
<PAGE>
"Today, more than ever, you can count on Nuveen for a wide range of investments
that can help you build a well-balanced portfolio designed to achieve your
financial goals."
bond history. Although the nationwide supply of municipal bonds remained heavy,
the supply of bonds in each state varied according to local economic conditions.
This level of issuance highlights the value of Nuveen's expertise in the
municipal market, as our portfolio management teams worked diligently to sift
through the available issues to select those undervalued securities that would
help the funds achieve their investment objectives.
Diversification: The Key
to a Better Portfolio
In view of current market conditions, we believe that investors will find
diversification to be an increasingly important investment strategy in the
months ahead. An appropriately diversified portfolio -- one that balances
different types of investments, levels of risk and tax management -- can help
cushion your portfolio against volatility and enhance your return potential.
Many investors select Nuveen's municipal bond funds because their emphasis on
dependable tax-free income and attractive after-tax returns makes them ideal for
building and sustaining long-term financial security. These funds also work well
with other Nuveen investments to create the foundation of a diversified, well-
balanced portfolio. In fact, recent studies by Nuveen Research have found that
portfolios combining municipal bonds and stocks generated higher after-tax
returns with lower levels of risk than similar portfolios combining stocks and
Treasury or corporate bonds.
We encourage you to talk to your financial adviser about Nuveen's range of
equity and balanced funds, including the Nuveen European Value Fund. This new
equity mutual fund offers a portfolio of quality European company stocks for
investors seeking long-term growth potential and international diversification.
The fund is just one of an ever-expanding range of Nuveen products and services
designed to help investors achieve diversification while building a tax-
efficient, risk-sensitive investment portfolio. If you'd like to learn more
about the Nuveen European Value Fund or any of our other investments, contact
your financial adviser or call Nuveen Investor Services at (800) 257-8787 for a
prospectus. Please read the information carefully before you invest.
When seeking quality investment solutions that withstand the test of time, we
hope that you continue to think of Nuveen. Today, more than ever, you can count
on Nuveen for a wide range of investments that can help you build a well-
balanced portfolio designed to achieve your financial goals. We thank you for
your continued confidence in us and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1998
3
<PAGE>
Nuveen Flagship Alabama Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Mike Davern discusses fund performance, the municipal market,
and key investment strategies for the Alabama fund.
Comments cover the one-year period ended May 31, 1998 and all performance
statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
Alabama's economy continues to diversify as it moves toward the service, trade
and finance sectors, and away from traditional manufacturing industries. The
state's once healthy apparel industry is facing increased competition from
foreign and domestic companies, but has been somewhat offset by growth in wood,
paper products and durable manufacturing industries. Although per capita income
falls below the national average, it is slowly improving.
Financial operations remain satisfactory. Alabama has a strong unreserved
General Fund balance and an extremely low debt burden. In the current
legislative session, large debt proposals are under discussion: $1 billion for
educational spending, and $700 million in gas tax-supported revenue bonds for
highways. Overall, municipal bond supply was strong during the past year,
particularly in the housing and health care sectors.
Fund Performance
The fund performed exceptionally well over the past year, generating a total
return on net asset value of 10.22%, which is equivalent to a taxable return of
12.89% for investors in the 33.4% combined federal and state income tax bracket.
The total return significantly outperformed the annual return of 9.38% posted by
the unmanaged Lehman Brothers Municipal Bond Index, and surpassed the average
return of 8.32% for its Lipper peer group of Alabama municipal bond funds by
almost 200 basis points. In addition, the fund was ranked second of the 11
Alabama funds in its Lipper peer group for the year. The fund also provided a
very competitive yield of 5.01%, which is equivalent to a taxable yield of 7.52%
for investors in the 33.4% combined federal and state income tax bracket. This
performance is even more impressive given the fund's high credit quality (63% in
AAA bonds).
Key Strategies
There were several elements contributing to the fund's strong performance during
the past year. First was its longer duration, which is a measure of the fund's
price volatility in relation to changes in interest rates. The fund's duration
of 8.05 years was longer than the Lehman Index's average duration of 7.11 years.
The longer duration allowed the fund to better participate in this year's market
rally, although it would have been more adversely affected had there been a
market downturn. In addition to its longer duration, we were able to maintain
good call protection, avoiding issues that would be called away in the event of
a near-term change in interest rates and would therefore impact the fund's
income levels. With that in mind, we found value in some call-protected housing
bonds, as well as some health care issues.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 20%
of the portfolio invested in water and sewer bond issues, 18% in health care
bonds, 13% in education and civic organization issues and 18% in tax obligation
debt.
Outlook for the Future
Going forward, we expect conditions in which we can maintain the duration of the
portfolio, as well as its favorable call protection. In terms of specific
sectors, we will seek out attractive health care and water and sewer issues.
Higher-quality issues will continue to dominate the portfolio, because narrow
yield spreads between lower- and higher-rated securities provide little reward
for assuming the increased credit risk associated with lower-quality bonds.
Overall, we will continue to maintain the fund's current healthy
diversification, which should be aided by continuing strong supply in the state.
4
<PAGE>
Nuveen Flagship Alabama Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)
[BAR CHART APPEARS HERE]
0.044 6/97
0.044 7/97
0.044 8/97
0.044 9/97
0.044 10/97
0.044 11/97
0.044 12/97
0.0435 1/98
0.0435 2/98
0.0435 3/98
0.0435 4/98
0.0435 5/98
Top 5 Sectors
Water and Sewer 20%
Health Care 18%
Education and Civic Organizations 13%
Tax Obligation (General) 9%
Tax Obligation (Limited) 9%
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception Date 4/94 2/97 2/97 2/97
Net Asset Value $10.61 $10.62 $10.62 $10.68
Fund Net Assets ($000) $8,050
Average Weighted Maturity (Years) 22.45
Average Weighted Duration (Years) 8.05
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
1-Year 10.22% 5.63% 9.31% 9.54% 11.06%
3-Year 7.68% 6.14% 7.04% 7.26% 8.01%
Since Inception 7.99% 6.88% 7.36% 7.57% 8.23%
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
Distribution Rate 4.92% 4.71% 4.18% 4.41% 5.11%
SEC 30-Day Yield 5.01% 4.80% 4.28% 4.48% 5.23%
Taxable Equivalent Yield/2/ 7.52% 7.21% 6.43% 6.73% 7.85%
</TABLE>
Index Comparison/3/
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
Nuveen Flagship Alabama Nuveen Flagship Alabama Lehman Brothers
Municipal Bond Fund (NAV) Municipal Bond Fund (Offer) Municipal Bond Index
<S> <C> <C> <C>
4/94 10,000 9,580 10,000
5/95 11,019 10,556 11,006
5/96 11,429 10,949 11,509
5/97 12,482 11,958 12,463
5/98 13,758 13,180 13,633
</TABLE>
Lehman Brothers Municipal Bond Index $13,633
Nuveen Flagship Alabama Municipal Bond Fund (NAV) $13,758
Nuveen Flagship Alabama Municipal Bond Fund (Offer) $13,180
Past performance is not predictive of future results.
1 Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and declines
periodically to 0% over the following five years, which is not reflected in
the return figures. Class C shares have a 1% CDSC for redemptions within one
year which is not reflected in the one-year total return.
2 Based on SEC yield and a combined federal and state income tax rate of 33.4%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal
Bond Index. The Lehman 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.
5
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Mike Davern discusses fund performance, the municipal market,
and key investment strategies for the Georgia fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
In August 1997, Georgia joined the ranks of other states with the top rating for
its municipal bonds when Standard & Poor's upgraded the state's general
obligation rating to AAA, citing a strengthened financial position and favorable
economic trends. Since then, Georgia has continued to experience population, tax
base and overall economic growth, especially in the Atlanta metropolitan area,
while maintaining a low debt burden. The presence of several major corporate
headquarters has helped diversify the economy, and the rapidly growing service
sector has offset manufacturing sector losses. In terms of population, Georgia
is expected to remain among the fastest-growing states over the next five years.
With the Atlanta area experiencing rapid growth in school enrollment, many
school districts are making an effort to manage future growth by participating
in a one percent sales tax program designed in part to ease the property tax
burden. Use of these programs should enable school districts to fund necessary
capital projects without overburdening the property tax base. Overall, municipal
bond supply was strong during the past year, particularly in the housing and
health care sectors.
Fund Performance
The Georgia Municipal Bond Fund performed exceptionally well over the past year,
generating a total return of 11.37%, which is equivalent to a taxable return of
14.32% for investors in the 35.1% combined federal and state income tax bracket.
The total return significantly out-performed the annual return of 9.38% posted
by the unmanaged Lehman Brothers Municipal Bond Index and surpassed its Lipper
peer group average of 9.37% by 200 basis points. In addition, the Georgia
Municipal Bond Fund was ranked fourth among the 34 Georgia municipal bond funds
followed by Lipper. The fund also provided a competitive yield of 4.74%, which
is equivalent to a taxable yield of 7.30% for investors in the 35.1% combined
federal and state income tax bracket. This excellent performance record was
recognized by Business Week magazine, which ranked the fund the fifth best-
performing tax-free fund in the country for 1997.*
Key Strategies
There were several elements contributing to the fund's outstanding performance
during the past year. First was the Georgia fund's long portfolio duration,
which is a measure of the fund's price volatility in relation to changes in
interest rates. The fund's duration of 8.39 years was longer than the Lehman
Index's average duration of 7.11 years. The longer duration allowed the fund to
better participate in this year's market rally, although it would have been more
adversely affected had there been a market downturn. In addition to its longer
duration, we focused on maintaining good call protection, avoiding issues that
would be called away in the event of a near-term change in interest rates and
could affect the fund's income levels. With that in mind, we found value in some
escrowed government housing bonds, as well as some health care issues.
Pre-refunded bonds also played an important role in this outstanding
performance. In a pre-refunding, bonds are essentially paid off by their issuer
and backed by U.S. Treasury securities until they can be called from the
portfolio. As a result these bonds generally increase in value, contributing to
the fund's strong total returns.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 20%
of the portfolio invested in U.S. guaranteed bonds (reflecting the numerous pre-
refundings), 18% in limited tax obligation issues, 13% in multifamily housing
bonds and 10% in single-family housing debt.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Tom O'Shaughnessy assumed management responsibilities
for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment
professional who has managed a range of other municipal bond funds. Going
forward, Tom and his team expect conditions in which they can maintain the
duration of the portfolio, as well as its favorable call protection. Higher-
quality issues will continue to dominate the portfolio, because narrow yield
spreads between lower- and higher-rated securities provide little reward for
assuming the increased credit risk associated with lower-quality bonds. Overall,
they will continue to maintain the fund's current healthy diversification, which
should be aided by continuing strong supply.
* Please see inside front cover for more information.
6
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)
[BAR CHART APPEARS HERE]
0.047 6/97
0.047 7/97
0.047 8/97
0.047 9/97
0.047 10/97
0.047 11/97
0.047 12/97
0.047 1/98
0.047 2/98
0.047 3/98
0.047 4/98
0.047 5/98
Top 5 Sectors
U.S. Guaranteed 20%
.............................
Tax Obligation (Limited) 18%
.............................
Housing (Multifamily) 13%
.............................
Housing (Single-Family) 10%
.............................
Health Care 9%
- -----------------------------
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 3/86 2/97 1/94 2/97
...........................................................................................
Net Asset Value $11.19 $11.20 $11.17 $ 11.15
...........................................................................................
Fund Net Assets ($000) $143,078
...........................................................................................
Average Weighted Maturity (Years) 21.34
...........................................................................................
Average Weighted Duration (Years) 8.39
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 11.37% 6.73% 10.66% 10.79% 11.23%
...........................................................................................
5-Year 6.72% 5.80% 6.11% 6.11% 6.71%
...........................................................................................
10-Year 8.12% 7.65% 7.65% 7.51% 8.11%
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 4.93% 4.73% 4.18% 4.40% 5.17%
...........................................................................................
SEC 30-Day Yield 4.74% 4.54% 3.99% 4.19% 4.94%
...........................................................................................
Taxable Equivalent Yield/2/ 7.30% 7.00% 6.15% 6.46% 7.61%
- -------------------------------------------------------------------------------------------
</TABLE>
Index Comparison/3/
[MOUNTAIN CHART APPEARS HERE]
A = Nuveen Flagship Georgia Municipal Bond Fund (NAV)
B = Nuveen Flagship Georgia Municipal Bond Fund (Offer)
C = Lehman Brothers Municipal Bond Index
A B C
5/88 10000 9580 10000
5/89 11376 10898 11149
5/90 11894 11394 11965
5/91 13070 12521 13171
5/92 14221 13624 14466
5/93 15762 15100 16195
5/94 16052 15378 16595
5/95 17386 16656 18107
5/96 17915 17162 18934
5/97 19595 18772 20505
5/98 21827 20910 22430
- -- Lehman Brothers Municipal Bond Index $22,430
- -- Nuveen Flagship Georgia Municipal Bond Fund (NAV) $21,827
- -- Nuveen Flagship Georgia Municipal Bond Fund (Offer) $20,910
Past performance is not predictive of future results.
/1/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/2/ Based on SEC yield and a combined federal and state income tax rate of
35.1%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman 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.
7
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Jan Terbrueggen discusses fund performance, the municipal
market, and key investment strategies for the Louisiana fund.
Comments cover the one-year period ended May 31, 1998 and all performance
statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
Louisiana's economic and financial condition improved during 1997. The state
continued to reduce its reliance on federal grants, in favor of other more
dependable revenue sources. The state remains dependent on the tourism industry,
which fuels sales tax and gaming revenues, both of which are important to the
state's annual operating budget. In addition, Louisiana has lessened its
dependence on the oil and gas industries -- the primary sources of the state's
historically unsteady economy.
Although the state's overall debt burden declined during 1997, several bond
issues are anticipated in 1998, including school building and prison bonds. In
fact, new issue volume for the state is up 56% during the first quarter of 1998.
Given the state's improved condition, Louisiana bonds should be well-received
among both state and national municipal market participants.
Fund Performance
The fund posted a strong total return of 9.88% for the year, which is equivalent
to a taxable return of 12.66% for investors in the 33.9% combined federal and
state income tax bracket. The total return outpaced the return of 9.38% posted
by the unmanaged Lehman Brothers Municipal Bond Index and surpassed its peer
group average of 8.56% by well over 100 basis points. The Louisiana Municipal
Bond Fund also ranked second among the 13 Louisiana municipal bond funds
followed by Lipper Analytical Service, a nationally recognized performance
measurement service. In addition, the fund posted a competitive yield of 4.87%,
which is equivalent to a taxable yield of 7.37% for investors in the 33.9%
combined federal and state income tax bracket.
Key Strategies
There were several elements contributing to the fund's strong performance during
the past year. First was the Louisiana fund's duration, which is a measure of
the fund's price volatility in relation to changes in interest rates. The fund's
duration of 7.72 years was somewhat longer than the Lehman Index's average
duration of 7.11 years. The longer duration allowed the fund to better
participate in this year's market rally, although it would have been more
adversely affected had there been a market downturn. In addition to maintaining
the longer duration, we took advantage of Nuveen's diligent research team to
find financially strong lower-rated bonds that offered competitive yields. We
also found good yields in a few key sectors, including hospital bonds and bonds
subject to the alternative minimum tax (which does not affect most
shareholders). The fund also benefited from the ongoing appreciation of a number
of housing issues, as Fannie Mae took a large position in the state's housing
bonds, keeping prices high.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 18%
of the portfolio invested in health care bonds, 14% in general tax obligation
securities, 12% in limited tax obligation issues and 12% in single-family
housing debt.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Mike Davern assumed management responsibilities for this
fund. Mike is a seven-year veteran of Nuveen with 16 years of experience as an
investment professional. He has managed a range of other state municipal bond
funds. Mike and his team will allow the high income levels and potential price
appreciation we have enjoyed from a number of outstanding housing issues to
continue to work for shareholders. At the same time, they will avoid the state's
general obligation debt, which is not attractive at this time. In addition, they
expect to maintain the fund's current moderately longer duration.
8
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
Performance Overview
As of May 31, 1998
- ------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares)/1/
- ------------------------------------------------------------------
[BAR CHART APPEARS HERE]
0.049 6/97
0.049 7/97
0.049 8/97
0.049 9/97
0.049 10/97
0.049 11/97
0.049 12/97
0.049 1/98
0.049 2/98
0.049 3/98
0.048 4/98
0.048 5/98
- ------------------------------------------------------------------
Top 5 Sectors
- ------------------------------------------------------------------
Health Care 18%
Tax Obligation (General) 14%
Tax Obligation (Limited) 12%
Housing (Single-Family) 12%
U.S. Guaranteed 11%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Portfolio Statistics
- ------------------------------------------------------------------
Share Class A B C R
- ------------------------------------------------------------------
Inception Date 9/89 2/97 2/94 2/97
Net Asset Value $11.55 $11.55 $11.54 $ 11.55
Fund Net Assets ($000) $111,852
Average Weighted Maturity (Years) 21.64
Average Weighted Duration (Years) 7.72
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Annualized Total Return/2/
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
1-Year 9.88% 5.24% 9.18% 9.32% 10.21%
5-Year 6.95% 6.04% 6.32% 6.35% 7.01%
Since Inception 8.51% 7.98% 7.95% 7.91% 8.55%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Tax-Free Yields
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
Distribution Rate 4.99% 4.78% 4.26% 4.47% 5.19%
SEC 30-Day Yield 4.87% 4.66% 4.12% 4.32% 5.07%
Taxable Equivalent Yield/3/ 7.37% 7.05% 6.23% 6.54% 7.67%
- -------------------------------------------------------------------
- ------------------------------------------------------------------
Index Comparison/4/
- ------------------------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
Nuveen Flagship Nuveen Flagship Lehman Brothers
Louisiana Municipal Louisiana Municipal Municipal Bond
Bond Fund (NAV) Bond Fund (Offer) Index
5/90 10501.5 10060.4 10580.5
5/91 11704.8 11213.2 11646.9
5/92 12915.2 12372.7 12791.9
5/93 14604.5 13991.1 14321.7
5/94 14861.1 14237 14675.3
5/95 16229 15547 16012
5/96 17002 16288 16744
5/97 18595 17814 18132
5/98 20432 19574 19834
- ------------------------------------------------------------------
Lehman Brothers Municipal Bond Index $19,834
Nuveen Flagship Louisiana Municipal Bond Fund (NAV) $20,432
Nuveen Flagship Louisiana Municipal Bond Fund (Offer) $19,574
Past performance is not predictive of future results.
/1/ The fund also paid shareholders taxable distributions in December of
$0.0387 per share.
/2/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/3/ Based on SEC yield and a combined federal and state income tax rate of
33.9%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/4/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman 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.
9
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Walt Parker discusses fund performance, the municipal market,
and key investment strategies for the North Carolina fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
North Carolina's economy continues to expand, while decreasing its historic
reliance on furniture manufacturing and tobacco and increasing the number of
technology companies. The state's financial operations have been well-managed,
which is reflected in strong budget reserve levels, low debt burden, and the
ability to enact a one percent reduction in the food tax. In early 1997, voters
approved the largest bond issue in state history, with $1.8 billion of the total
$2.75 billion earmarked for school construction.
Despite that record bond issue, supply in the state remained tight and was
dominated mainly by small issues. That, combined with a narrow spread between
the yields on higher- and lower-quality bonds, increased the challenge of
identifying value in the market. In part due to the state's enormous population
growth, many of the year's most attractive buying opportunities came from bond
issues supporting essential services such as school, water and sewer projects.
Fund Performance
For the year ended May 31, 1998, the total return on net asset value for the
North Carolina Municipal Bond Fund was 8.69%, which is equivalent to a taxable
return of 11.72% for investors in the 36.3% combined federal and state income
tax bracket. The total return compares to the annual return of 9.38% posted by
the unmanaged Lehman Brothers Municipal Bond Index, as well as the average
return of 9.04% for the peer group of North Carolina municipal bond funds
tracked by Lipper Analytical Service. The fund also provided a competitive yield
of 4.20%, which is equivalent to a 6.59% taxable yield for investors in the
36.3% combined federal and state income tax bracket.
Although the fund slightly underperformed these two benchmark measures on a
total return basis, it maintained a steady monthly dividend of $0.0445 per share
throughout the period. The fund holds a number of high-yielding bonds purchased
during a higher interest rate environment. Although these bonds help support the
fund's competitive dividend, they were less able to participate in this year's
market rally since they have already experienced significant price appreciation.
Key Strategies
The North Carolina Municipal Bond Fund is among Nuveen's larger and older funds.
Many of the bonds in the portfolio were purchased during a much higher interest
rate environment, and have substantially higher coupon rates than are available
in today's market. Therefore, we focus on stability as much as possible with
this fund and tend to sell these higher-yielding securities only when an
unusually favorable opportunity arises.
In an attempt to make the most of the year's limited supply, we focused on
reducing the fund's holdings in the health care sector, while increasing our
position in the bonds of the state's essential services. The health care sector
provided numerous opportunities to find value over the past few years, and the
fund's weighting in that sector rose as high as 24% as we took advantage of
those opportunities. However, the characteristics of the sector have evolved,
and as mergers and acquisitions have become commonplace, particularly among
regional facilities, these bonds have become more volatile. As a result, we have
decreased our exposure to health care and moved away from regional hospitals--
which are more likely to be acquired by larger operations--and into the bonds
of more established and stable teaching hospitals.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Tom O'Shaughnessy assumed management responsibilities
for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment
professional who has managed a range of other municipal bond funds. In the near
future, Tom and his team expect to see the state's growing population translate
into increased general obligation debt as North Carolina's infrastructure needs
continue to increase. Until that happens, and until the yield spread between
lower- and higher-quality bonds widens, they will continue to seek out value
from small bond issues with favorable yields. Particular areas they will be
monitoring include essential services, education and housing bonds. They will
also continue to focus on maximizing the fund's after-tax income.
10
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)/1/
[Bar Chart Appears here]
0.0445 6/97
0.0445 7/97
0.0445 8/97
0.0445 9/97
0.0445 10/97
0.0445 11/97
0.0445 12/97
0.0445 1/98
0.0445 2/98
0.0445 3/98
0.0445 4/98
0.0445 5/98
Top 5 Sectors
Health Care 18%
.............................................................................
Tax Obligation (Limited) 18%
.............................................................................
Utilities 16%
.............................................................................
U.S. Guaranteed 12%
.............................................................................
Housing (Single-Family) 11%
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 3/86 2/97 10/93 2/97
.................................................................................
Net Asset Value $10.62 $10.62 $10.60 $ 10.62
.................................................................................
Fund Net Assets ($000) $199,088
.................................................................................
Average Weighted Maturity (Years) 20.44
.................................................................................
Average Weighted Duration (Years) 7.35
- ---------------------------------------------------------------------------------
Annualized Total Return2
Share Class A(NAV) A(Offer) B C R
- ---------------------------------------------------------------------------------
1-Year 8.69% 4.13% 7.89% 8.09% 8.88%
.................................................................................
5-Year 5.74% 4.84% 5.12% 5.12% 5.79%
.................................................................................
10-Year 7.84% 7.38% 7.38% 7.23% 7.87%
- ---------------------------------------------------------------------------------
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- ---------------------------------------------------------------------------------
Distribution Rate 5.03% 4.82% 4.29% 4.47% 5.20%
.................................................................................
SEC 30-Day Yield 4.20% 4.02% 3.46% 3.65% 4.40%
.................................................................................
Taxable Equivalent Yield/3/ 6.59% 6.31% 5.43% 5.73% 6.91%
.................................................................................
</TABLE>
Index Comparison/4/
[Mountain Chart Appears Here]
Nuveen Flagship Nuveen Flagship
North Carolina North Carolina Lehman Brothers
Municipal Bond Municipal Bond Municipal Bond
Fund (NAV) Fund (Offer) Index
5/88 10,000 9,580 10,000
5/89 11,476 10,994 11,149
5/90 12,068 11,561 11,965
5/91 13,189 12,635 13,171
5/92 14,414 13,808 14,466
5/93 16,092 15,417 16,195
5/94 16,298 15,614 16,595
5/95 17,512 16,777 18,107
5/96 18,154 17,391 18,934
5/97 19,567 18,745 20,505
5/98 21,268 20,375 22,430
- -- Lehman Brothers Municipal Bond Index $22,430
- -- Nuveen Flagship North Carolina Municipal Bond Fund (NAV) $21,268
- -- Nuveen Flagship North Carolina Municipal Bond Fund (Offer) $20,375
Past performance is not predictive of future results.
1 The fund also paid shareholders taxable distributions in December of $0.0023
per share.
2 Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
3 Based on SEC yield and a combined federal and state income tax rate of 36.3%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
4 The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal
Bond Index. The Lehman 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.
11
<PAGE>
Nuveen Flagship South Carolina Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Walt Parker discusses fund performance, the municipal market,
and key investment strategies for the South Carolina fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
Standard & Poor's upgraded the rating on South Carolina's general obligation
bonds in 1996 in response to the state's careful and conservative approach to
debt and financial operations. Since then, South Carolina's economy has
continued to diversify into the services, trade, and tourism industries,
offsetting a continuing decline in the once-robust textile industry. A tax
incentive program has convinced more than 300 companies to relocate to rural
areas of the state.
Financial operations remain healthy with low debt levels, but those levels may
rise due to the state's significant infrastructure needs, estimated at $50
billion in the next 20 years.
Despite a positive long-term outlook for bond issues, expanding state coffers
tightened bond supplies last year, and competition for existing issues was high.
The resulting narrow spread between the yields on higher- and lower-quality
bonds increased the challenge of identifying value in the marketplace.
In part because of the state's enormous population growth, many of the year's
most attractive buying opportunities came from bond issues supporting essential
services--including schools, roads, and water and sewer projects.
Fund Performance
The fund posted strong performance for the year, generating a total return of
9.95%, which is equivalent to a taxable return of 12.89% for investors in the
35.8% combined federal and state income tax bracket. The total return outpaced
the return of 9.38% posted by the benchmark Lehman Brothers Municipal Bond Index
and surpassed the Lipper peer group average return of 8.91% by more than 100
basis points. The South Carolina Municipal Bond Fund also ranked second of the
19 South Carolina municipal bond funds followed by Lipper. The fund also
provided a competitive tax-free yield of 4.87%, which is equivalent to a taxable
return of 7.59% for investors in the 35.8% combined federal and state income tax
bracket.
Key Strategies
One of our key strategies during the year was to work toward a longer portfolio
duration for the fund, which is a measure of price volatility in reaction to
changes in interest rates. Longer duration funds are better able to participate
in a market rally, but will suffer more during a market downturn. In addition,
we used cash inflows to help diversify the portfolio among different sectors of
the economy. In particular, we focused during the year on reducing the fund's
holdings in the health care sector, while increasing our position in the bonds
of the state's essential services, including water and sewer projects. We
believe these bonds offered good values despite the lack of supply in the
market.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 18%
of the portfolio invested in limited tax obligation bond issues, 18% in general
tax obligation issues, 15% in water and sewer bonds and 14% in health care debt.
Outlook for the Future
In the near future, we expect to see the state's growing population translate
into increased general obligation debt. Until that happens, and until the yield
spread between lower- and higher-quality bonds widens, we will continue to seek
value and competitive yields from small, lower-rated but still investment-
quality bond issues. Particular areas we will be monitoring include the more
financially secure essential service issues. We will continue our focus on long-
term value and income for shareholders, and expect that the fund's smaller size
will make it easier to position the fund to take advantage of changes in the
market.
12
<PAGE>
Nuveen Flagship South Carolina Municipal Bond Fund
Performance Overview
As of May 31, 1998
Monthly Tax-Free Dividends (Class A Shares)
[Bar Chart Appears here]
0.0415 6/97
0.0415 7/97
0.0415 8/97
0.0415 9/97
0.0415 10/97
0.0415 11/97
0.0415 12/97
0.04 1/98
0.04 2/98
0.04 3/98
0.04 4/98
0.04 5/98
Top 5 Sectors
Tax Obligation (Limited) 18%
...............................................................................
Tax Obligation (General) 18%
...............................................................................
Water and Sewer 15%
...............................................................................
Health Care 14%
...............................................................................
Education and Civic Organizations 10%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 7/93 2/97 2/97 2/97
................................................................................................
Net Asset Value $9.97 $9.96 $ 9.96 $ 9.97
................................................................................................
Fund Net Assets ($000) $13,300
................................................................................................
Average Weighted Maturity (Years) 19.74
................................................................................................
Average Weighted Duration (Years) 8.24
- ------------------------------------------------------------------------------------------------
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------------------------------------------
1-Year 9.95% 5.31% 9.17% 9.37% 10.10%
................................................................................................
3-Year 7.22% 5.71% 6.51% 6.72% 7.32%
................................................................................................
Since Inception 6.15% 5.22% 5.49% 5.70% 6.21%
- ------------------------------------------------------------------------------------------------
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------------------------------------------
Distribution Rate 4.81% 4.61% 4.10% 4.28% 5.06%
................................................................................................
SEC 30-Day Yield 4.87% 4.66% 4.14% 4.33% 5.09%
................................................................................................
Taxable Equivalent Yield/2/ 7.59% 7.26% 6.45% 6.74% 7.93%
- ------------------------------------------------------------------------------------------------
</TABLE>
Index Comparison/3/
[Mountain Chart Appears Here]
Nuveen Flagship Nuveen Flagship Lehman Brothers
South Carolina South Carolina Municipal
Bond Fund (NAV) Bond Fund (Offer) Bond Index
7/93 10,000 9,580 10,000
5/94 10,014 9,594 10,066
5/95 10,870 10,413 10,982
5/96 11,253 10,780 11,484
5/97 12,183 11,671 12,437
5/98 13,394 12,832 13,604
- -- Lehman Brothers Municipal Bond Index $13,604
- -- Nuveen Flagship South Carolina Bond Fund (NAV) $13,394
- -- Nuveen Flagship South Carolina Bond Fund (Offer) $12,832
Past performance is not predictive of future results.
/1/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/2/ Based on SEC yield and a combined federal and state income tax rate of
35.8%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman 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.
13
<PAGE>
Nuveen Flagship Tennessee Municipal Bond Fund
Portfolio Manager's Comments
Portfolio Manager Walt Parker discusses fund performance, the municipal market,
and key investment strategies for the Tennessee fund.
Comments cover the one-year period ended May 31, 1998 and all
performance statistics are quoted for Class A shares on net asset value.
State Economic and Market Review
In May 1998, Tennessee's municipal bond debt earned a credit upgrade to AAA from
Standard & Poor's, joining the ranks of only six other states receiving the top
credit quality rating. The credit upgrade reflects the state's rapid growth in
population, employment and capital investments since 1990. As a result of that
growth, state officials have worked hard to maintain revenues as service
expenditures continue to increase. In addition, proactive cost-cutting measures,
lower state health care costs, a low debt burden and diversifying economy
contributed to the state's improved financial health. Overall, Tennessee's
economy has moved away from dependence on apparel and textile manufacturing and
now has almost equal distribution in manufacturing, service, trade, and
government sectors.
Municipal bond supplies were strong last year, although narrow spreads between
the yields on higher-and lower-quality bonds increased the challenge
of identifying value in the markets. Attractive buying opportunities came from
bond issues supporting essential services, as well as some pollution control
bonds.
Fund Performance
For the year ended May 31, 1998, the fund posted a total return of 9.01%, which
is equivalent to a taxable return of 11.91% for investors in the 35.1% combined
federal and state income tax bracket. The fund outpaced its Lipper peer group
average return of 8.88% for Tennessee municipal bond funds, and performed just
slightly below the return of 9.38% for the Lehman Brothers Municipal Bond Index.
In addition, the fund provided a tax-free yield of 4.19%, which is equivalent to
a taxable return of 6.46% for investors in the 35.1% combined federal and state
income tax bracket.
Key Strategies
One of our key strategies during the year was to work toward a longer duration
for the fund, which is a measure of price volatility in reaction to changes in
interest rates. Longer duration funds are better able to participate in a market
rally, but will suffer more during a market downturn. Another strategy was to
focus on reducing the fund's holdings in the housing sector, while increasing
our position in bonds of the state's essential services. These bonds provided
better yields and appreciation potential, which will help us support the
dividend. In addition, we began to see improved protection against bond calls in
several new issues, which reduces the likelihood that high-paying bonds will be
called away if interest rates remain low. In the past, the high demand for
Tennessee bonds meant that new bonds could be issued with less favorable call
provisions. However, the increased supply of state bonds, particularly the more
heavily issued essential services, forced issuers to provide more favorable
structures such as increased call protection.
In addition, we felt that bonds in the 20-30 year maturity range seldom offered
enough incremental yield for taking on the additional interest rate risk
associated with these longer-maturity bonds. Instead, we sought attractive
opportunities among bonds with maturities of 15-20 years, which offered the best
values given their historical levels of volatility.
As of May 31, 1998, the fund's sector holdings were well-diversified, with 18%
of the portfolio invested in U.S. guaranteed securities, 15% in limited tax
obligation issues, 13% in health care debt and 11% in utility bonds.
Outlook for the Future
On July 1, 1998, Nuveen made several changes in the management of its mutual
funds to make more efficient use of staff resources and portfolio manager
expertise. As a result, Tom O'Shaughnessy assumed management responsibilities
for this fund. Tom is a 15-year veteran of Nuveen and an experienced investment
professional who has managed a range of other municipal bond funds. Tom and his
team believe the fund is well structured for a continued strong market. Until
the yield spreads widen between lower- and higher-quality bonds, they will
continue to seek out value from smaller bond issues. Particular areas they will
be monitoring include essential service issues and bonds with favorable call
structures. If the state's economy does slow as expected, they expect to see
more supply and even more good buying opportunities in the year ahead.
14
<PAGE>
Nuveen Flagship Tennessee Municipal Bond Fund
Performance Overview
As of May 31, 1998
- ------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares]
- ------------------------------------------------------------------
[BAR CHART APPEARS HERE]
0.049 6/97
0.049 7/97
0.049 8/97
0.049 9/97
0.049 10/97
0.049 11/97
0.049 12/97
0.047 1/98
0.047 2/98
0.047 3/98
0.047 4/98
0.047 5/98
- ------------------------------------------------------------------
Top 5 Sectors
- ------------------------------------------------------------------
U.S. Guaranteed 18%
Tax Obligation (Limited) 15%
Health Care 13%
Utilities 11%
Tax Obligation (General) 7%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Portfolio Statistics
- -------------------------------------------------------------------
Share Class A B C R
- -------------------------------------------------------------------
Inception Date 11/87 2/97 10/93 2/97
Net Asset Value $11.46 $11.46 $11.45 $ 11.44
Fund Net Assets ($000) $305,213
Average Weighted Maturity (Years) 19.40
Average Weighted Duration (Years) 7.61
- -------------------------------------------------------------------
- ------------------------------------------------------------------
Annualized Total Return/1/
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
1-Year 9.01% 4.48% 8.21% 8.39% 9.20%
5-Year 5.98% 5.08% 5.35% 5.38% 5.99%
10-Year 7.95% 7.50% 7.48% 7.35% 7.96%
- ------------------------------------------------------------------
Tax-Free Yields
- -------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------
Distribution Rate 4.92% 4.72% 4.19% 4.35% 5.09%
SEC 30-Day Yield 4.19% 4.01% 3.45% 3.64% 4.39%
Taxable Equivalent Yield/2/ 6.46% 6.18% 5.32% 5.61% 6.76%
- -------------------------------------------------------------------
- ------------------------------------------------------------------
Index Comparison/3/
- ------------------------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
Nuveen Flagship
Nuveen Flagship Tennessee
Tennessee Municipal Lehman Brothers
Municipal Bond Fund Municipal
Bond Fund (NAV) (Offer) Bond Index
5/88 10,000 9,580 10,000
5/89 11,391 10,912 11,149
5/90 11,992 11,488 11,965
5/91 13,143 12,591 13,171
5/92 14,281 13,681 14,466
5/93 16,080 15,405 16,195
5/94 16,329 15,643 16,595
5/95 17,643 16,902 18,107
5/96 18,310 17,541 18,934
5/97 19,722 18,894 20,505
5/98 21,504 20,601 22,430
- ------------------------------------------------------------------
/1/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
/2/ Based on SEC yield and a combined federal and state income tax rate of
35.1%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
/3/ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman 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.
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust III:
We have audited the accompanying statements of net assets, including the
portfolios of investments, of 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 (collectively, the "Funds") (the six portfolios constituting the Nuveen
Flagship Multistate Trust III (a Massachusetts business trust)), as of May 31,
1998, and the related statements of operations, statements of changes in net
assets and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
statements and financial highlights for the Funds for the years ended May 31,
1997 and prior were audited by other auditors whose report dated July 11, 1997,
expressed an unqualified opinion on those financial statements and financial
highlights.
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, 1998, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers and, when
replies were not received, we carried out alternative auditing procedures. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the 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 of the Nuveen Flagship
Multistate Trust III as of May 31, 1998, and the results of their operations,
the changes in their net assets, and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 17, 1998
16
<PAGE>
Portfolio of Investments
Nuveen Flagship Alabama Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Goods--3.4%
$250,000 Tallassee, Alabama, Industrial Development Board, Revenue Refunding, 8/06 at 102 A1 $ 271,670
Dow/United Tech Composite Products, Series A, 6.100%, 8/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations--12.3%
495,000 The Board of Trustees of Alabama Agricultural and Mechanical 11/05 at 102 AAA 511,518
University, Revenue Bonds, Series 1995, 5.500%, 11/01/20
150,000 The Private Educational Building Authority of the City of Birmingham 6/06 at 102 A3 158,909
(Alabama), Birmingham-Southern College, Tuition Revenue Bonds, Series
1996, 6.000%, 12/01/21
200,000 Troy, Alabama, State University, Troy State University/City of Troy 6/07 at 102 AAA 211,074
Project, 5.650%, 6/01/27
110,000 University of South Alabama, University Revenues Refunding Tuition, 5/06 at 102 AAA 110,254
5.000%, 11/15/15
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products--7.5%
100,000 The Industrial Development Board of the Town of Courtland, Alabama, 9/05 at 102 Baa1 108,825
Solid Waste Disposal Revenue Bonds (Champion International
Corporation Project), Series 1995A, 6.500%, 9/01/25
(Alternative Minimum Tax)
500,000 The Industrial Development Board of the City of Phoenix City, Alabama, 4/08 at 102 A- 494,860
Environmental Improvement Revenue Refunding Bonds (Mead Coated
Board Project), Series 1998A, 5.300%, 4/01/27 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care--17.4%
600,000 Alabama Special Care Facilities Financing Authority of Birmingham, 11/05 at 101 AA+ 575,778
Hospital Revenue Bonds (Daughters of Charity National Health
System--Providence Hospital and St. Vincent's Hospital),
Series 19, 5.000%, 11/01/25
150,000 The Special Care Facilities Financing Authority of the City of 6/07 at 102 AAA 155,006
Birmingham, Childrens Hospital (Alabama), Health Care Facility
Revenue Bonds, Childrens Hospital, Series 1997, 5.500%, 6/01/22
200,000 The Special Care Facilities Financing Authority of the City of 8/05 at 102 AAA 213,536
Birmingham-Carraway, Revenue Bonds, Series 1995A (Carraway Methodist
Health Systems), 5.875%, 8/15/15
100,000 The Colbert County-Northwest Alabama Health Care Authority, Health Care 6/05 at 102 AAA 106,579
Facilities Revenue Bonds, Series 1995 (Helen Keller Hospital),
5.750%, 6/01/15
100,000 The Health Care Authority of Lauderdale County and the City of 7/06 at 102 AAA 105,637
Florence, Alabama, Revenue Refunding Bonds, Series 1996 (Eliza Coffee
Memorial Hospital), 5.750%, 7/01/19
150,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 7/05 at 102 AAA 167,055
Control Facilities Financing Authority, Hospital Revenue Bonds, 1995
Series A (Hospital Auxilio Mutuo Obligated Group Project), 6.250%, 7/01/24
70,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 8/05 at 101 1/2 AAA 76,243
Control Facilities Financing Authority, Hospital Revenue Refunding
Bonds, 1995 Series A, FHA Insured Mortgage-Doctor Pila Hospital Project,
5.875%, 8/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family--1.4%
80,000 Alabama Housing Finance Authority, Single Family Mortgage Revenue Bonds 4/05 at 102 Aaa 84,865
(Collateralized Home Mortgage Revenue Bond Program), 1995 Series A-1,
6.400%, 10/01/20 (Alternative Minimum Tax)
25,000 Alabama Housing Finance Authority, Single Family Mortgage Revenue Bonds 4/04 at 102 Aaa 26,862
(Collateralized Home Mortgage Revenue Bond Program), 1994 Series A-1,
6.600%, 4/01/19
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Alabama Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General - 8.5%
$ 180,000 City of Mobile, Alabama, General Obligation Refunding Warrants, 2/06 at 102 AAA $ 191,839
Series 1996, 5.750%, 2/15/16
200,000 Northport, Alabama, Series A, 5.700%, 3/01/21 3/06 at 102 AAA 210,688
Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General
Obligation Bonds):
150,000 6.450%, 7/01/17 7/04 at 102 AAA 170,184
100,000 6.500%, 7/01/23 7/04 at 101 1/2 AAA 113,722
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 8.3%
50,000 Alabama Public School and College Authority, Refunding Bonds, No Opt. Call Aa 53,646
Series 1993A, 6.000%, 8/01/02
600,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/06 at 101 1/2 A 613,014
Bonds, Series Y of 1996, 5.500%, 7/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 6.5%
200,000 Alabama State Docks Department, Docks Facilities Revenue Bonds, 10/06 at 102 AAA 219,096
Series 1996, 6.100%, 10/01/13 (Alternative Minimum Tax)
200,000 Alabama State Docks Department, Docks Facilities Revenue Bonds, 10/07 at 102 AAA 202,784
Series 1997, 5.375%, 10/01/17 (Alternative Minimum Tax)
100,000 The Huntsville-Madison County Airport Authority, Airport Revenue 1/07 at 102 AAA 101,202
Bonds, Series 1997, 5.400%, 7/01/19 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 2.7%
25,000 The Health Care Authority of the City of Huntsville (Alabama), 6/04 at 102 AAA 28,392
Health Care Facilities Revenue Bonds, Series 1992-B, 6.500%,
6/01/13 (Pre-refunded to 6/01/04)
165,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 7/04 at 102 BBB+*** 186,899
1994-T, 6.375%, 7/01/24 (Pre-refunded to 7/01/04)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 7.7%
150,000 Clarke-Mobile Counties Gas District (Alabama), Gas Revenue Bonds, 12/06 at 102 AAA 157,536
Series 1996, 5.600%, 12/01/17
90,000 City of Huntsville, Alabama, Electric System Revenue Warrants, 12/03 at 102 AA 98,779
Series 1994, 6.100%, 12/01/10
200,000 The Utilities Board of the City of Oneonta (Alabama), Utility 11/06 at 102 AAA 207,216
Revenue Bonds, Series 1997, 5.500%, 11/01/23
150,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 157,136
Puerto Rico Commonwealth Water Resource Authority, Series Aa,
5.000%, 7/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 18.6%
25,000 Alabama Water Pollution Control Authority, Revolving Fund Loan 8/05 at 100 AAA 28,102
Bonds, Series 1994, 6.750%, 8/15/17
400,000 The Utilities Board of the City of Bayou La Batre (Alabama), Water 3/07 at 102 AA 417,244
and Sewer Revenue Refunding and Improvement Bonds, Series 1997,
5.750%, 3/01/27
375,000 Cherokee County Water Authority, Alabama, Water Revenue Bonds, 4/07 at 102 AAA 398,610
Series 1997, 5.750%, 4/01/22
Jefferson County, Alabama, Sewer Revenue Refunding Warrants, Series
1997-A:
100,000 5.625%, 2/01/22 2/07 at 101 AAA 104,783
200,000 5.375%, 2/01/27 2/07 at 100 AAA 203,100
100,000 Jefferson County, Alabama, Sewer Revenue Warrants, Series 1997-D, 2/07 at 101 AAA 105,941
5.750%, 2/01/27
100,000 Mobile Alabama Water and Sewer Commission, Water and Sewer Revenue, 1/05 at 102 AAA 106,248
Series 95, 5.500%, 1/01/10
125,000 Prichard, Alabama, Waterworks and Sewer Board, Water and Sewer Revenue 11/04 at 102 AAA 138,150
Refunding, 6.125%, 11/15/14
- -----------------------------------------------------------------------------------------------------------------------------------
$ 7,265,000 Total Investments - (cost $7,157,821) - 94.3% 7,592,982
===========------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Temporary Investments in Short-Term Municipal Securities - 3.7%
$ 300,000 Columbia IDB (Alabama Power), Variable Rate Demand Bonds, 4.000%, 10/01/22+ A-1 $ 300,000
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.0% 157,437
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $8,050,419
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): 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 public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal and
interest. Securities are normally considered to be
equivalent to AAA rated securities.
+ 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.
See accompanying notes to financial statements.
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Cyclical - 0.4%
$ 500,000 White County, Georgia, Development Authority, Industrial Development 6/02 at 102 BBB+ $ 537,720
Revenue Refunding, Springs Industries, Inc., 6.850%, 6/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 3.7%
2,000,000 Albany Dougherty Payroll Development Authority (Georgia), Solid Waste 5/08 at 101 AA 2,005,220
Disposal Revenue Bonds (The Procter and Gamble Paper Products Company
Project), 1998 Series, 5.300%, 5/15/26 (Alternative Minimum Tax) (DD)
1,000,000 Development Authority of Cartersville (Georgia), Water and Wastewater 5/02 at 102 A+ 1,091,160
Facilities Revenue Bonds, Series 1992 (Anheuser-Busch Project), 6.750%,
2/01/12 (Alternative Minimum Tax)
2,000,000 Development Authority of Cartersville (Georgia), Sewage Facilities 5/07 at 101 A+ 2,140,140
Refunding Revenue Bonds (Anheuser-Busch Project), Series 1997, 6.125%,
5/01/27 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 1.2%
1,000,000 Private Colleges and Universities Authority (Georgia), Revenue Bonds No Opt. Call AAA 1,189,910
(Mercer University Project), Series 1991, 6.500%, 11/01/15
500,000 Private Colleges and Universities Authority, Georgia, Revenue 6/04 at 102 AAA 551,950
Refunding (Spelman College Project), 6.200%, 6/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 3.0%
1,500,000 Brunswick and Glynn County (Georgia), Development Authority, Revenue 3/08 at 102 Baa2 1,515,345
Refunding Bonds, Series 1998 (Georgia Pacific Corporation Project),
5.550%, 3/01/26 (Alternative Minimum Tax)
1,000,000 Savannah, Georgia, Economic Development Authority, Pollution Control No Opt. Call A1 1,134,870
Revenue Refunding, Union Camp Corporation Project, 6.150%, 3/01/17
500,000 Wayne County Development Authority, Solid Waste Disposal Revenue Bonds 7/00 at 102 BBB+ 539,790
(ITT Rayonier, Inc. Project), Series 1990, 8.000%, 7/01/15
(Alternative Minimum Tax)
1,000,000 Wayne County Development Authority, Pollution Control Revenue 5/03 at 102 BBB+ 1,070,040
Refunding (ITT Rayonier Inc. Project), 6.100%, 11/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 8.9%
3,000,000 Chatham County Hospital Authority (Savannah, Georgia), Hospital 1/07 at 102 AAA 3,026,550
Revenue Refunding and Improvement Bonds (Memorial Medical Center,
Inc.), Series 1996A, 5.250%, 1/01/16
500,000 Hospital Authority of Cherokee County, Georgia, Revenue Certificates, 12/00 at 102 AAA 543,670
Tax Exempt Series 1990, 7.250%, 12/01/15
1,000,000 Coffee County Hospital Authority (Georgia), Revenue Anticipation 12/06 at 102 N/R 1,041,600
Certificates (Coffee Regional Medical Center, Inc. Project), Series
1997A, 6.750%, 12/01/16
Development Authority of the City of Dalton (Georgia), Revenue Certificates
(Hamilton Health Care System), Series 1996:
2,000,000 5.500%, 8/15/26 No Opt. Call AAA 2,137,540
2,000,000 5.250%, 8/15/26 2/07 at 102 AAA 2,003,080
2,000,000 Development Authority of the City of Dalton (Georgia), Revenue 2/08 at 101 Aaa 1,933,320
Certificates (Hamilton Health Care System), Series 1998, 5.000%, 8/15/28
1,000,000 The Hospital Authority of Hall County and the City of Gainesville, 10/05 at 102 AAA 1,081,070
Revenue Anticipation Certificates (Northeast Georgia Healthcare Project),
Series 1995, 6.000%, 10/01/20
1,000,000 Hospital Authority of Gwinnett County, Georgia, Revenue Anticipation 9/07 at 101 AAA 1,001,600
Certificates (Gwinnett Hospital System, Inc. Project), Series 1997A,
5.250%, 9/01/27
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Housing/Multifamily -- 12.7%
$1,840,000 Housing Authority of the City of Augusta, Georgia, Mortgage Revenue 5/05 at 102 Aa $1,952,295
Refunding Bonds, Series 1995A (FHA Insured Mortgage Loan--River Glen
Apartments Section 8 Assisted Project), 6.500%, 5/01/27
755,000 Housing Authority of Clayton County (Georgia), Multifamily Housing 12/05 at 102 AAA 776,185
Revenue Bonds, Series 1995 (The Advantages Project), 5.700%, 12/01/16
1,000,000 Housing Authority of the County of DeKalb, Georgia, Multifamily 1/05 at 102 AAA 1,094,200
Housing Revenue Bonds (The Lakes at Indian Creek Apartments Project),
Series 1994, 7.150%, 1/01/25 (Alternative Minimum Tax)
3,470,000 Housing Authority of the County of DeKalb, Georgia, Multifamily 1/06 at 102 A 3,670,046
Housing Revenue Bonds (Regency Woods I and II Project), Senior Series
1996A, 6.500%, 1/01/26
4,000,000 Housing Authority of Fulton County, Georgia, Multifamily Housing 7/06 at 102 A 4,214,160
Revenue Bonds (Concorde Place Apartments Project), Series 1996A,
6.375%, 1/01/27 (Alternative Minimum Tax)
4,715,000 Lawrenceville, Georgia, Housing Authority, Multifamily Revenue, 6/07 at 102 AAA 5,118,745
Knollwood Park Apartments Project, 6.250%, 12/01/29 (Alternative
Minimum Tax)
1,300,000 Macon, Georgia, Housing Authority, Mortgage Revenue Refunding, The 10/04 at 102 Aaa 1,378,923
Vistas, Series A, 6.450%, 4/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 9.7%
Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series 1995 A:
310,000 6.550%, 3/01/18 (Alternative Minimum Tax) 3/05 at 102 AAA 331,455
105,000 6.600%, 3/01/28 (Alternative Minimum Tax) 3/05 at 102 AAA 110,766
Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Refunding Bonds (GNMA Mortgage-Backed Securities Program),
Series 1996A:
415,000 6.125%, 9/01/18 (Alternative Minimum Tax) 9/06 at 102 AAA 436,746
655,000 6.200%, 9/01/27 (Alternative Minimum Tax) 9/06 at 102 AAA 690,508
Georgia Housing and Finance Authority, Single Family Mortgage Bonds,
1994 Series A (FHA Insured or VA Guaranteed Mortgage Loans):
1,215,000 6.500%, 12/01/17 (Alternative Minimum Tax) 12/04 at 102 AA+ 1,297,681
750,000 6.600%, 12/01/23 (Alternative Minimum Tax) 12/04 at 102 AA+ 803,333
1,000,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 3/05 at 102 AA+ 1,069,650
1995 Series A, Subseries A-2, 6.400%, 12/01/15 (Alternative Minimum Tax)
2,500,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/05 at 102 AA+ 2,688,125
1995 Series B, Subseries B-2, 6.550%, 12/01/27 (Alternative Minimum Tax)
3,355,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/06 at 102 AA+ 3,587,099
1996 Series A, Subseries A-2, 6.450%, 12/01/27 (Alternative Minimum Tax)
225,000 Georgia Residential Finance Authority, Home Ownership Mortgage 12/99 at 103 AA+ 235,771
Bonds, 1989 Series D (Conventional Mortgage Loans), 7.800%, 6/01/21
(Alternative Minimum Tax)
285,000 Georgia Residential Finance Authority, Home Ownership Mortgage 12/00 at 103 AA+ 300,855
Bonds, 1990 Series A (FHA Insured or VA Guaranteed Mortgage Loans),
7.750%, 6/01/18 (Alternative Minimum Tax)
1,455,000 Georgia Residential Finance Authority, Home Ownership Mortgage 12/01 at 103 AA+ 1,548,644
Bonds, 1991 Series A (FHA Insured or VA Guaranteed Mortgage Loans),
7.250%, 12/01/21 (Alternative Minimum Tax)
750,000 Georgia Residential Finance Authority, Single Family Mortgage Bonds, 12/98 at 103 AA+ 776,085
1988 Series B (FHA Insured or VA Guaranteed Mortgage Loans), 8.000%,
12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 8.4%
Peach County, Georgia, School District:
1,015,000 6.300%, 2/01/14 2/05 at 102 AAA 1,134,303
3,810,000 6.400%, 2/01/19 2/05 at 102 AAA 4,267,848
4,870,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 7/07 at 101 1/2 A 4,927,369
5.375%, 7/01/25
1,500,000 Washington County, Georgia, School District, 6.875%, 1/01/14 1/05 at 102 AAA 1,747,350
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited - 18.3%
$ 570,000 Development Authority of Burke County (Georgia), Industrial 2/01 at 102 A $ 619,174
Development Revenue Bonds (Georgia Safe Corporation Project),
Series 1991, 7.500%, 2/01/11 (Alternative Minimum Tax)
1,150,000 Burke County Economic Development Authority (Georgia), Revenue Bonds 12/02 at 102 A 1,275,971
(Ritz Instrument Transformers, Inc. Project), Series 1991A, 7.250%,
12/01/11 (Alternative Minimum Tax)
1,750,000 Association County Commissioners of Georgia Leasing Program (Butts 12/04 at 102 AAA 1,980,230
County, Georgia Public Purpose Project), Series 1994, Certificates
of Participation, 6.750%, 12/01/14
1,000,000 The Hospital Authority of Clarke County, Georgia, Hospital Revenue 1/07 at 100 AAA 970,360
Certificates (Athens Regional Medical Center Project), Series 1996,
5.000%, 1/01/27
1,215,000 Clayton County Solid Waste Management Authority (Georgia), Revenue 2/02 at 102 AA 1,308,361
Bonds, Series 1992A, 6.500%, 2/01/12
3,000,000 Cobb-Marietta Coliseum and Exhibit Hall Authority (Georgia), Revenue 10/19 at 100 AAA 3,291,930
Refunding Bonds, Series 1993, 5.625%, 10/01/26
800,000 Downtown Marietta Development Authority (Georgia), Revenue Bonds, 1/02 at 102 Aaa 880,904
Series 1992, 6.600%, 1/01/19
1,000,000 Downtown Smyrna Development Authority (Georgia), Revenue Bonds, 2/05 at 102 AAA 1,151,260
Series 1994, 6.600%, 2/01/17
2,765,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax No Opt. Call AA- 3,207,483
Revenue Bonds, Refunding, Series N, 6.250%, 7/01/18
500,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax No Opt. Call AAA 584,315
Revenue Bonds, Refunding, Series P, 6.250%, 7/01/20
Puerto Rico Highway and Transportation Authority, Highway Revenue
Bonds, Series Y of 1996:
2,000,000 5.500%, 7/01/26 7/06 at 101 1/2 A 2,043,380
6,000,000 5.500%, 7/01/36 7/16 at 100 A 6,288,300
125,000 Puerto Rico Infrastructure Finance Authority, Series 1988A, 7.750%, 7/98 at 102 BBB+ 127,866
7/01/08
1,055,000 Upper Oconee Basin Water Authority (Georgia), Revenue Bonds, Series 7/08 at 102 AAA 1,058,703
1997, 5.250%, 7/01/27
1,250,000 Hospital Authority of Ware County (Georgia), Revenue Anticipation 3/02 at 102 AAA 1,364,163
Certificates, Series 1992A (Satilla Park Hospital), 6.625%, 3/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.7%
1,000,000 City of Atlanta, Georgia, Airport Facilities Revenue Refunding 1/07 at 101 AAA 1,050,960
Bonds, Series 1996, 5.250%, 1/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 19.6%
Chatham County Hospital Authority, Hospital Revenue Bonds (Memorial
Medical Center, Inc.) (Savannah, Georgia), Series 1990A:
100,000 7.000%, 1/01/10 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 109,018
1,130,000 7.000%, 1/01/21 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 1,231,903
505,000 Cherokee County, Water and Sewerage Authority (Georgia), Revenue No Opt. Call AAA 699,890
Bonds, Series 1985, 9.750%, 8/01/09
6,240,000 Development Authority of Colquitt County, Georgia, Subordinated Zero No Opt. Call Aaa 1,808,040
Coupon Revenue Bonds (Southern Care Corporation Facility), Series
1991C, 0.000%, 12/01/21
500,000 Hospital Authority of Colquitt County, Georgia, Hospital Revenue 3/02 at 102 AAA 554,330
Certificates, Series 1992, 6.700%,
3/01/12 (Pre-refunded to 3/01/02)
1,000,000 City of Conyers (Georgia), Water and Sewerage Revenue Bonds, Series 7/04 at 102 AAA 1,160,310
1994A, 6.600%, 7/01/15
Fulco Hospital Authority, Revenue Anticipation Certificates (Georgia
Baptist Health Care System Project), Series 1992A:
3,000,000 6.250%, 9/01/13 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 3,294,210
2,600,000 6.375%, 9/01/22 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 2,867,540
2,250,000 Fulco Hospital Authority, Refunding Revenue Anticipation 9/02 at 102 Baa1*** 2,481,525
Certificates (Georgia Baptist Health Care System Project),
Series 1992B, 6.375%, 9/01/22 (Pre-refunded to 9/01/02)
500,000 City of Gainesville, Georgia, Water and Sewer Revenue Bonds, Series 11/00 at 102 AAA 546,950
1990B, 7.200%, 11/15/10 (Pre-refunded to 11/15/00)
1,855,000 Marietta Development Authority (Life College, Inc.), 7.250%, 12/99 at 102 AAA 1,982,976
12/01/19 (Pre-refunded to 12/01/99)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 1,200,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax 7/99 at 102 AAA $1,266,828
Revenue Bonds, Series L, 7.200%, 7/01/20 (Pre-refunded to 7/01/99)
1,650,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax 7/04 at 102 AAA 1,912,994
Revenue Bonds, Second Indenture Series, Series 1994A, 6.900%, 7/01/20
(Pre-refunded to 7/01/04)
425,000 Puerto Rico Infrastructure Finance Authority, Series 1988A, 7/98 at 102 BBB+*** 434,907
7.750%, 7/01/08 (Pre-refunded to 7/01/98)
10,800,000 Development Authority of Richmond County, Georgia, Subordinated No Opt. Call Aaa 3,129,300
Zero Coupon Revenue Bonds (Southern Care Corporation Facility),
Series 1991C, 0.000%, 12/01/21
4,810,000 Richmond County Georgia Development Authority Revenue, 1st No Opt. Call Aaa 1,393,698
Mortgage, Series A, 0.000%, 12/01/21
500,000 Hospital Authority of Ware County (Georgia), Revenue Anticipation 3/01 at 102 AAA 535,945
Certificates, Series 1991, 7.125%, 3/01/15 (Pre-refunded to 3/01/01)
8,800,000 Washington, Georgia, Wilkes Payroll Development Authority, Series No Opt. Call Aaa 2,549,800
C, 0.000%, 12/01/21
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 8.9%
1,800,000 Development Authority of Appling County (Georgia), Pollution 1/04 at 101 AAA 2,028,330
Control Revenue Bonds (Oglethorpe Power Corporation Hatch Project),
Series 1994, 7.150%, 1/01/21
1,500,000 Municipal Electric Authority of Georgia, General Power Revenue 1/15 at 100 A 1,710,825
Bonds, 1992B Series, 6.375%, 1/01/16
Municipal Electric Authority of Georgia, Power Revenue Bonds,
Series Z:
1,000,000 5.500%, 1/01/12 1/10 at 100 AAA 1,074,420
1,000,000 5.500%, 1/01/20 No Opt. Call AAA 1,064,150
Development Authority of Monroe County (Georgia), Pollution Control
Revenue Bonds (Oglethorpe Power Corporation Scherer Project),
Series 1992A,
500,000 6.750%, 1/01/10 No Opt. Call A 588,065
1,000,000 6.800%, 1/01/12 No Opt. Call A 1,186,960
2,000,000 Municipal Electric Authority, Georgia, Project One, Series A, 1/07 at 101 AAA 2,008,840
Refunding, 5.125%, 1/01/16
1,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 7/04 at 100 BBB+ 1,267,338
T, 5.500%, 7/01/20
1,500,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 588,720
Puerto Rico Commonwealth Water Resource Authority, Capital
Appreciation Refunding, Series N, 0.000%, 7/01/17
3,000,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly No Opt. Call AAA 1,177,440
Puerto Rico Commonwealth Water Resource Authority, Series O,
0.000%, 7/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 4.2%
City of Brunswick, Georgia, Water and Sewerage Revenue Refunding and
Improvement Bonds, Series 1992:
500,000 6.000%, 10/01/11 No Opt. Call AAA 568,369
400,000 6.100%, 10/01/19 No Opt. Call AAA 460,103
2,000,000 Cherokee County (Georgia), Water and Sewerage Authority, Water and No Opt. Call AAA 2,157,179
Sewerage Revenue Refunding and Improvements Bonds, Series
1993, 5.500%, 8/01/23
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Water and Sewer (continued)
$ 1,500,000 Henry County, Georgia, and Henry County Water and Sewerage No Opt. Call AAA $ 1,739,459
Authority, Water and Sewerage Revenue Bonds, Series 1996,
6.150%, 2/01/20
1,000,000 City of Milledgeville (Georgia), Water and Sewerage Revenue and No Opt. Call AAA 1,132,829
Refunding Bonds, Series 1996, 6.000%, 12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
$157,790,000 Total Investments - (cost $130,363,178) - 99.7% 142,619,268
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.3% 459,143
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $143,078,411
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent
public accountants): 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 public
accountants): Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the
timely payment of principal and interest. Securities are normally
considered to be equivalent to AAA rated securities.
(DD) Security purchased on a delayed delivery basis (note 1).
------------------------------------------------------------
N/R Investment is not rated.
See accompanying notes to financial statements.
24
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials -- 1.5%
$ 1,500,000 Saint Charles Parish, Louisiana, Pollution Control Revenue, Union 11/02 at 102 BBB $1,664,550
Carbide Project, 7.350%, 11/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations -- 4.5%
750,000 Louisiana Public Facilities Authority, Revenue Refunding, Loyola 10/99 at 102 A+ 797,370
University Project Series, 1989, A, 7.250%, 10/01/09
380,000 Louisiana Public Facilities Authority, Revenue Refunding, College and 4/02 at 102 A+ 419,763
University, Loyola University, 6.750%, 4/01/10
775,000 Louisiana Public Facilities Authority, Student Loan Revenue Bonds, No Opt. Call Aaa 822,461
6.600%, 3/01/03 (Alternative Minimum Tax)
1,000,000 Louisiana Public Facilities Authority, Revenue Bonds, Tulane 12/07 at 102 AAA 1,049,430
University of Louisiana, 5.600%, 12/15/27
1,000,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 9/07 at 102 AAA 1,002,440
(Xavier University of Louisiana Project), Series 1997, 5.250%, 9/01/27
1,000,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 2/08 at 102 AAA 969,850
(Dillard University Project), Series 1998, 5.000%, 2/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Energy -- 4.9%
1,000,000 Lake Charles, Louisiana, Harbor and Terminal District Port Facilities 12/02 at 102 BBB 1,103,480
Revenue Refunding, Occidental Petroleum Corporation, 7.200%, 12/01/20
500,000 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue 9/01 at 102 A 547,465
Refunding, Loop Inc., First Stage, Series B, 7.200%, 9/01/08
475,000 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue 9/00 at 102 A 515,917
Refunding, First Stage, Series E, Loop Inc., 7.600%, 9/01/10
3,150,000 St. Bernard Parish, Louisiana, Exempt Facility Revenue, Mobil Oil 11/06 at 102 AA 3,364,767
Corporation Project, 5.900%, 11/01/26 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products -- 4.4%
1,640,000 Parish of DeSoto, Louisiana, Environmental Improvement Revenue 6/05 at 102 A- 1,816,005
Refunding Bonds, 1995 Series B (International Paper Company
Project), 6.550%, 4/01/19 (Alternative Minimum Tax)
3,000,000 Natchitoches Parish, Louisiana, Solid Waste Disposal Revenue, 12/03 at 102 A- 3,116,010
Willamette Industries Project, 5.875%, 12/01/23
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care -- 17.7%
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 1,085,300
2,000,000 6.500%, 10/01/22 10/02 at 102 AAA 2,184,740
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue, Our Lady Of 12/03 at 102 AAA 1,048,120
The Lake Regional Medical Center, 5.900%, 12/03/21
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue Refunding, 7/07 at 101 AAA 1,009,800
Womans Hospital Foundation Project, 5.375%, 10/01/22
1,325,000 Louisiana Public Facilities Authority, Revenue Bonds, Series 1992-B 5/02 at 102 AAA 1,437,320
(Alton Ochsner Medical Foundation Project), 6.500%, 5/15/22
3,400,000 Louisiana Public Facilities Authority, Revenue Refunding, Health No Opt. Call AA+ 3,382,490
Facilities, Sisters of Mercy, Series A, 5.000%, 6/01/19
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$ 2,500,000 Louisiana Public Facilities Authority, Revenue Bonds (General Health, 11/04 at 102 AAA $2,781,550
Inc. Project), Series 1994, 6.375%, 11/01/24
500,000 Louisiana Public Facilities Authority, Mary Bird Perkins Cancer Center, 1/05 at 102 AAA 551,215
6.200%, 1/01/19
2,180,000 St. Tammany Parish Hospital Service District No. 2, State of Louisiana, 10/04 at 102 AAA 2,408,355
Hospital Revenue Bonds, Series 1994, 6.250%, 10/01/14
885,000 Hospital Service District No. 1 of the Parish of Tangipahoa, State of 2/04 at 102 AAA 970,783
Louisiana, Hospital Revenue Bonds (Series 1994), 6.250%, 2/01/24
3,000,000 Hospital Service District No. 1 of the Parish of Terrebonne, State of 4/08 at 102 AAA 3,027,270
Louisiana Hospital Revenue and Refunding Bonds (Terrebonne General
Medical Center Project), Series 1998, 5.375%, 4/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 1.9%
750,000 Lake Charles, Louisiana, Non Profit Housing Development Corporation No Opt. Call AAA 755,813
Mortgage Revenue Refunding, Chateau Project, Series A, 7.875%, 2/15/25
735,000 Louisiana Public Facilities Authority, Walmsley Housing Corporation, No Opt. Call AAA 796,799
Series A, 7.500%, 6/01/21
500,000 Louisiana Public Facilities Authority, Multifamily Housing, National 11/01 at 102 AA 540,005
Housing Corporation, 7.750%, 11/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 11.8%
1,255,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 8/00 at 102 Aaa 1,316,683
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series
1990A, 7.875%, 8/01/23 (Alternative Minimum Tax)
2,235,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 10/07 at 102 Aaa 2,315,214
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities
Program), Series 1997D, 5.900%, 10/01/30 (Alternative Minimum Tax)
330,000 Louisiana Housing Finance Agency, Single Family Mortgage Revenue Bonds, 6/05 at 102 Aaa 352,176
Series 1995A-2, 6.550%, 12/01/26 (Alternative Minimum Tax)
Louisiana Housing Finance Agency, Mortgage Revenue Refunding,
Single Family, Series B 2:
1,000,000 5.600%, 6/01/17 (Alternative Minimum Tax) 6/07 at 102 Aaa 1,020,590
2,500,000 5.750%, 6/01/28 (Alternative Minimum Tax) 6/07 at 102 Aaa 2,553,150
2,505,000 Louisiana Housing Finance Agency, Mortgage Revenue Refunding, Single 12/07 at 102 Aaa 2,560,010
Family, Series C 1, 5.750%, 12/01/28 (Alternative Minimum Tax)
530,000 New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage 1/00 at 102 Aaa 552,742
Revenue, Series C 1, 7.750%, 12/01/22 (Alternative Minimum Tax)
New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage
Revenue, Series A:
1,000,000 6.100%, 12/01/29 (Alternative Minimum Tax) 12/06 at 102 Aaa 1,047,390
1,000,000 5.850%, 12/01/30 (Alternative Minimum Tax) 12/07 at 102 Aaa 1,030,400
236,046 St. Bernard Parish, Louisiana, Home Mortgage Authority, Single Family No Opt. Call A1 260,866
Mortgage Revenue Refunding, Series A, 8.000%, 3/25/12
125,265 St. Mary, Louisiana, Public Tollroad Financing Authority, Single Family No Opt. Call Aaa 139,774
Revenue Refunding, Mortgage, Series A, 7.625%, 3/25/12
- -----------------------------------------------------------------------------------------------------------------------------------
Long Term Care -- 4.7%
3,000,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds (GNMA 9/05 at 103 AAA 3,330,180
Collateralized Mortgage Loan -- St. Dominic Assisted Care Facility),
Series 1995, 6.950%, 9/01/36
1,740,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds, Villa Maria 1/04 at 101 AAA 1,881,671
Retirement Center Project, 7.100%, 1/20/35
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 14.2%
500,000 Louisiana State, Refunding, Series B 5.625%, 8/01/13 No Opt. Call AAA 545,185
New Orleans, Louisiana, Refunding:
2,000,000 0.000%, 9/01/10 No Opt. Call AAA 1,129,080
5,785,000 0.000%, 9/01/16 No Opt. Call AAA 2,310,992
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General (continued)
$2,000,000 Orleans Levee District (A Political Subdivision of the State of 12/05 at 103 AAA $2,186,880
Louisiana), Levee Improvement Bonds, Series 1986, Serial and
Term Trust Receipts Series 1995A, 5.950%, 11/01/14
3,000,000 Orleans Parishwide School District, General Obligation Bonds, Series 3/06 at 100 AAA 2,948,370
1996, 5.000%, 9/01/20
1,000,000 Orleans Parishwide School District, General Obligation School Bonds, 3/08 at 100 Aaa 985,580
Series 1998A, 5.125%, 9/01/22
13,875,000 Orleans Parish, Louisiana, School Board Refunding, 0.000%, 2/01/15 No Opt. Call AAA 5,800,583
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 12.1%
750,000 Parish of East Baton Rouge, Louisiana, Public Improvement Sales 02/03 at 101 1/2 AAA 728,738
Tax Bonds, Series ST-1993A, 4.900%, 2/01/18
1,000,000 Jefferson Sales Tax District, Parish of Jefferson, State of 12/02 at 100 AAA 1,105,410
Louisiana, Special Sales Tax Revenue Bonds, Series 1991B,
6.750%, 12/01/06
2,000,000 Sales Tax School Bonds Refunding, Series 1998, School Board of the No Opt. Call AAA 1,198,260
Parish of Jefferson, State of Louisiana, 0.000%, 3/01/09
1,530,000 Lafayette Parish, Louisiana, School Board Sales Tax Revenue, 4/04 at 101 AAA 1,522,717
4.875%, 4/01/13
685,000 Louisiana Public Facilities Authority, Revenue Refunding Bonds 8/99 at 101 1/2 AAA 723,655
(Jefferson Parish Eastbank Office Building Project), Series
1989, 7.700%, 8/01/10
1,000,000 City of New Orleans, State of Louisiana, Refunding Certificates of 12/08 at 102 AAA 1,003,690
Indebtedness, Series 1998B, 5.000%, 12/01/12
1,500,000 Office Facilities Corporation, A Louisiana Non Profit Corporation, 12/01 at 103 BBB+ 1,685,040
Capital Facilities, 7.750%, 12/01/10
750,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 786,038
Bonds, Series Y of 1996, 5.500%, 7/01/36
250,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed, 7/07 at 101 1/2 A 249,655
Government Facilities, Series B, 5.250%, 7/01/21
1,500,000 Saint John Baptist Parish, Louisiana, Sales Tax District 12/99 at 103 Baa 1,608,105
Refunding, Series ST 1989, 7.800%, 12/01/14
2,995,000 City of Shreveport, State of Louisiana, Certificates of 10/09 at 102 AAA 2,962,894
Indebtedness, Series 1998-A, 5.000%, 10/01/16 (WI)
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 2.4%
505,000 New Orleans, Louisiana, Aviation Board Revenue, Series B 1, 10/07 at 102 AAA 514,807
5.450%, 10/01/27 (Alternative Minimum Tax)
2,140,000 City of Shreveport, State of Louisiana, Airport System Revenue 1/08 at 102 AAA 2,142,632
Bonds, Series 1997A, 5.375%, 1/01/28 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 11.4%
745,000 Louisiana Public Facilities Authority, Hospital Revenue Refunding No Opt. Call AAA 917,006
Bonds (Southern Baptist Hospitals, Inc. Project), Series 1986,
8.000%, 5/15/12
1,125,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds 10/02 at 102 A3 1,278,754
(Woman's Hospital Foundation Project), Series 1992, 7.250%,
10/01/22
500,000 Louisiana Public Facilities Authority, Revenue Refunding, Sisters 6/99 at 102 Aaa 527,295
of Mercy, Series B, 7.375%, 6/01/19 (Pre-refunded to 6/01/99)
10,000,000 Louisiana Public Facilities Authority, Series B, 0.000%, 12/01/19 No Opt. Call AAA 3,305,000
1,000,000 Louisiana State General Obligation Bonds, Series 1990, 7.125%, 9/00 at 102 Aaa 1,086,510
9/01/10 (Pre-refunded to 9/01/00)
525,000 Louisiana State Offshore Terminal Authority, Deepwater Port 9/00 at 102 N/R*** 574,670
Revenue Refunding, First Stage, Series E, Loop Inc, 7.600%,
9/01/10 (Pre-refunded to 9/01/00)
2,750,000 City of New Orleans Audubon Park Commission, Aquarium Revenue 4/02 at 102 N/R*** 3,164,123
Bonds, Series 1992, 8.000%, 4/01/12 (Pre-refunded to 4/01/02)
1,400,000 Ouachita Parish, Louisiana, Hospital Service District No. 1 7/01 at 102 A*** 1,560,762
Revenue, Glenwood Regional Medical Center, 7.500%, 7/01/21
(Pre-refunded to 7/01/01)
250,000 Shreveport, Louisiana, Home Mortgage Authority, Single Family No Opt. Call Aaa 282,778
Mortgage Revenue, Series A, 6.750%, 9/01/10
</TABLE>
27
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Utilities -- 7.1%
$ 3,000,000 Lake Charles, Louisiana, Harbor and Terminal District Port 8/02 at 103 A3 $ 3,438,300
Facilities Revenue Refunding, Trunkline LNG Company Project,
7.750%, 8/15/22
250,000 Puerto Rico Electric Power Authority, Power Revenue Refunding 7/05 at 100 BBB+ 250,135
Bonds, Series Z, 5.250%, 7/01/21
Saint Charles Parish, Louisiana, Environmental Improvement Revenue,
Louisiana Power and Light Company Project, Series A:
1,000,000 6.200%, 5/01/23 (Alternative Minimum Tax) 11/02 at 102 BBB 1,047,960
1,000,000 6.375%, 11/01/25 (Alternative Minimum Tax) 11/00 at 102 BBB- 1,040,199
500,000 Saint Charles Parish, Louisiana, Pollution Control Revenue, 12/99 at 103 Baa3 539,439
Louisiana Power and Light, 8.000%, 12/01/14
1,500,000 St. Charles Parish, Louisiana, Solid Waste Disposal Revenue, 12/02 at 102 BBB 1,640,069
Louisiana Power and Light Company Project, Series A, 7.000%,
12/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 1.5%
1,500,000 Louisiana Public Facilities Authority, Revenue Bonds, Series 2/03 at 101 AA- 1,631,624
1992, Baton Rouge Water Works Company Project, 6.400%, 2/01/10
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 126,211,311 Total Investments -- (cost $102,640,777) -- 100.1% 111,952,849
=============----------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 0.8%
$ 900,000 St. Charles Parish (Shell Oil), Variable Rate Demand Bonds, A-1+ 900,000
4.000%, 10/01/25+
=============----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (0.9)% (1,000,674)
--------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $111,852,175
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): 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 public
accountants): Using the higher of Standard & Poor's or Moody's
rating.
*** Securities are backed by an escrow or trust containing sufficient
U.S. government or U.S. government agency securities which
ensures the timely payment of principal and interest. Securities
are normally considered to be equivalent to AAA rated securities.
N/R Investment is not rated.
(WI) Security purchased on a when-issued basis (note 1).
+ 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.
See accompanying notes to financial statements.
28
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Education and Civic Organizations -- 5.7%
North Carolina Educational Facilities Finance Agency, Revenue Bonds (High
Point College Project), Series 1989:
$ 165,000 7.050%, 12/01/05 12/00 at 102 A3 $ 174,468
175,000 7.100%, 12/01/06 12/00 at 102 A3 185,168
4,220,000 North Carolina Educational Facilities Finance Agency, Revenue 10/06 at 102 AA+ 4,204,175
Refunding, Duke University Project, Series B, 5.000%, 10/01/17
1,250,000 North Carolina Educational Facilities Finance Agency, Revenue Bonds 11/07 at 102 AA 1,245,338
(Wake Forest University), Series 1997, 5.000%, 11/01/17
1,000,000 State of North Carolina Education Assistance Authority (A Political 7/05 at 102 A 1,080,850
Subdivision of the State of North Carolina), Guaranteed Student Loan
Revenue Bonds, 1995 Series A (Subordinate Lien), 6.300%, 7/01/15
(Alternative Minimum Tax)
295,000 University of North Carolina, Chapel Hill Revenue, Student Fee, 6/01 at 102 AA+ 324,757
Student Recreation Center, 7.000%, 6/01/08
University of North Carolina, Chapel Hill Revenue Refunding, Utilities
System:
4,000,000 0.000%, 8/01/15 No Opt. Call AA 1,713,000
4,265,000 0.000%, 8/01/18 No Opt. Call AA 1,553,398
2,750,000 0.000%, 8/01/20 No Opt. Call AA 902,275
- -----------------------------------------------------------------------------------------------------------------------------------
Energy -- 0.6%
1,100,000 New Hanover County, North Carolina, Industrial Facilities and 7/02 at 102 BBB 1,185,151
Pollution Control Financing Authority, Revenue Refunding, Occidental
Petroleum, 6.700%, 7/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products -- 9.4%
1,400,000 The Haywood County Industrial Facilities and Pollution Control 9/05 at 102 Baa1 1,504,650
Financing Authority (North Carolina), Series 1995, Environmental
Improvement Revenue Bonds (Champion International Corporation Project),
6.250%, 9/01/25 (Alternative Minimum Tax)
4,000,000 The Haywood County Industrial Facilities and Pollution Control 10/03 at 102 Baa1 4,079,280
Financing Authority (North Carolina), Solid Waste Disposal Revenue
Bonds (Champion International Corporation Project), Series 1993,
5.500%, 10/01/18 (Alternative Minimum Tax)
3,100,000 The Haywood County Industrial Facilities and Pollution Control 3/06 at 102 Baa1 3,271,058
Financing Authority, Variable Rate Demand Pollution Control Refunding
Revenue Bonds (Champion International Corporation Project),
6.000%, 3/01/20
Martin County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority, Solid Waste Disposal Revenue Bonds (Weyerhaeuser
Company Project):
1,900,000 7.250%, 9/01/14 (Alternative Minimum Tax) 9/01 at 103 A 2,096,536
6,000,000 6.800%, 5/01/24 (Alternative Minimum Tax) 5/04 at 102 A 6,686,100
1,000,000 Martin County, North Carolina, Industrial Facilities and Pollution 11/05 at 102 A 1,055,520
Control Financing Authority, Solid Waste Disposal Revenue Bonds,
Series 1995 (Weyerhaeuser Company Project), 6.000%, 11/01/25
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care -- 17.9%
The Charlotte-Mecklenburg Hospital Authority (North Carolina), Health Care
System Revenue Refunding Bonds, Series A:
5,300,000 5.750%, 1/15/21 1/06 at 102 AA 5,592,189
5,500,000 5.875%, 1/15/26 1/06 at 102 AA 5,881,205
6,000,000 The Charlotte-Mecklenburg Hospital Authority (North Carolina), Health 1/07 at 102 AA 5,930,760
Care System Revenue Bonds, Series 1997A, Doing Business as Carolina
Healthcare System, 5.125%, 1/15/22
</TABLE>
29
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$ 1,000,000 North Carolina Medical Care Commission, Hospital Revenue Bonds (Annie 2/02 at 102 Baa3 $1,130,650
Penn Memorial Hospital Project), Series 1991, 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 Baa1 1,372,563
1,000,000 6.750%, 8/15/24 8/02 at 102 Baa1 1,077,310
2,200,000 North Carolina Medical Care Commission, Hospital Revenue, Roanoke, 10/99 at 102 BBB+ 2,318,382
Chowan Hospital Project, 7.750%, 10/01/19
3,400,000 North Carolina Medical Care Commission, Hospital Revenue, Community 10/00 at 102 BBB 3,769,614
General Hospital Of Thomasville, 8.100%, 10/01/15
2,500,000 Northern Hospital District, Surry County, North Carolina, Health Care 10/01 at 102 BBB 2,736,350
Facilities Revenue Refunding, 7.875%, 10/01/21
5,750,000 Board of Governors of The University of North Carolina, University of 2/06 at 102 AA 5,771,218
North Carolina Hospitals at Chapel Hill Revenue Bonds, Series 1996,
5.250%, 2/15/26
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 1.0%
1,340,000 City of Asheville, North Carolina, Housing Authority, 11/07 at 102 AAA 1,382,022
Multifamily Revenue Bonds, Series 1996 (GNMA Collateralized -
Woodridge Apartments), 5.750%, 11/20/29 (Alternative Minimum Tax)
620,000 North Carolina Housing Finance Agency, Multifamily Revenue 7/02 at 102 AA 663,884
Refunding Bonds (1992 Refunding Bond Resolution), Series
B, 6.900%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 10.6%
245,000 North Carolina Housing Finance Agency, Single 9/98 at 102 AA 250,738
Family Revenue, Series E, 8.125%, 9/01/19
645,000 North Carolina Housing Finance Agency, Single 3/02 at 100 AA 659,248
Family Revenue, Series G, 7.800%, 3/01/21
795,000 North Carolina Housing Finance Agency, Single Family Revenue, 3/01 at 102 AA 848,217
Series O, 7.600%, 3/01/21 (Alternative Minimum Tax)
North Carolina Housing Finance Agency, Single Family Revenue, Series Y:
2,000,000 6.300%, 9/01/15 9/04 at 102 AA 2,147,240
1,845,000 6.350%, 3/01/18 9/04 at 102 AA 1,979,556
1,910,000 North Carolina Housing Finance Agency, Single Family Revenue, 9/05 at 102 AA 2,037,015
Series BB, 6.500%, 9/01/26 (Alternative Minimum Tax)
3,500,000 North Carolina Housing Finance Agency, Single Family Refunding, 3/05 at 102 AA 3,675,525
Series DD, 6.200%, 9/01/27 (Alternative Minimum Tax)
4,360,000 North Carolina Housing Finance Agency, Single Family, Series 3/06 at 102 AA 4,597,707
LL, 6.200%, 3/01/26 (Alternative Minimum Tax)
4,000,000 North Carolina Housing Finance Agency, Single Family, Series 3/07 at 101 1/2 AA 4,131,840
RR, 5.850%, 9/01/28 (Alternative Minimum Tax)
680,000 Winston Salem, North Carolina, Single Family Mortgage Revenue, 9/00 at 102 A1 708,240
8.000%, 9/01/07 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial/Other -- 0.8%
1,400,000 Gaston County, North Carolina, Industrial Facilities and 11/01 at 103 N/R 1,524,908
Pollution Control Financing Authority, Industrial Development
Revenue Bonds, Series 1985 (ABB-Combustion Engineering Inc.),
8.850%, 11/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 0.1%
220,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 7/98 at 102 A 225,124
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 17.8%
500,000 City of Asheville, North Carolina, Certificates of Participation, Series 2/02 at 102 A1 534,570
1992, 6.500%, 2/01/08
1,000,000 City of Asheville, North Carolina, Certificates of 6/07 at 101 AAA 995,660
Participation, Series 1997A, 5.125%, 6/01/18
City of Charlotte, North Carolina, General Obligation
Water and Sewer Bonds, Series 1995A:
500,000 5.400%, 4/01/19 4/05 at 102 AAA 521,525
3,445,000 5.400%, 4/01/20 4/05 at 102 AAA 3,585,142
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited (continued)
<C> <S> <C> <C> <C>
$ 4,000,000 Cumberland County Finance Corporation, North Carolina, 12/08 at 102 AAA $ 3,833,040
Installment Payment Revenue Bonds (Public Building and
Equipment Projects), Series 1998, 4.750%, 12/01/17
600,000 City of Durham, North Carolina, Certificates of Participation 6/05 at 102 AA 640,290
Series 1995, 5.800%, 6/01/15
County of Harnett, North Carolina, Certificates of Participation,
Series 1994 (Harnett County Projects):
1,000,000 6.200%, 12/01/06 12/04 at 102 AAA 1,117,150
1,750,000 6.200%, 12/01/09 12/04 at 102 AAA 1,960,298
500,000 6.400%, 12/01/14 12/04 at 102 AAA 560,550
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 1,329,075
1,000,000 5.850%, 4/01/17 4/07 at 102 AAA 1,080,130
10,000,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 10,480,500
Bonds, Series Y of 1996, 5.500%, 7/01/36
555,000 Puerto Rico Infrastructure Financing Authority, Series 1988A, 7/98 at 102 BBB+ 567,726
7.750%, 7/01/08
1,750,000 Puerto Rico Infrastructure Financing Authority, Special Tax 1/08 at 101 AAA 1,723,138
Revenue Bonds, Series 1997A, 5.000%, 7/01/28
1,000,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed No Opt. Call A 1,062,300
Refunding, Series L, 5.500%, 7/01/21
605,000 Ramseur, North Carolina, Refunding, 5.750%, 6/01/22 6/07 at 102 N/R 630,104
715,000 Stokes County, North Carolina, Certificates of Participation, 3/01 at 102 AAA 780,001
7.000%, 3/01/06
1,410,000 County of Union, North Carolina, Certificates of Participation, 4/03 at 102 AAA 1,543,217
Series 1992, 6.375%, 4/01/12
2,375,000 Winston Salem, North Carolina, Special Obligation, Solid Waste 4/05 at 102 AA 2,451,974
Management Project, 5.500%, 4/01/16
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 12.1%
140,000 Asheville, North Carolina, Housing Development Corporation, First 11/09 at 100 N/R*** 187,726
Lien Revenue Bonds, Series 1980, 10.500%, 5/01/11 (Pre-refunded
to 11/01/09)
1,500,000 County of Buncombe, North Carolina, Certificates of Participation 12/02 at 102 Aa3 1,651,935
(1992 Buncombe County Project), 6.625%, 12/01/10
1,900,000 Craven Regional Medical Authority (North Carolina), Insured 10/00 at 102 AAA 2,071,418
Health Care Facilities Revenue Bonds, Series 1990, 7.200%,
10/01/19 (Pre-refunded to 10/01/00)
750,000 County of Cumberland, North Carolina, Hospital Facility Revenue 10/98 at 102 AAA 775,313
Bonds (Cumberland County Hospital System, Inc.), Series 1988,
7.875%, 10/01/14 (Pre-refunded to 10/01/98)
705,000 City of Durham, North Carolina, Certificates of Participation 9/00 at 102 Aa*** 767,710
(1990 Financing Project), 7.250%, 9/01/10 (Pre-refunded to
9/01/00)
1,000,000 City of Durham, North Carolina, Certificates of Participation, 12/01 at 102 Aa3*** 1,106,000
Series 1991, 6.750%, 12/01/11 (Pre-refunded to 12/01/01)
1,450,000 Certificates of Participation, City of Greensboro, North 7/98 at 102 AAA 1,484,046
Carolina, Lease/Purchase Agreement with Greensboro Center
City Corporation, 7.900%, 7/01/09 (Pre-refunded to 7/01/98)
2,055,000 North Carolina Medical Care Commission, Health Care Facilities 10/99 at 102 AAA 2,200,658
Revenue, Stanley Memorial Hospital Project, 7.800%, 10/01/19
(Pre-refunded to 10/01/99)
North Carolina Eastern Municipal Power Agency, Power System
Revenue Refunding Bonds, Series 1989 A:
690,000 7.500%, 1/01/21 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 718,628
500,000 7.250%, 1/01/23 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 520,025
995,000 North Carolina Eastern Municipal Power Agency, Power System No Opt. Call AAA 1,193,274
Revenue Refunding, Series A, 6.500%, 1/01/18
95,000 North Carolina Medical Care Commission, Hospital Revenue Bonds No Opt. Call AAA 110,842
(Memorial Mission Hospital Project), Series A, 7.625%, 10/01/08
North Carolina Medical Care Commission, Hospital Revenue,
Scotland Memorial Hospital Project:
190,000 8.100%, 10/01/98 No Opt. Call N/R 192,787
200,000 8.150%, 10/01/99 (Pre-refunded to 10/01/98) 10/98 at 102 N/R*** 206,892
1,000,000 8.625%, 10/01/11 (Pre-refunded to 10/01/98) 10/98 at 102 N/R*** 1,036,040
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund (continued)
May 31, 1998
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Guaranteed (continued)
$ 600,000 North Carolina Medical Care Commission, Hospital Revenue, 10/99 at 102 N/R*** $ 643,260
Transylvania Community Hospital Project, 8.000%, 10/01/19
(Pre-refunded to 10/01/99)
700,000 Pender County, North Carolina, Certificates of Participation, 6/01 at 102 Baa1*** 785,197
7.700%, 6/01/11 (Pre-refunded to 6/01/01)
1,000,000 County of Pitt, North Carolina, Certificates of Participation, 4/00 at 102 AAA 1,071,350
6.900%, 4/01/08 (Pre-refunded to 4/01/00)
Commonwealth of Puerto Rico, Public Improvement Bonds of 1988,
Series A (General Obligation Bonds):
500,000 7.750%, 7/01/06 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 511,675
2,000,000 7.750%, 7/01/13 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 2,046,700
780,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 (Pre-refunded 7/98 at 102 AAA 798,385
to 7/01/98)
Puerto Rico Aqueduct and Sewer Authority, Revenue Bonds, Series 1988A:
1,000,000 7.900%, 7/01/07 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 1,023,480
850,000 7.875%, 7/01/17 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 869,941
1,895,000 Puerto Rico Infrastructure Finance Authority, Series 7/98 at 102 BBB+*** 1,939,172
1988A, 7.750%, 7/01/08 (Pre-refunded to 7/01/98)
200,000 Puerto Rico Electric Power Authority, Power Revenue Refunding, Formerly 7/98 at 102 AAA 204,714
Puerto Rico Commonwealth Water Resource Authority, Series M, 8.000%,
7/01/08 (Pre-refunded to 7/01/98)
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities -- 15.5%
Coastal Regional Solid Waste Management Authority (North Carolina),
Solid Waste System Revenue Bonds, Series 1992:
1,000,000 6.300%, 6/01/04 6/02 at 102 A 1,085,610
1,000,000 6.500%, 6/01/08 6/02 at 102 A 1,078,200
1,000,000 City of Concord, North Carolina, Utilities Systems Revenue Bonds, 12/05 at 102 AAA 1,034,400
Series 1995, 5.500%, 12/01/19
City of Fayetteville, North Carolina, Public Works Commission Revenue
Bonds, Series 1995A:
1,845,000 5.250%, 3/01/16 3/05 at 102 AAA 1,869,391
1,000,000 5.375%, 3/01/20 3/05 at 102 AAA 1,015,610
5,900,000 City of Fayetteville, North Carolina, Public Works Commission Revenue 3/07 at 101 AAA 5,870,264
Bonds, Series 1997, 5.125%, 3/01/24
1,500,000 City of Gastonia, North Carolina, Combined Utilities System Revenue 5/08 at 102 AAA 1,459,125
Bonds, Series 1998, 4.750%, 5/01/15
2,000,000 City of Gastonia, North Carolina, Combined Utilities System Revenue 5/08 at 102 AAA 1,913,000
Bonds, Series 1994, 4.750%, 5/01/19
2,000,000 City of Greenville, North Carolina, Greenville Utilities Commission, 9/04 at 102 A+ 2,146,680
Combined Enterprise System Revenue Bonds, Series 1994, 6.000%, 9/01/16
5,300,000 North Carolina Eastern Municipal Power Agency, Power System Revenue No Opt. Call AAA 5,963,984
Bonds, Refunding, Series 1993 B, 6.000%, 1/01/18
5,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series DD, 7/08 at 101 BBB+ 5,090,925
5.000%, 7/01/28
870,000 Shelby, North Carolina, Combined Enterprise System Revenue Refunding, 5/05 at 102 A 891,524
Series A, 5.500%, 5/01/17
1,470,000 Shelby, North Carolina, Combined Enterprise System Revenue Refunding, 5/05 at 102 A 1,506,368
Series B, 5.500%, 5/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 5.8%
2,000,000 City of Asheville, North Carolina, Water System Revenue Bonds, Series 8/06 at 102 AAA 2,110,420
1996, 5.700%, 8/01/25
3,400,000 City of Greensboro, North Carolina, Combined Enterprise System Revenue 6/05 at 102 AA- 3,469,292
Bonds, Series 1995A, 5.375%, 6/01/19
3,000,000 County of Union, North Carolina, Enterprise Systems Revenue Bonds, 6/06 at 102 AAA 3,131,370
Series 1996, 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+ 788,970
1,500,000 5.700%, 6/01/17 6/05 at 102 AA+ 1,583,174
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer(continued)
$ 475,348 Woodfin Treatment Facility, Inc. (North Carolina), Proportionate No Opt. Call N/R $ 477,357
Interest Certificates, 5.500%, 12/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
$192,015,348 Total Investments - (cost $181,340,338) -- 97.3% 193,672,451
============------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 2.7% 5,415,097
--------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $199,087,548
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): 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 public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
33
<PAGE>
Portfolio of Investments
Nuveen Flagship South Carolina Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Education and Civic Organizations - 9.4%
$400,000 Board of Trustees of Coastal Carolina University, South Carolina, 6/04 at 102 AAA $454,068
Revenue Bonds, Series 1994, 6.800%, 6/01/19
500,000 South Carolina State Education Assistance Authority, Revenue Refunding, 9/04 at 101 A 532,905
Guaranteed Student Loan Subordinate Lien, 6.300%, 9/01/08 (Alternative
Minimum Tax)
250,000 University of South Carolina, University Revenues, 5.600%, 6/01/14 6/07 at 101 AAA 265,213
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 4.0%
500,000 Darlington County, South Carolina, Industrial Development Revenue Bonds 4/06 at 102 A 530,460
(Sonoco Products Company Project), Series 1996, 6.000%, 4/01/26
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 13.0%
200,000 Greenville Hospital System Board of Trustees, Hospital Facilities No Opt. Call AAA 223,582
Revenue Bonds (South Carolina), Series 1990, 6.000%, 5/01/20
250,000 Greenwood County, South Carolina, Hospital Facilities Revenue Bonds 10/03 at 102 AAA 263,595
(Self Memorial Hospital), Series 1993, 5.875%, 10/01/17
250,000 South Carolina, Jobs and Economic Development Authority, Hospital 11/05 at 102 AAA 265,678
Facilities Revenue, Tuomey Regional Medical Center, Series A,
5.750%, 11/01/15
500,000 South Carolina Jobs and Economic Development Authority, Hospital Revenue 5/08 at 101 Aaa 483,080
Bonds (Georgetown Memorial Hospital), Series 1998, 5.000%, 11/01/29
500,000 Spartanburg County, South Carolina, Health Services District Inc., 4/07 at 101 AAA 490,850
Hospital Revenue Refunding, Series B, 5.125%, 4/15/22
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 4.3%
300,000 South Carolina Regional Housing Development Corporation No. 1, 7/02 at 102 Aa 315,345
Multifamily Revenue Refunding, Redwood Village Apartments, Series A,
6.625%, 7/01/17
250,000 South Carolina Housing Finance and Development Authority, Multifamily 11/05 at 102 AA- 259,013
Housing Revenue Refunding Bonds (Runaway Bay Apartments Project),
Series 1995, 6.125%, 12/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 4.0%
250,000 South Carolina State Housing Authority, Homeownership Mortgage Purchase, 7/04 at 102 AA 266,695
Series A, 6.150%, 7/01/08
250,000 South Carolina State Housing Finance and Development Authority, 5/06 at 102 Aa2 265,678
Mortgage Revenue, Series A, 6.350%, 7/01/25 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 16.6%
250,000 School District No. 4 of Anderson County, South Carolina, General 3/05 at 102 AAA 259,515
Obligation Bonds, Series 1995, 5.400%, 3/01/15
500,000 Cherokee School District No. 1 of Cherokee County, South Carolina, 3/07 at 101 Aa1 498,755
General Obligation Bonds, Series 1997, 5.000%, 3/01/17
365,000 Florence County School District No. 5, South Carolina, General 3/06 at 102 AAA 388,915
Obligation Bonds, Series 1996A, 5.700%, 3/01/17
250,000 Lexington County, South Carolina, Public Library System, 6.300%, 2/01/10 2/03 at 102 Aa2 275,390
500,000 Lexington County, South Carolina, School District No. 3, 5.000%, 3/01/17 3/07 at 101 Aa1 499,960
250,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General 7/04 at 101 1/2 AAA 282,973
Obligation Bonds), 6.400%, 7/01/11
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited -- 17.0%
Berkeley County School District, Certificates of Participation:
$ 250,000 6.250%, 2/01/12 2/04 at 102 AAA $ 274,893
250,000 6.300%, 2/01/16 2/04 at 102 AAA 275,510
10,000 Charleston County, South Carolina, Charleston Public Facilities 6/04 at 102 AAA 11,306
Corporation, Certificates of Participation, Series 1994B, 6.875%,
6/01/14
400,000 Chesterfield County School District, South Carolina, Chesterfield School 7/05 at 102 AAA 434,000
Facilities, Inc., Certificates of Participation, Series 1995, 6.000%,
7/01/15
250,000 Hilton Head Public Facilities Corporation (South Carolina), Certificates 3/05 at 102 AAA 266,980
of Participation Series 1995, 5.750%, 3/01/14
500,000 City of Myrtle Beach, South Carolina, Myrtle Beach Public Facilities 7/08 at 102 AAA 493,920
Corporation, Refunding Certificates of Participation (Myrtle Beach
Convention Center Project), Series 1998, 5.000%, 7/01/17
400,000 North Charleston, South Carolina, Certificates of Participation, 9/07 at 102 AAA 394,616
Refunding and Improvement, Coliseum and Convention, 5.125%, 9/01/19
100,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed Refunding, No Opt. Call A 106,230
Series L, 5.500%, 7/01/21
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.4%
300,000 Horry County, South Carolina, Airport Revenue Bonds, Series 1997A, 7/07 at 102 AAA 314,310
5.700%, 7/01/27 (Alternative Minimum Tax)
250,000 Richland, Lexington, South Carolina, Airport District Airport Revenue, 1/05 at 100 AAA 265,170
Columbia Metropolitan Airport, 6.000%, 1/01/15 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 4.2%
240,000 Charleston County, South Carolina, Charleston Public Facilities 6/04 at 102 AAA 277,853
Corporation, Certificates of Participation, Series 1994 B, 6.875%,
6/01/14 (Pre-refunded to 6/01/04)
250,000 Georgetown County Water and Sewer District, Water and Sewer System 6/05 at 102 N/R*** 285,775
Revenue Refunding and Improvement Bonds, Junior Lien, Series 1995
(South Carolina), 6.500%, 6/01/25 (Pre-refunded to 6/01/05)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 2.0%
250,000 Charleston County, South Carolina, Solid Waste User Fee Revenue 1/05 at 102 AAA 271,160
Bonds, Series 1994, 6.000%, 1/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 13.7%
300,000 City of Greenville, South Carolina, Waterworks System Revenue 2/07 at 102 Aa1 309,510
Bonds, Series 1997, 5.500%, 2/01/22
500,000 Lexington, South Carolina, Water and Sewer Revenue, 5.500%, 4/01/29 4/07 at 102 AA 511,439
250,000 Spartanburg, South Carolina, Sanitation Sewer District, Sewer 6/07 at 101 AAA 258,154
System Revenue Improvement, 5.500%, 6/01/20
500,000 Spartanburg, South Carolina, Waterworks Revenue Refunding, 5.000%, 6/07 at 101 AAA 489,729
6/01/22
250,000 York County, South Carolina, Water and Sewer System Revenue Bonds, 12/03 at 102 N/R 255,197
Series 1995, 6.500%, 12/01/25
- -----------------------------------------------------------------------------------------------------------------------------------
$11,765,000 Total Investments -- (cost $11,496,791) -- 92.6% 12,317,422
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 7.4% 982,473
-------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $13,299,895
===================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): 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 public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
35
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Basic Materials - 5.4%
$ 3,000,000 Industrial Development Board of the City of Chattanooga (Tennessee), 7/03 at 103 AA- $ 3,264,030
Pollution Control Revenue Bonds, Series 1982 A (E.I. du Pont de
Nemours and Company), 6.350%, 7/01/22
12,000,000 The Industrial Development Board of Humphreys County, Tennessee, Solid 5/04 at 102 AA- 13,278,360
Waste Disposal Facility Bonds (E.I. du Pont de Nemours and Company
Project), 6.700%, 5/01/24 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical - 2.5%
7,000,000 Maury County, Tennessee, Industrial Development Board, Pollution 9/04 at 102 A 7,717,920
Control Revenue, Multi-Modal Refunding, Saturn Corporation Project,
6.500%, 9/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 0.5%
250,000 Memphis, Shelby County, Tennessee, Industrial Development Board, No Opt. Call A1 283,615
Industrial Development Revenue, Colonial Baking Company - Memphis
Project, 9.500%, 4/01/01
1,245,000 South Fulton, Tennessee, Industrial Development Board, Industrial 10/05 at 102 A3 1,357,585
Development Revenue, Tyson Foods, Inc. Project, 6.400%, 10/01/20
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 2.0%
3,705,000 Tennessee State School Bond Authority, Higher Educational 5/02 at 101 1/2 AAA 3,996,139
Facilities Bonds, 1992 Series A, 6.250%, 5/01/22
2,000,000 Tennessee State School Bond Authority, Higher Educational 5/06 at 102 AA 2,115,440
Facilities Bonds, 1996 Series C, 5.700%, 5/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 5.1%
6,750,000 Loudon County, Tennessee, Industrial Development Board, Solid 2/03 at 102 AA 7,205,018
Waste Disposal Revenue, Kimberly-Clark Corporation Project,
6.200%, 2/01/23 (Alternative Minimum Tax)
2,500,000 McMinn County, Tennessee, Industrial Development Board, Pollution 3/01 at 102 Baa1 2,733,175
Control Revenue, Calhoun NWSPRT Company Project, Bowater, Series A,
7.625%, 3/01/16 (Alternative Minimum Tax)
4,950,000 McMinn County, Tennessee, Industrial Development Board, Solid Waste 12/02 at 102 Baa1 5,535,140
Revenue Recycling Facility, Calhoun NWSPRT Company Project, Bowater,
7.400%, 12/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 12.9%
1,930,000 The Health, Educational and Housing Facility Board of the City of 9/01 at 102 AAA 2,093,876
Chattanooga, Tennessee, Hospital Revenue Bonds, Series 1991A
(Memorial Hospital Project), 6.600%, 9/01/12
City of Clarksville, Tennessee, Hospital Revenue Refunding and
Improvement Bonds, Series 1993 (Clarksville Memorial Hospital
Project):
1,000,000 6.250%, 7/01/08 7/03 at 102 Baa1 1,067,790
1,775,000 6.250%, 7/01/13 7/03 at 102 Baa1 1,884,234
1,250,000 6.375%, 7/01/18 7/03 at 102 Baa1 1,332,375
1,550,000 The Industrial Development Board of the City of Cookeville, Tennessee, 12/03 at 102 A 1,627,361
Hospital Refunding Revenue Bonds, Series 1993 (Cookeville General
Hospital Project), 5.750%, 10/01/10
7,350,000 The City of Jackson, Tennessee, Hospital Revenue Refunding and 4/05 at 102 AAA 7,674,429
Improvement Bonds, Series 1995 (Jackson-Madison County General Hospital
Project), 5.625%, 4/01/15
2,090,000 The Health and Educational Facilities Board of the City of Johnson, 7/01 at 102 AAA 2,270,012
Tennessee, Hospital Revenue Refunding and Improvement Bonds, Series 1991
(Johnson City Medical Center Hospital), 6.750%, 7/01/16
135,000 The Health, Educational and Housing Facilities Board of the County of 1/00 at 100 AAA 138,163
Knox (Tennessee), Hospital Revenue Bonds, Series 1988 (Fort Sanders
Regional Medical Center), 8.000%, 1/01/08
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Health Care (continued)
The Health, Educational and Housing Facilities Board of the County of
Knox (Tennessee), Hospital Revenue Bonds, Series 1993A (Fort Sanders
Alliance Obligated Group):
$ 1,000,000 6.250%, 1/01/13 No Opt. Call AAA $ 1,151,950
3,000,000 5.250%, 1/01/15 No Opt. Call AAA 3,118,170
1,250,000 The Health and Educational Facilities Board of the Metropolitan 11/05 at 102 AAA 1,316,100
Government of Nashville and Davidson County, Tennessee, Hospital
Revenue Bonds, Series 1995 (Adventist Health System/Sunbelt
Obligated Group), 5.750%, 11/15/25
2,395,000 The Health and Educational Facilities Board of the Metropolitan 11/01 at 102 AAA 2,638,116
Government of Nashville and Davidson County, Tennessee, Hospital
Revenue Bonds (Adventist Health/Sunbelt Obligated Group), 7.000%,
11/15/16
6,500,000 The Health and Educational Facilities Board of the Metropolitan 5/08 at 101 AAA 6,178,705
Government of Nashville and Davidson County, Tennessee, Hospital
Revenue Bonds, Series 1998A (Baptist Hospital, Inc.), 4.875%, 11/01/28
4,000,000 Shelby County, Tennessee, Health, Educational and Housing Facility 8/05 at 102 AAA 4,037,760
Board, Hospital Revenue Refunding, Methodist Health System Inc.,
5.250%, 8/01/15
2,500,000 Sumner County, Tennessee, Health, Educational and Housing Facilities 11/04 at 102 A- 2,855,200
Board, Revenue Refunding, Sumner Regional Health System, Inc., Series
1994, 7.500%, 11/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 2.3%
1,200,000 The Health, Educational and Housing Facility Board of the City of 7/03 at 102 Aaa 1,252,008
Chattanooga, Tennessee, Multifamily Mortgage Revenue Refunding Bonds,
Series 1993A (Windridge Apartments-FHA Insured Mortgage), 5.950%, 7/01/14
3,500,000 The Industrial Development Board of the City of Franklin (Tennessee), 10/06 at 102 AAA 3,672,900
Multifamily Housing Revenue Refunding Bonds (The Landings Apartments
Project), Senior Series 1996A, 6.000%, 10/01/26
Metropolitan Government of Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board, Housing Mortgage Revenue, Herman
Street:
250,000 7.000%, 6/01/17 6/02 at 103 AAA 268,978
495,000 7.250%, 6/01/32 6/02 at 103 AAA 532,323
1,250,000 The Industrial Development Board of the Metropolitan Government of 10/98 at 103 AAA 1,294,913
Nashville and Davidson County (Tennessee), Multi-Family Housing Revenue
Refunding Bonds (FHA-Insured Mortgage Loan-St.Paul Retirement Center
Project), Series 1988A, 8.125%, 10/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 6.2%
275,000 County of Hamilton, Tennessee, Single Family Mortgage Revenue Bonds 9/00 at 102 AAA 289,487
(Home Purchase and Rehabilitation Program), Series 1990, 8.000%, 9/01/23
(Alternative Minimum Tax)
6,000,000 Tennessee Housing Development Agency, Home Ownership Program, Issue 4A, 7/06 at 102 AA 6,368,580
6.375%, 7/01/22 (Alternative Minimum Tax)
1,500,000 Tennessee Housing Development Agency, Home Ownership Program, Series 3, 7/07 at 102 AA 1,563,315
5.850%, 7/01/17 (Alternative Minimum Tax)
1,420,000 Tennessee Housing Development Agency, Home Ownership Program, Series O, 7/99 at 103 AA 1,452,632
7.750%, 7/01/20 (Alternative Minimum Tax)
805,000 Tennessee Housing Development Agency, Home Ownership Program, Series P, 7/00 at 103 AA 844,485
7.700%, 7/01/16
120,000 Tennessee Housing Development Agency, Home Ownership Program, Issue U, 7/01 at 102 Aa2 126,942
7.400%, 7/01/16
3,900,000 Tennessee Housing Development Agency, Home Ownership Program, 7.375%, 7/01 at 102 Aa2 4,122,885
7/01/23 (Alternative Minimum Tax)
2,695,000 Tennessee Housing Development Agency, Home Ownership Program Bonds, 7/02 at 102 AA 2,862,683
Issue WR, 6.800%, 7/01/17
225,000 Tennessee Housing Development Agency, Home Ownership Program Bonds, 7/02 at 102 AA 237,915
Issue XR, 6.875%, 7/01/22 (Alternative Minimum Tax)
1,000,000 Tennessee Housing Development Agency, Mortgage Finance Program Bonds, 7/04 at 102 A+ 1,075,140
1994 Series A, 6.900%, 7/01/25 (Alternative Minimum Tax)
</TABLE>
37
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Long Term Care - 2.5%
$ 2,985,000 The Health and Educational Facilities Board of the Metropolitan Government 2/08 at 102 AA $ 3,062,401
of Nashville and Davidson County, Tennessee, Multi-Modal Interchangeable
Rate, Health Facility Revenue Bonds (Richland Place, Inc. Project),
Series 1993, 5.500%, 5/01/23
4,700,000 The Health and Educational Facilities Board of the Metropolitan Government 7/08 at 102 N/R 4,630,346
of Nashville and Davidson County, Tennessee, Revenue Refunding Bonds (The
Blakeford at Green Hills), Series 1998, 5.650%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 7.0%
Hamilton County, Tennessee, General Obligation Bonds, Series 1995:
1,490,000 6.250%, 2/01/20 2/05 at 102 Aa2 1,682,553
2,025,000 6.300%, 2/01/25 2/05 at 102 Aa2 2,292,523
1,435,000 Memphis, Tennessee, Series B, Airport, 7.050%, 7/01/10 (Alternative 7/98 at 102 AA 1,467,603
Minimum Tax)
5,950,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 5/07 at 102 AA 5,902,579
Refunding, 5.125%, 5/15/25
8,000,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 5/06 at 101 AA 8,557,840
Public Improvement, 5.875%, 5/15/21
385,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 7/98 at 102 A 393,967
1,000,000 Shelby County, Tennessee, General Obligation Refunding Bonds, 1995 4/05 at 101 AA+ 1,051,960
Series A, 5.625%, 4/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 13.7%
Metropolitan Government of Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board, Revenue Refunding and
Improvement, Meharry Medical College:
4,000,000 5.000%, 12/01/24 6/09 at 100 AAA 3,874,400
1,000,000 5.000%, 12/01/24 12/17 at 100 AAA 1,133,700
5,000,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 7/06 at 101 AAA 5,283,700
Sports Authority Revenue, Public Improvement Stadium Project, 5.750%,
7/01/26
6,275,000 Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds, 7/16 at 100 A 6,576,514
Series Y of 1996, 5.500%, 7/01/36
500,000 Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds, No Opt. Call AAA 537,440
Series W, 5.500%, 7/01/15
3,000,000 Puerto Rico Infrastructure Financing Authority, Special Tax Revenue Bonds, 1/08 at 101 AAA 3,052,740
Series 1997A, 5.000%, 7/01/13
13,300,000 Puerto Rico Public Buildings Authority, Revenue Guaranteed Refunding, No Opt. Call A 14,128,590
Series L, 5.500%, 7/01/21
2,660,000 Tennessee State Local Development Authority, Community Provider Loan 10/02 at 102 A 2,936,454
Program, 7.000%, 10/01/21
Wilson County, Tennessee, Series 1994, Certificates of Participation
(Wilson County Educational Facilities Corporation):
1,500,000 6.125%, 6/30/10 6/04 at 102 A 1,619,610
1,500,000 6.250%, 6/30/15 6/04 at 102 A 1,618,650
1,000,000 Wilson County, Tennessee, Certificates of Participation, Series 1998, 3/08 at 102 AAA 1,004,300
School Facilities Lease Agreement with Wilson County, Educational
Facilities Development Corporation, 5.250%, 3/30/18
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 5.1%
5,545,000 Memphis-Shelby County Airport Authority (Tennessee), Special Facilities 9/01 at 103 BBB 6,219,050
Revenue Bonds, Series 1984 (Federal Express Corporation), 7.875%, 9/01/09
4,100,000 Memphis-Shelby County Airport Authority (Tennessee), Special Facilities 9/02 at 102 BBB 4,492,698
Revenue Refunding Bonds, Series 1992 (Federal Express Corporation),
6.750%, 9/01/12
Metropolitan Nashville Airport Authority (Tennessee), Airport Improvement
Revenue Refunding Bonds, Series 1991C:
145,000 6.625%, 7/01/07 7/01 at 102 AAA 157,763
4,385,000 6.600%, 7/01/15 7/01 at 102 AAA 4,750,490
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Guaranteed - 18.5%
The Health and Educational Facilities Board of the County of Anderson,
Tennessee, Hospital Revenue Refunding and Improvement Bonds, Series 1988
(Methodist Medical Center of Oak Ridge):
$ 2,400,000 8.125%, 7/01/08 (Pre-refunded to 7/01/98) 7/98 at 102 A1*** $ 2,456,760
250,000 8.125%, 7/01/08 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 255,915
1,000,000 City of Chattanooga, Tennessee, General Obligation Bonds, Series 1990, 5/00 at 102 AA*** 1,078,920
Various Purpose, 7.250%, 5/01/12 (Pre-refunded to 5/01/00)
1,455,000 Gladeville Utility District of Wilson County, Tennessee, Waterworks 10/00 at 100 AAA 1,566,497
Revenue Bonds, Series 1990, 7.400%, 10/01/10 (Pre-refunded to 10/01/00)
5,000,000 Johnson City, Tennessee, School Sales Tax Revenue and Unlimited Tax 5/06 at 100 AAA 5,803,700
Bonds, Series 1994, 6.700%, 5/01/21 (Pre-refunded to 5/01/06)
3,000,000 The Health, Educational and Housing Facilities Board of the County of 9/99 at 102 AAA 3,195,660
Knox (Tennessee), Hospital Facilities Revenue Bonds, Series 1989 A
(Mercy Health System, Province of Cincinnati), 7.600%, 9/01/19
(Pre-refunded to 9/01/99)
3,065,000 The Health, Educational and Housing Facilities Board of the County of 1/00 at 102 AAA 3,265,298
Knox (Tennessee), Hospital Facilities Revenue Bonds, Series 1990C (Fort
Sanders Alliance Obligated Group), 7.000%, 1/01/15 (Pre-refunded to
1/01/00)
41,570,000 Metropolitan Government of Nashville and Davidson County, Tennessee, No Opt. Call Aaa 12,283,519
Health and Educational Facilities Board, Subordinate Volunteer
Healthcare Revenue, 0.000%, 6/01/21
1,200,000 Metropolitan Government of Nashville and Davidson County, Tennessee, 10/07 at 105 N/R*** 1,616,580
Health and Educational Facilities Board, Mur, Ci Homes Inc. Project,
Series A, 9.000%, 10/01/22 (Pre-refunded to 10/01/07)
2,500,000 The Public Building Authority of the City of Mt. Juliet, Tennessee, 2/04 at 110 AAA 3,146,600
Revenue Bonds (Utility District Loan Program), Series B, The Madison
Suburban Utility District, 7.800%, 2/01/19 (Pre-refunded to 2/01/04)
1,500,000 Northeast Knox, Tennessee, Utility District Water Revenue, 7.000%, 1/00 at 102 AAA 1,599,480
1/01/20 (Pre-refunded to 1/01/00)
1,365,000 Puerto Rico Commonwealth, Refunding, 8.000%, 7/01/07 (Pre-refunded 7/98 at 102 AAA 1,397,173
to 7/01/98)
1,000,000 Puerto Rico Commonwealth Highway Authority, Highway Revenue, Series P, 7/98 at 102 AAA 1,023,680
8.125%, 7/01/13 (Pre-refunded to 7/01/98)
1,000,000 Puerto Rico Electric Power Authority, Power Revenue, Formerly Puerto 7/98 at 102 AAA 1,023,570
Rico Commonwealth Water Resource Authority Power, Refunding, Series M,
8.000%, 7/01/08 (Pre-refunded to 7/01/98)
865,000 Selmer, Tennessee, Refunding, 8.200%, 7/01/13 (Pre-refunded to 7/01/98) 7/98 at 102 Baa*** 885,535
The Health, Educational and Housing Facility Board of the County of
Shelby, Tennessee, Revenue Bonds, Series C (LeBonheur Childrens Medical
Center, Inc.):
1,000,000 7.625%, 8/15/09 (Pre-refunded to 8/15/98) 8/98 at 102 AAA 1,027,860
2,000,000 7.600%, 8/15/19 (Pre-refunded to 8/15/98) 8/98 at 102 AAA 2,055,620
4,000,000 The Health, Educational and Housing Facilities Board of the County of 2/00 at 102 AAA 4,290,800
Sullivan, Tennessee, Hospital Revenue Bonds, Series 1990 (Holston
Valley Health Care, Inc.), 7.250%, 2/15/20 (Pre-refunded to 2/15/00)
Tennessee State Local Development Authority, State Loan Program,
Series A:
1,325,000 7.000%, 3/01/12 (Pre-refunded to 3/01/01) 3/01 at 102 AA-*** 1,448,543
1,175,000 7.000%, 3/01/21 (Pre-refunded to 3/01/01) 3/01 at 102 AA-*** 1,284,557
125,000 Tennessee State School Bond Authority, Higher Educational Facilities 5/99 at 102 AA*** 131,061
Bonds, 1989 Series, 7.000%, 5/01/20 (Pre-refunded to 5/01/99)
1,000,000 West Knox Utility District, Knox County, Tennessee, Water and Sewer 12/98 at 102 AAA 1,039,870
Revenue Improvement, 7.750%, 12/01/08 (Pre-refunded to 12/01/98)
2,300,000 The White House Utility District of Robertson and Sumner Counties, 1/02 at 102 AAA 2,515,464
Tennessee, Water Revenue Refunding and Improvement Bonds, Series 1992B,
6.375%, 1/01/22 (Pre-refunded to 1/01/02)
Wilson County, Tennessee, Water and Wastewater Authority, Waterworks
Revenue, Refunding and Improvement:
1,000,000 7.875%, 3/01/09 (Pre-refunded to 3/01/99) 3/99 at 102 N/R*** 1,049,820
950,000 8.000%, 3/01/14 (Pre-refunded to 3/01/99) 3/99 at 102 N/R*** 998,203
</TABLE>
39
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 1998
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Utilities - 10.6%
$ 1,520,000 City of Clarksville, Tennessee, Water, Sewer and Gas Revenue Refunding No Opt. Call AAA $ 625,282
and Improvement Bonds, Series 1992, 0.000%, 2/01/16
2,160,000 City of Dickson, Tennessee, Electric System Revenue Bonds, Series 1996, 9/08 at 102 AAA 2,265,970
5.500%, 9/01/16
The City of Jackson, Tennessee, Electric System Revenue Bonds, Series E:
315,000 6.300%, 8/01/09 8/00 at 102 A1 332,574
335,000 6.300%, 8/01/10 8/00 at 102 A1 352,973
355,000 6.300%, 8/01/11 8/00 at 102 A1 373,669
380,000 6.300%, 8/01/12 8/00 at 102 A1 399,821
3,000,000 City of Jackson, Tennessee, Gas System Revenue Bonds, Series 1997, 4/07 at 100 AAA 2,966,310
5.000%, 4/15/18
4,475,000 Lawrenceburg, Tennessee, Electric Revenue, 5.500%, 7/01/26 7/09 at 100 AAA 4,644,155
The Metropolitan Government of Nashville and Davidson County, Tennessee,
Electric Revenue, Series A:
7,800,000 0.000%, 5/15/11 No Opt. Call AAA 4,207,242
8,500,000 0.000%, 5/15/12 No Opt. Call AAA 4,312,390
The Metropolitan Government of Nashville and Davidson County, Tennessee,
Electric System Revenue Bonds, 1998 Series A:
11,000,000 0.000%, 5/15/19 (WI) No Opt. Call AAA 3,719,870
4,000,000 5.200%, 5/15/23 (WI) 5/08 at 102 AA 3,988,800
1,000,000 The Middle Tennessee Utility District of Cannon, Cumberland, DeKalb, 10/02 at 102 AAA 1,102,000
Putnam, Rhea, Rutherford, Smith, Warren, White and Wilson Counties,
Tennessee, Gas System Revenue Bonds, Series 1992, 6.250%, 10/01/12
1,020,000 The Public Building Authority of the City of Mt. Juliet, Tennessee, 2/99 at 102 AAA 1,064,053
Revenue Bonds (Utility District Loan Program), Series D, Cumberland
Utility District (Hermitage), 7.550%, 2/01/19
2,000,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, 7/08 at 101 BBB+ 1,877,620
Series EE, 4.750%, 7/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 5.8%
1,125,000 Eastside Utility District of Hamilton County, Tennessee, Water 11/01 at 102 A 1,243,203
System Revenue Bonds, Series 1992, 6.750%, 11/01/11
5,445,000 City of Knoxville, Tennessee, Wastewater System Refunding and 4/07 at 101 AA 5,373,071
Improvement Bonds, Series 1998, 5.125%, 4/01/23
3,000,000 Madison Suburban Utility District, Water Revenue Refunding Bonds, 2/08 at 100 AAA 2,965,500
5.000%, 2/01/19
3,000,000 The Metropolitan Government of Nashville and Davidson County No Opt. Call AAA 3,140,130
(Tennessee), Water and Sewer Revenue Bonds, Series 1998B, 5.250%, 1/01/14
1,000,000 Milcrofton, Tennessee, Utility District, Waterworks Revenue Refunding 2/06 at 102 N/R 1,039,310
Junior Lien, 6.000%, 2/01/24
1,100,000 Rutherford County, Tennessee, Utility District, Waterworks Revenue 2/08 at 100 Aaa 1,104,883
Refunding and Improvement, Series A, 5.250%, 2/01/27
1,100,000 White House Utility District, Tennessee, Robertson and Sumner Counties, 1/07 at 100 Aaa 1,125,387
Waterworks System Revenue Refunding, Series B, 5.300%, 1/01/15
1,500,000 Wilson County, Tennessee, Water and Wastewater Authority, Waterworks 3/08 at 102 Baa1 1,634,070
Revenue Refunding and Improvement, 6.000%, 3/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
$334,815,000 Total Investments - (cost $282,996,090) - 100.1% 305,562,688
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.1)% (349,600)
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $305,213,088
====================================================================================================================
* Optional Call Provisions (not covered by the report of independent public accountants): 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 public accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
(WI) Security purchased on a when-issued basis (note 1).
N/R Investment is not rated.
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
Statement of Net Assets
May 31, 1998
<TABLE>
<CAPTION>
Alabama Georgia Louisiana
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $7,592,982 $142,619,268 $111,952,849
Temporary investments in short-term municipal securities, at
amortized cost, which approximates market value (note 1) 300,000 -- 900,000
Cash 116,223 841,961 55,827
Receivables:
Fund manager (note 6) 9,573 -- --
Interest 120,413 2,759,500 1,724,373
Investments sold -- 4,171,596 60,000
Shares sold -- 620,684 489,824
Other assets 68,376 110,027 86,208
- -------------------------------------------------------------------------------------------------------------
Total assets 8,207,567 151,123,036 115,269,081
- -------------------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased -- 7,012,339 2,894,425
Shares redeemed 56,219 367,966 11,059
Accrued expenses:
Management fees (note 6) -- 16,465 476
12b-1 distribution and service fees (notes 1 and 6) 3,013 34,551 30,317
Other 63,830 39,575 31,160
Dividends payable 34,086 573,729 449,469
- -------------------------------------------------------------------------------------------------------------
Total liabilities 157,148 8,044,625 3,416,906
- -------------------------------------------------------------------------------------------------------------
Net assets (note 7) $8,050,419 $143,078,411 $111,852,175
=============================================================================================================
Class A Shares (note 1)
Net assets $4,930,114 $120,544,790 $ 89,142,965
Shares outstanding 464,866 10,776,666 7,718,371
Net asset value and redemption price per share $ 10.61 $11.19 $11.55
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.08 $11.68 $12.06
=============================================================================================================
Class B Shares (note 1)
Net assets $ 843,074 $ 3,518,063 $ 8,998,906
Shares outstanding 79,365 314,200 779,459
Net asset value, offering and redemption price per share $ 10.62 $11.20 $11.55
=============================================================================================================
Class C Shares (note 1)
Net assets $2,154,795 $18,770,494 $13,682,318
Shares outstanding 202,810 1,681,075 1,185,689
Net asset value, offering and redemption price per share $ 10.62 $ 11.17 $ 11.54
=============================================================================================================
Class R Shares (note 1)
Net assets $ 122,436 $ 245,064 $ 27,986
Shares outstanding 11,464 21,986 2,422
Net asset value, offering and redemption price per share $ 10.68 $ 11.15 $ 11.55
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
Statement of Net Assets -- continued
May 31, 1998
<TABLE>
<CAPTION>
North Carolina South Carolina Tennessee
- ------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C>
Investments in municipal securities, at market value (note 1) $193,672,451 $12,317,422 $305,562,688
Temporary investments in short-term municipal securities, at
amortized cost, which approximates market value (note 1) -- -- --
Cash 2,837,591 810,402 2,037,759
Receivables:
Fund manager (note 6) -- 4,775 --
Interest 3,284,284 220,268 4,632,957
Investments sold -- -- --
Shares sold 418,441 -- 2,138,590
Other assets 253,746 79,490 173,150
- ------------------------------------------------------------------------------------------------------------------------------
Total assets 200,466,513 13,432,357 314,545,144
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased -- -- 7,610,516
Shares redeemed 253,948 37,133 237,153
Accrued expenses:
Management fees (note 6) 91,541 -- 138,659
12b-1 distribution and service fees (notes 1 and 6) 54,129 3,209 69,136
Other 147,433 34,091 42,059
Dividends payable 831,914 58,029 1,234,533
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,378,965 132,462 9,332,056
- ------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $199,087,548 $13,299,895 $305,213,088
==============================================================================================================================
Class A Shares (note 1)
Net assets $186,339,947 $11,590,925 $278,232,055
Shares outstanding 17,549,377 1,162,730 24,286,371
Net asset value and redemption price per share $ 10.62 $ 9.97 $ 11.46
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.09 $ 10.41 $ 11.96
==============================================================================================================================
Class B Shares (note 1)
Net assets $ 3,608,612 $ 724,042 $ 5,774,666
Shares outstanding 339,751 72,715 503,708
Net asset value, offering and redemption price per share $ 10.62 $ 9.96 $ 11.46
==============================================================================================================================
Class C Shares (note 1)
Net assets $ 8,291,407 $ 875,037 $ 20,672,561
Shares outstanding 782,072 87,818 1,805,073
Net asset value, offering and redemption price per share $ 10.60 $ 9.96 $ 11.45
==============================================================================================================================
Class R Shares (note 1)
Net assets $ 847,582 $ 109,891 $ 533,806
Shares outstanding 79,828 11,018 46,658
Net asset value, offering and redemption price per share $ 10.62 $ 9.97 $ 11.44
==============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
Statement of Operations
Year Ended May 31, 1998
<TABLE>
<CAPTION>
Alabama Georgia Louisiana
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Investment Income (note 1) $ 396,848 $ 7,760,505 $5,723,991
- -------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 40,626 740,472 535,294
12b-1 service fees -- Class A (notes 1 and 6) 10,288 235,172 164,872
12b-1 distribution and service fees -- Class B (notes 1 and 6) 7,192 14,815 40,431
12b-1 distribution and service fees -- Class C (notes 1 and 6) 10,774 116,640 79,636
Shareholders' servicing agent fees and expenses 6,645 58,302 33,069
Custodian's fees and expenses 56,183 54,820 48,699
Trustees' fees and expenses (note 6) 73 2,318 1,540
Professional fees 10,570 18,600 18,600
Shareholders' reports -- printing and mailing expenses 1,791 20,403 11,155
Federal and state registration fees 8,077 2,825 4,650
Organizational expenses (note 1) 20,276 -- --
Other expenses 379 5,878 3,944
- -------------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 172,874 1,270,245 941,890
Expense reimbursement (note 6) (130,681) (278,606) (122,920)
- -------------------------------------------------------------------------------------------------------------
Net expenses 42,193 991,639 818,970
- -------------------------------------------------------------------------------------------------------------
Net investment income 354,655 6,768,866 4,905,021
- -------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (notes 1 and 4) (7,615) 1,432,222 141,609
Net change in unrealized appreciation or depreciation of investments 288,179 5,917,362 3,885,856
- -------------------------------------------------------------------------------------------------------------
Net gain from investments 280,564 7,349,584 4,027,465
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 635,219 $14,118,450 $8,932,486
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
Statement of Operations -- continued
Year Ended May 31, 1998
<TABLE>
<CAPTION>
North Carolina South Carolina Tennessee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (note 1) $11,543,644 $ 689,665 $17,161,486
- --------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 1,064,856 68,969 1,565,600
12b-1 service fees -- Class A (notes 1 and 6) 371,113 22,652 537,896
12b-1 distribution and service fees -- Class B (notes 1 and 6) 13,177 4,426 24,120
12b-1 distribution and service fees -- Class C (notes 1 and 6) 56,974 5,120 130,791
Shareholders' servicing agent fees and expenses 85,524 4,120 123,162
Custodian's fees and expenses 57,779 33,593 64,302
Trustees' fees and expenses (note 6) 3,654 219 5,212
Professional fees 20,425 14,950 22,250
Shareholders' reports -- printing and mailing expenses 36,182 2,339 52,065
Federal and state registration fees 6,475 3,141 11,322
Organizational expenses (note 1) -- 11,826 --
Other expenses 9,476 649 12,162
- --------------------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 1,725,635 172,004 2,548,882
Expense reimbursement (note 6) -- (94,494) (56,952)
- --------------------------------------------------------------------------------------------------------------------
Net expenses 1,725,635 77,510 2,491,930
- --------------------------------------------------------------------------------------------------------------------
Net investment income 9,818,009 612,155 14,669,556
- --------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 2,602,198 134,377 1,206,421
Net change in unrealized appreciation or depreciation of investments 3,819,600 395,866 8,713,135
- --------------------------------------------------------------------------------------------------------------------
Net gain from investments 6,421,798 530,243 9,919,556
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $16,239,807 $1,142,398 $24,589,112
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Alabama
--------------------------
Year Ended Year Ended
5/31/98 5/31/97*
- ------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 354,655 $ 197,497
Net realized gain (loss) from investment
transactions (notes 1 and 4) (7,615) 588
Net change in unrealized appreciation or
depreciation of investments 288,179 138,286
- -----------------------------------------------------------------------
Net increase in net assets from operations 635,219 336,371
- -----------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (257,710) (195,673)
Class B (32,374) (2,069)
Class C (61,979) (212)
Class R (2,611) (1)
From accumulated net realized gains from
investment transactions:
Class A -- --
Class B -- --
Class C -- --
Class R -- --
- -----------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (354,674) (197,955)
- -----------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 4,157,996 2,438,658
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 168,561 99,346
- -----------------------------------------------------------------------
4,326,557 2,538,004
- -----------------------------------------------------------------------
Cost of shares redeemed (1,798,211) (691,292)
- -----------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 2,528,346 1,846,712
- -----------------------------------------------------------------------
Net increase in net assets 2,808,891 1,985,128
Net assets at the beginning of year 5,241,528 3,256,400
- -----------------------------------------------------------------------
Net assets at the end of year $ 8,050,419 $5,241,528
=======================================================================
Balance of undistributed net investment
income at end of year $ 38 $ 57
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Georgia
-------------------------
Year Ended Year Ended
5/31/98 5/31/97**
- ------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 6,768,866 $ 6,488,615
Net realized gain (loss) from investment
transactions (notes 1 and 4) 1,432,222 816,979
Net change in unrealized appreciation or
depreciation of investments 5,917,362 3,379,145
- ------------------------------------------------------------------------
Net increase in net assets from operations 14,118,450 10,684,739
- ------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (5,990,008) (5,973,872)
Class B (64,796) (779)
Class C (704,588) (513,629)
Class R (8,432) (289)
From accumulated net realized gains from
investment transactions:
Class A -- --
Class B -- --
Class C -- --
Class R -- --
- ------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (6,767,824) (6,488,569)
- ------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 23,251,629 18,042,463
Net proceeds from shares issued to shareholder
due to reinvestment of distributions 4,132,821 3,251,554
- ------------------------------------------------------------------------
27,384,450 21,294,017
- ------------------------------------------------------------------------
Cost of shares redeemed (15,113,415) (19,327,898)
- ------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 12,271,035 1,966,119
- ------------------------------------------------------------------------
Net increase in net assets 19,621,661 6,162,289
Net assets at the beginning of year 123,456,750 117,294,461
- ------------------------------------------------------------------------
Net assets at the end of year $143,078,411 $123,456,750
========================================================================
Balance of undistributed net investment
income at end of year $ 1,088 $ 46
========================================================================
</TABLE>
<TABLE>
<CAPTION>
Louisiana
---------------------------
Year Ended Year Ended
5/31/98 5/31/97***
- ---------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 4,905,021 $ 4,309,839
Net realized gain (loss) from investment
transactions (notes 1 and 4) 141,609 185,297
Net change in unrealized appreciation or
depreciation of investments 3,885,856 2,691,765
- ---------------------------------------------------------------------------
Net increase in net assets from operations 8,932,486 7,186,901
- ---------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (4,236,624) (4,001,489)
Class B (179,990) (7,151)
Class C (486,474) (300,999)
Class R (844) (1)
From accumulated net realized gains from
investment transactions:
Class A (274,625) (16,962)
Class B (13,410) --
Class C (36,540) (1,376)
Class R (77) --
- ---------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (5,228,584) (4,327,978)
- ---------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 30,672,632 12,680,296
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 3,175,043 2,019,609
- ---------------------------------------------------------------------------
33,847,675 14,699,905
- ---------------------------------------------------------------------------
Cost of shares redeemed (10,292,295) (10,629,223)
- ---------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 23,555,380 4,070,682
- ---------------------------------------------------------------------------
Net increase in net assets 27,259,282 6,929,605
Net assets at the beginning of year 84,592,893 77,663,288
- ---------------------------------------------------------------------------
Net assets at the end of year $111,852,175 $ 84,592,893
===========================================================================
Balance of undistributed net investment
income at end of year $ 1,288 $ 199
===========================================================================
</TABLE>
* Information represents eight months of Flagship Alabama and four months of
Alabama (note 1).
** Information represents eight months of Flagship Georgia and four months of
Georgia (note 1).
*** Information represents eight months of Flagship Louisiana and four months
of Louisiana (note 1).
See accompanying notes to financial statements.
45
<PAGE>
Statement of Changes in Net Assets--continued
<TABLE>
<CAPTION>
North Carolina South Carolina Tennessee
---------------------------- -------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
5/31/98 5/31/97* 5/31/98 5/31/97** 5/31/98 5/31/97***
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 9,818,009 $ 10,118,809 $ 612,155 $ 588,783 $ 14,669,556 $ 14,402,555
Net realized gain from investment
transactions (notes 1 and 4) 2,602,198 1,921,251 134,377 12,003 1,206,421 1,595,041
Net change in unrealized appreciation or
depreciation of investments 3,819,600 2,403,810 395,866 270,459 8,713,135 3,989,675
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 16,239,807 14,443,870 1,142,398 871,245 24,589,112 19,987,271
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (9,438,035) (9,701,977) (562,433) (583,450) (13,691,307) (13,649,276)
Class B (56,790) (1,977) (18,919) (1,592) (105,904) (3,542)
Class C (342,967) (326,112) (29,703) (1,078) (783,552) (744,238)
Class R (34,750) (4,651) (3,387) (340) (18,350) (2,064)
From accumulated net realized gains from
investment transactions:
Class A (28,220) -- -- -- -- --
Class B (137) -- -- -- -- --
Class C (1,157) -- -- -- -- --
Class R (109) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to
shareholders (9,902,165) (10,034,717) (614,442) (586,460) (14,599,113) (14,399,120)
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 18,647,466 13,538,981 6,771,482 2,419,482 41,278,818 27,836,928
Net proceeds from shares issued to
shareholders due to reinvestment of
distributions 5,610,070 5,178,488 325,450 337,619 7,905,778 7,269,232
- ------------------------------------------------------------------------------------------------------------------------------------
24,257,536 18,717,469 7,096,932 2,757,101 49,184,596 35,106,160
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (20,843,771) (25,396,297) (4,559,640) (3,340,985) (27,270,877) (33,754,624)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions 3,413,765 (6,678,828) 2,537,292 (583,884) 21,913,719 1,351,536
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 9,751,407 (2,269,675) 3,065,248 (299,099) 31,903,718 6,939,687
Net assets at the beginning of year 189,336,141 191,605,816 10,234,647 10,533,746 273,309,370 266,369,683
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $199,087,548 $189,336,141 $13,299,895 $10,234,647 $305,213,088 $273,309,370
====================================================================================================================================
Balance of undistributed net investment
income at end of year $ 29,559 $ 84,092 $ 36 $ 2,323 $ 73,878 $ 3,435
====================================================================================================================================
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of North Carolina (note 1).
** Information represents eight months of Flagship South Carolina and four
months of South Carolina (note 1).
*** Information represents eight months of Flagship Tennessee and four months
of Tennessee (note 1).
See accompanying notes to financial statements.
46
<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 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 (the "Funds"). The Trust was organized as a Massachusetts
business trust on July 1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Funds, 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"), Flagship Georgia Double Tax Exempt Fund
("Flagship Georgia"), Flagship Louisiana Double Tax Exempt Fund ("Flagship
Louisiana"), Flagship North Carolina Double Tax Exempt Fund ("Flagship North
Carolina"), Flagship South Carolina Double Tax Exempt Fund ("Flagship South
Carolina"), and Flagship Tennessee Double Tax Exempt Fund ("Flagship Tennessee")
were reorganized into the Trust and renamed the Nuveen Flagship Alabama
Municipal Bond Fund ("Alabama"), Nuveen Flagship Georgia Municipal Bond Fund
("Georgia"), Nuveen Flagship Louisiana Municipal Bond Fund ("Louisiana"), Nuveen
Flagship North Carolina Municipal Bond Fund ("North Carolina"), Nuveen Flagship
South Carolina Municipal Bond Fund ("South Carolina"), and Nuveen Flagship
Tennessee Municipal Bond Fund ("Tennessee"), respectively. Prior to these
reorganizations, Flagship Alabama, Flagship Georgia, Flagship Louisiana,
Flagship North Carolina, Flagship South Carolina, and Flagship Tennessee were
each a sub-trust of the Flagship Tax Exempt Funds Trust.
The Funds seek to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each 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 Funds have 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, 1998, Georgia, Louisiana and Tennessee had outstanding when-issued and
delayed delivery purchase commitments of $1,975,951, $2,894,425 and $7,610,516,
respectively. The other Funds had no such outstanding purchase commitments.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
47
<PAGE>
Notes to Financial Statements (continued)
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
Each Fund is a separate taxpayer for federal income tax purposes. Each 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 Funds
currently consider significant net realized capital gains and/or market discount
as amounts in excess of $.001 per share. Furthermore, the Funds intend to
satisfy conditions which will enable interest from municipal securities, which
is exempt from regular federal and designated state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended May 31, 1998, have
been designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Each Fund offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class 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 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 B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within one year of purchase. Class R Shares are
not subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available for purchases of over $1 million and in other limited
circumstances.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Funds are authorized to invest in such
financial instruments, and may do so in the future, they did not make any such
investments during the fiscal year ended May 31, 1998.
Expense Allocation
Expenses of the Funds 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 Alabama and South Carolina
(approximately $60,800 and $35,400, respectively) are being reimbursed to the
Adviser on a straight-line basis over a period of three years. As of May 31,
1998, $40,540 and $23,644 of the organizational expenses, respectively, have
been reimbursed.
48
<PAGE>
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Alabama
-----------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 163,322 $ 1,720,355 165,385 $ 1,650,047
Class B 27,379 289,415 58,298 585,381
Class C 193,765 2,025,206 20,200 203,130
Class R 11,454 123,020 10 100
Shares issued to shareholders due to reinvestment of distributions:
Class A 12,620 131,454 9,936 99,346
Class B 1,929 20,240 -- --
Class C 1,603 16,867 -- --
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
412,072 4,326,557 253,829 2,538,004
- --------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (150,343) (1,576,278) (69,498) (691,292)
Class B (8,241) (87,307) -- --
Class C (12,758) (134,626) -- --
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
(171,342) (1,798,211) (69,498) (691,292)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase 240,730 $ 2,528,346 184,331 $ 1,846,712
================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Alabama and four months of
Alabama (note 1).
<TABLE>
<CAPTION>
Georgia
------------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
------------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 999,370 $ 11,052,211 1,320,552 $ 13,778,494
Class B 326,545 3,623,322 10,720 112,660
Class C 754,384 8,321,447 393,868 4,129,100
Class R 23,229 254,649 2,104 22,209
Shares issued to shareholders due to reinvestment of distributions:
Class A 332,037 3,634,474 287,354 2,992,929
Class B 2,642 29,369 -- --
Class C 42,144 461,364 24,846 258,440
Class R 689 7,614 18 185
- ---------------------------------------------------------------------------------------------------------------------------------
2,481,040 27,384,450 2,039,462 21,294,017
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,106,180) (12,206,698) (1,627,331) (16,977,352)
Class B (25,707) (286,183) -- --
Class C (234,595) (2,575,425) (225,854) (2,350,546)
Class R (4,054) (45,109) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(1,370,536) (15,113,415) (1,853,185) (19,327,898)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,110,504 $ 12,271,035 186,277 $ 1,966,119
================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Georgia and four months of
Georgia (note 1).
49
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Louisiana
-----------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
-----------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 1,434,264 $ 16,414,741 822,022 $ 9,004,313
Class B 695,080 7,947,255 82,598 911,240
Class C 551,499 6,283,912 252,430 2,764,643
Class R 2,348 26,724 9 100
Shares issued to shareholders due to reinvestment of distributions:
Class A 240,527 2,733,739 168,536 1,844,320
Class B 6,824 78,150 104 1,144
Class C 31,852 362,355 15,928 174,145
Class R 70 799 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
2,962,464 33,847,675 1,341,627 14,699,905
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (808,970) (9,237,098) (861,984) (9,454,331)
Class B (5,147) (58,547) -- --
Class C (87,146) (996,590) (107,483) (1,174,892)
Class R (5) (60) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(901,268) (10,292,295) (969,467) (10,629,223)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase 2,061,196 $ 23,555,380 372,160 $ 4,070,682
================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Louisiana and four months
of Louisiana (note 1).
<TABLE>
<CAPTION>
North Carolina
-----------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
-----------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 1,219,335 $ 12,822,305 1,139,324 $ 11,564,705
Class B 313,974 3,317,845 26,319 268,174
Class C 192,020 2,022,009 128,427 1,308,314
Class R 46,162 485,307 39,185 397,788
Shares issued to shareholders due to reinvestment of distributions:
Class A 506,157 5,310,271 489,500 4,984,798
Class B 2,287 24,150 48 488
Class C 24,082 252,068 18,772 190,950
Class R 2,244 23,581 221 2,252
- ---------------------------------------------------------------------------------------------------------------------------------
2,306,261 24,257,536 1,841,796 18,717,469
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,846,947) (19,438,714) (2,374,729) (24,226,252)
Class B (2,877) (30,241) -- --
Class C (122,639) (1,290,365) (115,427) (1,170,045)
Class R (7,984) (84,451) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
(1,980,447) (20,843,771) (2,490,156) (25,396,297)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 325,814 $ 3,413,765 (648,360) $ (6,678,828)
=================================================================================================================================
*Information represents eight months of Flagship North Carolina and four
months of North Carolina (note 1).
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
South Carolina
-------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
-------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 560,179 $ 5,485,573 192,810 $ 1,814,877
Class B 64,625 634,556 16,861 160,503
Class C 58,105 569,890 44,094 419,098
Class R 8,239 81,463 2,621 25,004
Shares issued to shareholders due to
reinvestment of distributions:
Class A 30,157 294,728 35,809 337,619
Class B 859 8,458 -- --
Class C 2,103 20,709 -- --
Class R 158 1,555 -- --
- ------------------------------------------------------------------------------------------------
724,425 7,096,932 292,195 2,757,101
- ------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (438,336) (4,302,290) (353,491) (3,340,985)
Class B (9,630) (96,212) -- --
Class C (16,484) (161,138) -- --
Class R -- -- -- --
- ------------------------------------------------------------------------------------------------
(464,450) (4,559,640) (353,491) (3,340,985)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) 259,975 $ 2,537,292 (61,296) $ (583,884)
================================================================================================
*Information represents eight months of Flagship South Carolina and four
months of South Carolina (note 1).
Tennessee
--------------------------------------------------
Year Ended Year Ended
5/31/98 5/31/97*
--------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
Shares sold:
Class A 2,614,021 $29,710,291 2,181,165 $23,957,505
Class B 456,706 5,193,888 48,526 533,276
Class C 538,381 6,116,529 282,598 3,100,098
Class R 22,800 258,110 22,306 246,049
Shares issued to shareholders due to
reinvestment of distributions:
Class A 641,169 7,255,500 619,521 6,805,317
Class B 3,774 42,976 66 718
Class C 52,336 590,588 42,079 461,759
Class R 1,474 16,714 131 1,438
- ------------------------------------------------------------------------------------------------
4,330,661 49,184,596 3,196,392 35,106,160
- ------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,250,196) (25,540,334) (2,682,025) (29,442,527)
Class B (5,300) (59,853) (64) (699)
Class C (147,264) (1,670,240) (393,458) (4,311,248)
Class R (39) (450) (14) (150)
- ------------------------------------------------------------------------------------------------
(2,402,799) (27,270,877) (3,075,561) (33,754,624)
- ------------------------------------------------------------------------------------------------
Net increase 1,927,862 $21,913,719 120,831 $ 1,351,536
================================================================================================
</TABLE>
*Information represents eight months of Flagship Tennessee and four months of
Tennessee (note 1).
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid on July 1, 1998, to shareholders of record on June 9,
1998, as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend per share:
Class A $.0435 $.0460 $.0480 $.0445 $.0400 $.0470
Class B .0370 .0390 .0410 .0380 .0340 .0400
Class C .0390 .0410 .0430 .0395 .0355 .0415
Class R .0455 .0480 .0500 .0460 .0420 .0485
==================================================================================
</TABLE>
51
<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,
1998, were as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases:
Investments in municipal securities $6,740,467 $45,374,511 $38,729,583 $55,816,235 $8,596,169 $72,413,167
Temporary municipal investments 3,200,000 19,000,000 13,000,000 19,550,000 4,200,000 29,100,000
Sales:
Investments in municipal securities 4,437,664 32,650,889 14,864,665 55,437,357 7,085,619 42,487,343
Temporary municipal investments 2,900,000 19,000,000 14,300,000 19,550,000 4,200,000 33,600,000
=======================================================================================================================
</TABLE>
At May 31, 1998, the identified cost of investments owned for federal income tax
purposes was the same as the cost for financial reporting purposes for each
Fund.
At May 31, 1998, the following Funds had unused capital loss carryforwards
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
South
Alabama Georgia Carolina Tennessee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiration Year:
2002 $ -- $ 506,838 $ -- $ --
2003 -- 503,259 172,174 2,790,147
2005 9,205 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total $ 9,205 $ 1,010,097 $ 172,174 $ 2,790,147
=======================================================================================================================
</TABLE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1998, were as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross unrealized:
appreciation $440,964 $12,256,090 $9,312,072 $12,456,587 $820,631 $22,632,427
depreciation (5,803) -- -- (124,474) -- (65,829)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation $435,161 $12,256,090 $9,312,072 $12,332,113 $820,631 $22,566,598
=======================================================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, each 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 each Fund:
<TABLE>
<CAPTION>
Average Daily Net Asset Value Management Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
=======================================================================================================================
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of 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 or its affiliates.
The adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
52
<PAGE>
During the fiscal year ended May 31, 1998, the Distributor collected sales
charges on purchases of Class A Shares, the majority of which were paid out as
concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales charges collected $40,092 $300,386 $367,133 $288,651 $78,847 $661,874
Paid to authorized dealers 34,666 259,160 327,987 248,966 73,377 595,047
============================================================================================
</TABLE>
The Distributor also received 12b-1 service fees on Class A Shares,
substantially all of which were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 1998, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase as
follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commission advances $ 31,889 $ 245,972 $ 424,888 $ 186,424 $ 42,379 $307,149
==============================================================================================
</TABLE>
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 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. During the fiscal year ended May 31, 1998, the
Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12b-1 fees retained $17,955 $64,729 $76,379 $25,873 $9,488 $61,950
==============================================================================================
</TABLE>
The remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained CDSC on share redemptions during the
fiscal year ended May 31, 1998, as follows:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CDSC retained $1,317 $14,164 $3,241 $2,816 $439 $5,210
==============================================================================================
</TABLE>
7. Composition of Net Assets
At May 31, 1998, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
North South
Alabama Georgia Louisiana Carolina Carolina Tennessee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital paid-in $7,637,008 $131,997,057 $102,597,881 $185,212,001 $12,651,402 $285,362,759
Balance of undistributed net
investment income 38 1,088 1,288 29,559 36 73,878
Accumulated net realized gain (loss)
from investment transactions (21,788) (1,175,824) (59,066) 1,513,875 (172,174) (2,790,147)
Net unrealized appreciation of
investments 435,161 12,256,090 9,312,072 12,332,113 820,631 22,566,598
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets $8,050,419 $143,078,411 $111,852,175 $199,087,548 $13,299,895 $305,213,088
==================================================================================================================================
</TABLE>
53
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
-------------------------------- ------------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- --------------------------------------------------------------------------------------------------------------------------------
ALABAMA**
Class A (4/94)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $10.12 $.52 $ .50 $1.02 $(.53) $-- $(.53) $10.61 10.22%
1997 9.77 .53 .35 .88 (.53) -- (.53) 10.12 9.22
1996 9.94 .53 (.17) .36 (.53) -- (.53) 9.77 3.72
1995 9.66 .52 .28 .80 (.52) -- (.52) 9.94 8.77
1994 (c) 9.58 .03 .09 .12 (.04) -- (.04) 9.66 9.34*
Class B (2/97)
1998 10.14 .45 .48 .93 (.45) -- (.45) 10.62 9.31
1997 (c) 10.16 .11 (.02) .09 (.11) -- (.11) 10.14 .94
Class C (2/97)
1998 10.14 .47 .48 .95 (.47) -- (.47) 10.62 9.54
1997 (c) 10.16 .12 (.02) .10 (.12) -- (.12) 10.14 .99
Class R (2/97)
1998 10.13 .55 .55 1.10 (.55) -- (.55) 10.68 11.06
1997 (c) 10.16 .16 (.05) .11 (.14) -- (.14) 10.13 1.08
================================================================================================================================
GEORGIA***
Class A (3/86)
1998 $10.57 $.56 $ .62 $1.18 $(.56) $-- $(.56) $11.19 11.37%
1997 10.20 .57 .37 .94 (.57) -- (.57) 10.57 9.39
1996 10.46 .57 (.25) .32 (.58) -- (.58) 10.20 3.05
1995 10.23 .58 .23 .81 (.58) -- (.58) 10.46 8.31
1994 10.62 .59 (.39) .20 (.59) -- (.59) 10.23 1.83
Class B (2/97)
1998 10.57 .48 .63 1.11 (.48) -- (.48) 11.20 10.66
1997 (c) 10.66 .14 (.11) .03 (.12) -- (.12) 10.57 .31
Class C (1/94)
1998 10.55 .50 .62 1.12 (.50) -- (.50) 11.17 10.79
1997 10.18 .51 .37 .88 (.51) -- (.51) 10.55 8.80
1996 10.44 .51 (.25) .26 (.52) -- (.52) 10.18 2.48
1995 10.21 .52 .23 .75 (.52) -- (.52) 10.44 7.72
1994 (c) 10.91 .19 (.69) (.50) (.20) -- (.20) 10.21 (10.96)*
Class R (2/97)
1998 10.57 .58 .59 1.17 (.59) -- (.59) 11.15 11.23
1997 (c) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
================================================================================================================================
</TABLE>
54
<PAGE>
<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
Before Before After After Portfolio
Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
Assets (000) ment ment ment (a) ment (a) Rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4,930 2.16% 3.22% .39% 4.99% 62%
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* --
843 2.91 2.47 1.14 4.24 62
591 2.79* 2.18* .71* 4.26* 72
2,155 2.70 2.66 .94 4.42 62
205 2.62* 2.35* .40* 4.57* 72
122 1.91 3.44 .19 5.16 62
-- .91* 5.26* -- 6.17* 72
===================================================================================
$120,545 .87% 4.88% .66% 5.09% 25%
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
3,518 1.62 4.08 1.38 4.32 25
113 1.63* 4.49* 1.32* 4.80* 39
18,770 1.42 4.33 1.21 4.54 25
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
245 .67 5.04 .45 5.26 25
22 .68* 5.41* .38* 5.71* 39
===================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Alabama.
*** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized except where noted.
(c) From commencement of class operations as noted.
55
<PAGE>
Financial Highlights - continued
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ----------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOUISIANA**
Class A (9/89)
1998 $11.10 $.59 $ .49 $1.08 $(.59) $(.04) $(.63) $11.55 9.88%
1997 10.71 .59 .39 .98 (.59) -- (.59) 11.10 9.37
1996 10.80 .59 (.08) .51 (.60) -- (.60) 10.71 4.77
1995 10.48 .60 .32 .92 (.60) -- (.60) 10.80 9.20
1994 10.93 .61 (.40) .21 (.62) (.04) (.66) 10.48 1.77
Class B (2/97)
1998 11.09 .50 .50 1.00 (.50) (.04) (.54) 11.55 9.18
1997 (c) 11.10 .16 -- .16 (.17) -- (.17) 11.09 1.44
Class C (2/94)
1998 11.09 .52 .50 1.02 (.53) (.04) (.57) 11.54 9.32
1997 10.70 .53 .39 .92 (.53) -- (.53) 11.09 8.78
1996 10.80 .53 (.09) .44 (.54) -- (.54) 10.70 4.12
1995 10.48 .54 .32 .86 (.54) -- (.54) 10.80 8.59
1994 (c) 11.29 .16 (.81) (.65) (.16) -- (.16) 10.48 (17.21)*
Class R (2/97)
1998 11.09 .61 .50 1.11 (.61) (.04) (.65) 11.55 10.21
1997 (c) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
- ----------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA***
Class A (3/86)
1998 $10.28 $.53 $ .34 $ .87 $(.53) -- $(.53) $10.62 8.69%
1997 10.05 .54 .23 .77 (.54) -- (.54) 10.28 7.79
1996 10.23 .55 (.18) .37 (.55) -- (.55) 10.05 3.67
1995 10.08 .57 .15 .72 (.57) -- (.57) 10.23 7.45
1994 10.51 .57 (.42) .15 (.58) -- (.58) 10.08 1.30
Class B (2/97)
1998 10.28 .45 .35 .80 (.46) -- (.46) 10.62 7.89
1997 (c) 10.33 .12 (.06) .06 (.11) -- (.11) 10.28 .64
Class C (10/93)
1998 10.26 .47 .34 .81 (.47) -- (.47) 10.60 8.09
1997 10.03 .48 .23 .71 (.48) -- (.48) 10.26 7.20
1996 10.22 .49 (.18) .31 (.50) -- (.50) 10.03 3.01
1995 10.06 .51 .16 .67 (.51) -- (.51) 10.22 6.97
1994 (c) 10.84 .32 (.78) (.46) (.32) -- (.32) 10.06 (6.26)*
Class R (2/97)
1998 10.28 .55 .34 .89 (.55) -- (.55) 10.62 8.88
1997 (c) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
<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
Before Before After After Portfolio
Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
Assets (000) ment ment ment(a) ment(a) Rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 89,143 .88% 5.00% .75% 5.13% 15%
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
8,999 1.62 4.21 1.45 4.38 15
917 1.65* 4.50* 1.46* 4.69* 25
13,682 1.42 4.45 1.29 4.58 15
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
28 .67 5.17 .52 5.32 15
-- .08* 5.27* .04* 5.31* 25
=================================================================================
$186,340 .86% 5.06% .86% 5.06% 29%
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
3,609 1.61 4.23 1.61 4.23 29
271 1.62* 4.60* 1.62* 4.60* 23
8,291 1.41 4.50 1.41 4.50 29
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
848 .66 5.24 .66 5.24 29
405 .66* 5.57* .66* 5.57* 23
=================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship Louisiana.
*** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship North Carolina.
+ The amount shown includes a distribution in excess of capital gains of $.01
per share.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(c) From commencement of class operations as noted.
57
<PAGE>
Financial Highlights - continued
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------- -------------------------------
Net
Beginning Realized/ Ending
Net Net Unrealized Net Net
Year Ended Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gain Total Value Return (b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTH CAROLINA**
Class A (7/93)
1998 $ 9.53 $.49 $ .44 $ .93 $(.49) $ -- $(.49) $ 9.97 9.95%
1997 9.28 .51 .24 .75 (.50) -- (.50) 9.53 8.28
1996 9.45 .48 (.15) .33 (.50) -- (.50) 9.28 3.53
1995 9.20 .50 .25 .75 (.50) -- (.50) 9.45 8.54
1994 (c) 9.58 .42 (.38) .04 (.39) (.03) (.42) 9.20 .15*
Class B (2/97)
1998 9.52 .41 .45 .86 (.42) -- (.42) 9.96 9.17
1997 (c) 9.61 .13 (.11) .02 (.11) -- (.11) 9.52 .20
Class C (2/97)
1998 9.52 .43 .45 .88 (.44) -- (.44) 9.96 9.37
1997 (c) 9.63 .13 (.13) -- (.11) -- (.11) 9.52 .03
Class R (2/97)
1998 9.54 .51 .43 .94 (.51) -- (.51) 9.97 10.10
1997 (c) 9.60 .14 (.07) .07 (.13) -- (.13) 9.54 .75
====================================================================================================================
TENNESSEE***
Class A (11/87)
1998 $11.06 $.58 $ .40 $ .98 $(.58) $ -- $(.58) $11.46 9.01%
1997 10.83 .59 .23 .82 (.59) -- (.59) 11.06 7.71
1996 11.01 .59 (.18) .41 (.59) -- (.59) 10.83 3.78
1995 10.78 .60 .23 .83 (.60) -- (.60) 11.01 8.04
1994 11.23 .61 (.43) .18 (.61) (.02) (.63) 10.78 1.55
Class B (2/97)
1998 11.06 .49 .40 .89 (.49) -- (.49) 11.46 8.21
1997 (c) 11.14 .14 (.09) .05 (.13) -- (.13) 11.06 .42
Class C (10/93)
1998 11.05 .52 .39 .91 (.51) -- (.51) 11.45 8.39
1997 10.82 .53 .23 .76 (.53) -- (.53) 11.05 7.12
1996 11.00 .53 (.18) .35 (.53) -- (.53) 10.82 3.22
1995 10.78 .54 .22 .76 (.54) -- (.54) 11.00 7.35
1994 (c) 11.61 .35 (.83) (.48) (.34) (.01) (.35) 10.78 (5.92)*
Class R (2/97)
1998 11.04 .60 .40 1.00 (.60) -- (.60) 11.44 9.20
1997 (c) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40
=======================================================================================================================
</TABLE>
58
<PAGE>
<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
Before Before After After Portfolio
Year Ended Ending Net Reimburse- Reimburse- Reimburse- Reimburse- Turnover
May 31, Assets (000) ment ment ment ment(a) Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SOUTH CAROLINA**
Class A (7/93)
1998 $ 11,591 1.32% 4.18% .56% 4.94% 59%
1997 9,629 1.55 4.22 .41 5.36 68
1996 10,534 1.53 4.16 .71 4.98 76
1995 9,013 1.86 4.08 .40 5.54 87
1994 (c) 6,284 2.12* 3.10* .40* 4.82* 88
Class B (2/97)
1998 724 2.06 3.39 1.30 4.15 59
1997 (c) 160 2.12* 3.84* 1.09* 4.87* 68
Class C (2/97)
1998 875 1.86 3.63 1.11 4.38 59
1997 (c) 420 1.91* 3.85* .90* 4.86* 68
Class R (2/97)
1998 110 1.11 4.39 .35 5.15 59
1997 (c) 25 1.17* 4.70* .14* 5.73* 68
=======================================================================================================
TENNESSEE***
Class A (11/87)
1998 $278,232 .84% 5.09% .82% 5.11% 15%
1997 257,475 .97 5.23 .85 5.35 23
1996 250,886 1.01 5.17 .88 5.30 38
1995 241,778 1.07 5.46 .89 5.64 23
1994 236,230 1.02 5.16 .76 5.42 17
Class B (2/97)
1998 5,775 1.59 4.30 1.58 4.31 15
1997 (c) 537 1.60* 4.49* 1.37* 4.72* 23
Class C (10/93)
1998 20,673 1.39 4.53 1.37 4.55 15
1997 15,049 1.53 4.67 1.40 4.80 23
1996 15,483 1.56 4.62 1.43 4.75 38
1995 12,494 1.62 4.90 1.44 5.08 23
1994 (c) 10,652 1.63* 4.40* 1.23* 4.80* 17
Class R (2/97)
1998 534 .64 5.27 .62 5.29 15
1997 (c) 248 .66* 5.55* .46* 5.75* 23
=======================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship South Carolina.
*** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship Tennessee.
(a) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory or its predecessor Flagship Financial.
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized except where noted.
(c) From commencement of class operations as noted.
59
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Nuveen Family
of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Funds
Long-Term Insured
Intermediate-Term
Limited-Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
Successful investors know that a well-diversified portfolio -- one that balances
different types of investments, levels of risk and tax management -- can be the
foundation for building and sustaining wealth. That's why Nuveen offers you and
your financial adviser a wide range of quality investments that can help you
build a better portfolio in the pursuit of your financial goals.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
Premier Advisers/SM/ including Institutional Capital Corporation, Rittenhouse
Financial Services, and Nuveen Advisory Corp. Each brings a specialized
expertise in a particular investment style or asset class, time-tested
investment strategies and a focus on consistent, long-term performance. With
Nuveen's Premier Adviser funds, you have all the advantages of a family of funds
plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
60
<PAGE>
Fund Information
Board of Trustees
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
Transfer Agent and
Shareholder Services
As of August 8, 1998
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
61
<PAGE>
Serving Investors for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
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
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time - with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and tax-free income funds, along with our defined portfolios and
private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
NUVEEN 1898
OUR SECOND CENTURY 1998
helping investors sustain the wealth of a lifetime./TM/
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
VAN-4-5.98
<PAGE>
PART C--OTHER INFORMATION
ITEM 23: EXHIBITS.
(b) Exhibits:
<TABLE>
<C> <S> <C>
a(1). Declaration of Trust of Registrant. Filed as Exhibit 1(a) to
Registrant's Registration Statement on Form N-1A (File No.
333-16611) and incorporated herein by reference thereto.
a(2). Amended and Restated Establishment and Designation of Series
of Shares of Beneficial Interest dated October 11, 1996. Filed
as Exhibit 1(b) to Registrant's Registration Statement on Form
N-1A (File No. 333-16611) and incorporated herein by reference
thereto.
a(3). 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.
a(4). Incumbency Certificate. Filed as Exhibit 1(d) to Post-Effec-
tive Amendment No. 1 to Registrant's Registration Statement on
Form N-1A (File No. 333-16611) and incorporated herein by ref-
erence thereto.
b. By-Laws of Registrant. Filed as Exhibit 2 to Registrant's Reg-
istration Statement on Form N-1A (File No. 333-16611) and in-
corporated herein by reference thereto.
c. 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.
d(1). Investment Management Agreement between Registrant and Nuveen
Advisory Corp. Filed as Exhibit 5 to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 333-16611) and incorporated herein by reference
thereto.
d(2). Renewal of Investment Management Agreement dated May 5, 1998.
e(1). Distribution Agreement between Registrant and John Nuveen &
Co. Incorporated. Filed as Exhibit 6 to Post-Effective Amend-
ment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 333-16611) and incorporated herein by reference
thereto.
e(2). Renewal of Distribution Agreement dated July 31, 1998.
f. Not applicable.
g. Custodian Agreement between Registrant and Chase Manhattan
Bank. Filed as Exhibit 8 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No.
333-16611) and incorporated herein by reference thereto.
h. Transfer Agency Agreement between Registrant and Chase Global
Funds Services Company.
i. Opinion of Morgan, Lewis, and Bockius LLP.
j(1). Consent of Arthur Andersen LLP, Independent Public Accoun-
tants.
j(2). Consent of Deloitte & Touche LLP, Independent Auditors.
k. Not applicable.
l. Not applicable.
m. 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 State-
ment on Form N-1A (File No. 333-16611) and incorporated herein
by reference thereto.
n. Financial Data Schedule.
o. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Ex-
hibit 18 to Registrant's Registration Statement on Form N-1A
(File No. 333-16611) and incorporated herein by reference
thereto.
z(1). Original Powers of Attorney for each Director authorizing,
among others, Gifford R. Zimmerman and Larry W. Martin to exe-
cute the Registration Statement on his or her behalf. Filed as
Exhibit 99(a) to Post-Effective Amendment No. 1 to Regis-
trant's Registration Statement on Form N-1A (File No. 333-
16611) and incorporated herein by reference thereto.
z(2). Certified copy of Resolution of Board of Trustees authorizing
the signing of the names of trustees and officers on the Reg-
istrant's Registration Statement pursuant to power of attor-
ney.
z(3). Code of Ethics and Reporting Requirements. Filed as Exhibit
99(c) to Post-Effective Amendment No. 1 to Registrant's Regis-
tration Statement on Form N-1A (File No. 333-16611) and incor-
porated herein by reference thereto.
</TABLE>
C-1
<PAGE>
ITEM 24: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25: 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.
----------------
C-2
<PAGE>
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she shall have had reasonable cause to believe this conduct was
unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 26: 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-3
<PAGE>
ITEM 27: 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 Director
Chicago, IL 60606 and Director
Anthony T. Dean President and Director President and Trustee
333 West Wacker Drive
Chicago, IL 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West Wacker Drive Chica-
go, IL 60606
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Alan Berkshire Vice President and Secretary Vice President and
333 West Wacker Drive Assistant Secretary
Chicago, IL 60606
</TABLE>
C-4
<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. Vice President Vice President
Flanagan
333 West Wacker
Drive
Chicago, IL 60606
Stephen D. Foy 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. Kuppen- Vice President None
heimer
19900 MacArthur
Blvd.
Irvine, CA 92612
Larry W. Martin Vice President and Vice President and
333 West Wacker Assistant Secretary Assistant Secretary
Drive
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Bradford W. Shaw, Vice President None
Jr.
333 West Wacker
Drive
Chicago, IL 60606
H. William Vice President Vice President and
Stabenow and Treasurer Treasurer
333 West Wacker
Drive
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Margaret E. Wilson Vice President and Corporate Controller None
333 West Wacker
Drive
Chicago, IL 60606
Gifford R. Zimmer- Vice President Vice President and
man and Secretary Secretary
333 West Wacker
Drive
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 28: 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-5
<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.
Chase Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts,
maintains all the required records in its capacity as transfer, dividend
paying, and shareholder service agent for the Funds.
ITEM 29: MANAGEMENT SERVICES
Not applicable.
ITEM 30: 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 Shareholders
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
requested to do so in writing by the record holders of at least 10% of the
Registrant's outstanding shares and to assist the shareholders in
communications with other shareholders as required by section 16(c) of the Act.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (A) 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 30TH DAY OF
SEPTEMBER, 1998.
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/ Stephen D. Foy
-------------------------------
Stephen D. Foy Vice President and September 30, 1998
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 30, 1998
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>
d(2). Renewal of Investment Management Agreement dated May
5, 1998.
e(2). Renewal of Distribution Agreement dated July 31,
1998.
h. Transfer Agency Service Agreement.
i. Opinion of Morgan Lewis & Bockius LLP
j(1). Consent of Arthur Andersen LLP, Independent Public
Accountants.
j(2). Consent of Deloitte & Touche LLP, Independent Audi-
tors.
n. Financial Data Schedule.
z(2). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
</TABLE>
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST III
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
This Agreement made this 5th day of May, 1998 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, 1998 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,
1999 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreements the parties hereto do hereby continue the Agreement in effect until
August 1, 1999 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/ Edward F. Neild
---------------------------
Vice President
ATTEST:
/s/ Larry Martin
- --------------------------
Assistant Secretary
<PAGE>
Renewal of Distribution Agreement
---------------------------------
This Agreement made this 31st day of July, 1998 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, 1998 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, 1999 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, 1999 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/ Alan G. Berkshire
----------------------------------
Vice President
ATTEST:
/s/ Larry Martin
- -------------------------------
Assistant Secretary
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
. Transfer Agency Services
NUVEEN FUNDS
August 24, 1998
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Appointment................................................... 1
2. Representations and Warranties................................ 1
3. Delivery of Documents......................................... 3
4. Services Provided............................................. 3
5. Fees and Expenses............................................. 4
6. Limitation of Liability and Indemnification................... 6
7. Term.......................................................... 8
8. Notices....................................................... 9
9. Waiver........................................................ 9
10. Force Majeure................................................. 9
11. Additional Funds.............................................. 10
12. Amendments.................................................... 10
13. Assignment.................................................... 10
14. Severability.................................................. 10
15. Governing Law................................................. 10
Signatures......................................................... 10
</TABLE>
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents (continued)
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Schedule A -- Fees and Expenses................................... A-1
Schedule B -- List of Nuveen Funds and Jurisdictions under
which Funds are Organized........................... B-1
Schedule C -- Transfer Agency Services Description................ C-1
</TABLE>
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
AGREEMENT made as of August 24, 1998 by and between the Nuveen Funds
(each, a "Fund" and collectively the "Funds"), for the Funds listed on Schedule
B, and organized under the jurisdictions set forth on Schedule B, and Chase
Global Funds Services Company ("Chase"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, each Fund wishes to contract with Chase to provide certain
services with respect to the Fund;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Funds hereby appoint Chase to provide services for
the Funds, as described hereinafter, subject to the supervision of the Board of
Directors or Trustees of the Funds (the "Board"), for the period and on the
terms set forth in this Agreement. Chase accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Section 5 of and Schedule A to this Agreement.
2. Representations and Warranties.
(a) Chase represents and warrants to the Funds that:
(i) Chase is a corporation, duly organized and existing under the
laws of the State of Delaware;
(ii) Chase is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(iii) Chase is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize Chase to enter into and perform this Agreement;
1
<PAGE>
(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair Chase's ability to perform its duties and
obligations under this Agreement; and
(vii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;
(b) Each Fund represents and warrants to Chase that:
(i) the Fund is a duly organized and existing and in good
standing under the laws of the jurisdictions set forth above its name on
Schedule B;
(ii) the Fund is empowered under applicable laws and by its
Charter Document and By-Laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize the
Fund to enter into and perform this Agreement;
(iv) the Fund is an investment company properly registered under
the 1940 Act;
(v) a registration statement under the Securities Act of 1933, as
amended ("1933 Act") and the 1940 Act on Form N-1A has been filed and will be
effective and will remain effective during the term of this Agreement, and all
necessary filings under the laws of the states will have been made and will be
current during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair the Fund's ability to perform its duties and
obligations under this Agreement;
(vii) the Fund's registration statement complies in all material
respects with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and none of the Fund's prospectuses and/or statements of additional
information contain any untrue statement of material fact or omit to state a
material fact necessary to make the statements therein not misleading; and
2
<PAGE>
(viii) the Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it.
3. Delivery of Documents. Each Fund will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that Chase may request or requires to properly discharge its
duties. Such documents may include but are not limited to the following:
(a) Resolutions of the Board authorizing the appointment of Chase to
provide certain services to the Fund and approving this Agreement;
(b) The Fund's Charter Document;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's registration statement including exhibits, as amended,
on Form N-1A (the "Registration Statement") under the 1933 Act and the 1940 Act,
as filed with the SEC;
(f) Copies of the Investment Advisory Agreement between the Fund and
its investment adviser (the "Advisory Agreement");
(g) Opinions of counsel and auditors' reports;
(h) The Fund's prospectus(es) and statement(s) of additional
information relating to all funds, series, portfolios and classes, as
applicable, and all amendments and supplements thereto (such Prospectus(es) and
Statement(s) of Additional Information and supplements thereto, as presently in
effect and as from time to time hereafter amended and supplemented, herein
called the "Prospectuses"); and
(i) Such other agreements as the Fund may enter into from time to time
including securities lending agreements, futures and commodities account
agreements, brokerage agreements and options agreements.
4. Services Provided.
(a) Chase will provide the following services subject to the control,
direction and supervision of the Board and its designated agents and in
compliance with the objectives, policies and limitations set forth in the Funds'
Registration Statement, Charter Document and By-Laws; applicable laws and
regulations; and all resolutions and policies implemented by the Board:
3
<PAGE>
(i) Transfer Agency.
A description of the above service is contained in Schedule C to this Agreement.
(b) Chase will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase);
(ii) provide or otherwise obtain personnel sufficient for
provision of the services contemplated herein;
(iii) furnish equipment and other materials, which are necessary
or desirable for provision of the services contemplated herein; and
(iv) keep records relating to the services provided hereunder in
such form and manner as Chase may deem appropriate or advisable. To the extent
required by Section 31 of the 1940 Act and the rules thereunder, Chase agrees
that all such records prepared or maintained by Chase relating to the services
provided hereunder are the property of the Funds and will be preserved for the
periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the Funds'
expense, and made available in accordance with such Section and rules.
5. Fees and Expenses.
(a) As compensation for the services rendered to the Funds pursuant to
this Agreement the Funds shall pay Chase monthly fees determined as set forth in
Schedule A to this Agreement. Such fees are to be billed monthly and shall be
due and payable upon receipt of the invoice. Upon any termination of the
provision of services under this Agreement before the end of any month, the fee
for the part of the month before such termination shall be prorated according to
the proportion which such part bears to the full monthly period and shall be
payable upon the date of such termination.
(b) For the purpose of determining fees calculated as a function of
each Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its currently effective Prospectus, generally accepted
accounting principles, and resolutions of the Board.
(c) The Funds may request additional services, additional processing,
or special reports, with such specifications, requirements and documentation as
may be reasonably required by Chase. If Chase elects to provide such services
or arrange for their provision, it shall be entitled to additional fees and
expenses at its customary rates and charges.
4
<PAGE>
(d) Chase will bear its own expenses in connection with the
performance of the services under this Agreement except as provided herein or as
agreed to by the parties. Each Fund agrees to promptly reimburse Chase for any
services, equipment or supplies ordered by or for the Fund through Chase and for
any other expenses that Chase may incur on the Fund's behalf at the Fund's
request or as consented to by the Fund. Such other expenses to be incurred in
the operation of the Fund and to be borne by the Funds, include, but are not
limited to: taxes; interest; brokerage fees and commissions; salaries and fees
of officers, directors, or trustees who are not officers, directors,
shareholders or employees of Chase, or the Fund's distributor; SEC and state
Blue Sky registration and qualification fees, levies, fines and other charges;
postage and mailing costs; costs of share certificates; advisory fees;
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; consulting fees; customary bank charges
and fees; expenses of typesetting and printing of Prospectuses for regulatory
purposes and for distribution to current shareholders of the Fund (the Fund's
distributor to bear the expense of all other printing, production, and
distribution of Prospectuses, and marketing materials); expenses of printing and
production costs of shareholders' reports and proxy statements and materials;
expenses of proxy solicitation and annual meetings; costs and expenses of Fund
stationery and forms; customer service telephone expenses, costs and expenses of
telephone and data lines and devices which are specially requested by the Fund;
costs associated with corporate or trust, shareholder, and Board meetings; trade
association dues and expenses; reprocessing costs to Chase caused by third party
errors; and any extraordinary expenses and other customary Fund expenses.
(e) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
(f) Chase will render, after the close of each month in which services
have been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days shall bear interest in finance
charges equivalent to, in the aggregate, the Prime Rate (as reasonably
determined by Chase) plus two percent per year and all costs and expenses of
effecting collection of any such sums, including reasonable attorney's fees,
shall be paid by the Funds to Chase.
(g) In the event that the Funds are more than sixty (60) days
delinquent in payments of monthly billings in connection with this Agreement
(with the exception of specific
5
<PAGE>
amounts which may be contested in good faith by the Funds), this Agreement may
be terminated upon thirty (30) days' written notice to the Funds by Chase. The
Funds must notify Chase in writing of any contested amounts within thirty (30)
days of receipt of a billing for such amounts. Disputed amounts are not due and
payable while they are being investigated.
6. Limitation of Liability and Indemnification.
(a) Chase shall not be liable for any error of judgment or mistake of
law or for any loss or expense suffered by the Funds, in connection with the
matters to which this Agreement relates, except for a loss or expense solely
caused by or resulting from willful misfeasance, bad faith or negligence on
Chase's part in the performance of its duties or from reckless disregard by
Chase of its obligations and duties under this Agreement. In no event shall
Chase be liable for any indirect, incidental, special or consequential losses or
damages of any kind whatsoever, even if Chase has been advised of the likelihood
of such loss or damage and regardless of the form of action.
(b) Subject to Section 6(a) above, Chase shall not be responsible for,
and the Funds shall indemnify and hold Chase harmless from and against, any and
all losses, damages, costs, reasonable attorneys' fees and expenses, payments,
expenses and liabilities incurred by Chase, any of its agents, or the Funds'
agents in the performance of its/their duties hereunder, including but not
limited to those arising out of or attributable to:
(i) any and all actions of Chase or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reasonable reliance on or use by Chase or its officers
or agents of information, records, or documents which are received by Chase or
its officers or agents and furnished to it or them by or on behalf of the Funds,
and which have been prepared or maintained by the Funds or any third party on
behalf of the Funds;
(iii) the Funds' refusal or failure to comply with the terms of
this Agreement or the Funds' lack of good faith, or actions, or lack thereof,
involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Funds
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, or reasonable reliance by Chase on telephone or other electronic
instructions of any person acting on behalf of a
6
<PAGE>
shareholder or shareholder account for which telephone or other electronic
services have been authorized;
(vi) the reliance on or the carrying out by Chase or its officers
or agents of any proper instructions reasonably believed to be duly authorized,
or requests of the Funds or recognition by Chase of any share certificates which
are reasonably believed to bear the proper signatures of the officers of the
Funds and the proper countersignature of any transfer agent or registrar of the
Funds;
(vii) any delays, inaccuracies, errors in or omissions from
information or data provided to Chase by data, corporate action, pricing
services or securities brokers and dealers;
(viii) the offer or sale of shares by any Fund in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Funds or their other service providers
and agents, or (2) existing or arising out of activities, actions or omissions
by or on behalf of the Fund prior to the effective date of this Agreement;
(ix) any failure of a Fund's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus;
(x) the actions taken by the Funds, their investment adviser, and
their distributor in compliance with applicable securities, tax, commodities and
other laws, rules and regulations, or the failure to so comply; and
(xi) all actions, inactions, omissions, or errors caused by third
parties to whom Chase or the Funds has assigned any rights and/or delegated any
duties under this Agreement at the request of or as required by the Funds, their
investment advisers, distributor, administrator or sponsor.
(c) In performing its services hereunder, Chase shall be entitled to
reasonably rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Funds and their
custodians, officers and directors, investors, agents and
7
<PAGE>
other service providers and shareholders which Chase reasonably believes to be
genuine, valid and authorized, and shall be indemnified by the Funds for any
loss or expense caused by such reliance. Chase shall also be entitled to consult
with and rely on the advice and opinions of outside legal counsel retained by
the Funds, as necessary or appropriate.
(d) Chase shall indemnify and hold the Funds harmless from and against
any and all losses, damages, costs, charges, payments, expenses and liability,
excluding attorneys' fees and costs, arising out of or attributable to Chase's
refusal or failure to comply with the material terms of this Agreement, or
Chase's lack of good faith, negligence or willful misconduct.
(e) Subject to the above Sections 6 (a) through 6 (d), any costs or
losses incurred by a Fund for the processing of any purchase, redemption,
exchange or other share transactions at a price per share other than the price
per share applicable to the effective date of the transaction (the foregoing
being generally referred to herein as "as of" transactions) will be handled in
the following manner:
(i) For each calendar year, if all "as of" transactions for the
year, taken in the aggregate, result in a net loss to a Fund ("net loss"), Chase
will reimburse the Fund for such net loss, except to the extent that such net
loss may be offset by application of a "net benefit" to the Fund carried over
from prior calendar years pursuant to sub-paragraph (ii) immediately below.
(ii) For each calendar year, if all "as of" transactions for the
year, taken in the aggregate, result in a net benefit to a Fund ("net benefit"),
the Fund shall not reimburse Chase for the amount of such net benefit; however,
any "net benefit" for any calendar year may be used to offset, in whole or in
part, any "net loss" suffered by the Fund in any future calendar year so as to
reduce the amount by which Chase shall be required to reimburse the Fund for
such "net loss" in such year pursuant to sub-paragraph (i) immediately above.
(iii) Any "net loss" for which Chase reimburses a Fund in any
calendar year shall not be carried over into future years so as to offset any
"net benefit" in such future years.
7. Term. This Agreement shall become effective on the date first
hereinabove written for an initial term of four years. The Agreement may be
modified or amended from time to time by mutual agreement between the parties
hereto. After the initial term, the Agreement shall continue in effect unless
terminated by either party on 6 months' prior written notice. Upon termination
of this Agreement, each Fund shall pay to Chase such compensation and any
8
<PAGE>
reasonable out-of-pocket or other reimbursable expenses which may become due or
payable under the terms hereof as of the date of termination or after the date
that the provision of services ceases, whichever is later. If the Funds
terminate the Agreement for any reason during the first year of the initial
term, they will reimburse Chase in accordance with Schedule A.
8. Notices. Any notice required or permitted hereunder shall be in
writing and shall be deemed effective on the date of personal delivery (by
private messenger, courier service or otherwise) or upon confirmed receipt of
telex or facsimile, whichever occurs first, or upon receipt if by mail to the
parties at the following address (or such other address as a party may specify
by notice to the other):
If to the Funds:
John Nuveen & Co., Incorporated
333 West Wacker Drive
Chicago, IL 60606
Attention: Fund Controller
Fax: (312) 917-8049
If to Chase:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Attention: Karl O. Hartmann, Esq., General Counsel
Fax: (617) 557-8616
9. Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
10. Force Majeure. Chase shall not be responsible or liable for any harm,
loss or damage suffered by the Funds, their investors, or other third parties or
for any failure or delay in performance of Chase's obligations under this
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond Chase's control. In the event of a force majeure, any resulting harm,
loss, damage, failure or delay by Chase will not give the Funds the right to
terminate this Agreement.
11. Additional Funds. In the event that John Nuveen & Company
Incorporated sponsors additional open-end management companies with respect to
which it desires Chase to
9
<PAGE>
provide services under the terms of this Agreement, it shall so notify Chase in
writing, and if Chase agrees in writing to provide such services, such Fund or
Funds shall be subject to the terms of this Agreement and Schedule C shall be
modified accordingly.
12. Amendments. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
13. Assignment. Chase may assign and delegate this Agreement and its
rights and obligations hereunder without the consent of the other party.
14. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
NUVEEN FUNDS
By: /s/ Stuart Rogers
-----------------------------
Name: Stuart Rogers
---------------------------
Title: Vice President
--------------------------
CHASE GLOBAL FUNDS
SERVICES COMPANY
By: /s/ Donald P. Hearn
-----------------------------
Name: Donald P. Hearn
---------------------------
Title: Chairman and CEO
--------------------------
10
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE A
FEES AND EXPENSES
Transfer Agency Fees
A. $18.50 per municipal fund account per annum
$18.25 per equity fund account per annum
$29.00 per money market fund account per annum
B. Out-of-pocket expenses, including but not limited to those in Section
5(d), will be computed, billed and payable monthly Customized systems
and technology charges (excluding those projects covered under the
conversion agreement) will be negotiated individually and billed along
with out-of-pocket expenses.
C. If the Funds terminate this Agreement for any reason whatsoever between
the date of this Agreement and July 1, 1999, there will be immediately
due and owing to Chase by Nuveen a $6 million charge; if between the date
of July 1, 1999 and June 30, 2000, a $4 million charge; and if between
July 1, 2000 and June 30, 2001, a $2 million charge. In addition, the
Funds will reimburse Chase for all costs it incurs in connection with any
conversion to another transfer agent.
A-1
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE B
Flagship Admiral Funds Inc. (Maryland Corporation)
Flagship Utility Income Fund
Nuveen Investment Trust (Massachusetts Business Trust)
Nuveen Growth and Income Stock Fund
Nuveen Balanced Stock and Bond Fund
Nuveen Balanced Municipal and Stock Fund
Nuveen European Value Fund
Nuveen Investment Trust II (Massachusetts Business Trust)
Nuveen Rittenhouse Growth Fund
Nuveen Flagship Municipal Trust (Massachusetts Business Trust)
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Flagship Multistate Trust I (Massachusetts Business Trust)
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
B-1
<PAGE>
Nuveen Flagship Multistate Trust II (Massachusetts Business Trust)
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
Nuveen Flagship Multistate Trust III (Massachusetts Business Trust)
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
Nuveen Flagship Multistate Trust IV (Massachusetts Business Trust)
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
Nuveen Tax-Exempt Money Market Fund, Inc. (Maryland Corporation)
Nuveen Tax-Free Reserves, Inc. (Maryland Corporation)
Nuveen Tax-Free Money Market Fund, Inc. (Minnesota Corporation)
Nuveen Massachusetts Tax-Free Money Market Fund
Nuveen New York Tax-Free Money Market Fund
B-2
<PAGE>
Nuveen California Tax-Free Fund, Inc. (Maryland Corporation)
Nuveen California Tax-Free Money Market Fund
B-3
<PAGE>
MUTUAL FUNDS SERVICE AGREEMENT
SCHEDULE C
DESCRIPTION OF TRANSFER AGENCY SERVICES
The following is a general description of the transfer agency services Chase
shall provide to each Fund.
A. Shareholder Recordkeeping. Maintain records showing for each Fund
shareholder the following: (i) name, address, appropriate tax
certification and tax identifying number; (ii) number of shares of each
Fund, portfolio or class; (iii) historical information including, but not
limited to, dividends paid, date and price of all transactions including
individual purchases and redemptions, based upon appropriate supporting
documents; and (iv) any dividend reinvestment order, application,
specific address, payment and processing instructions and correspondence
relating to the current maintenance of the account.
B. Share Issuance. Record the issuance of shares of each Fund, portfolio or
class. Except as specifically agreed in writing between Chase and the
Fund, Chase shall have no obligation when countersigning and issuing
and/or crediting shares to take cognizance of any other laws relating to
the issue and sale of such shares except insofar as policies and
procedures of the Stock Transfer Association recognize such laws.
C. Transfer, Purchase, Exchange and Redemption Orders. Process all orders
for the transfer, purchase, exchange and redemption of shares of the Fund
in accordance with the Fund's current prospectus and customary transfer
agency policies and procedures, including electronic transmissions which
the Fund acknowledges it has authorized, or in accordance with any
instructions of the Fund or its agents which Chase reasonably believes to
be authorized.
D. Shareholder Communications. Transmit all communications by the Fund to
its shareholders promptly following the delivery by the Fund of the
material to be transmitted by mail, telephone, courier service or
electronically.
E. Proxy Materials. Assist with the mailing or transmission of proxy
materials, tabulating votes, and compiling and certifying voting results.
Services may include the provision of inspectors of election at any
meeting of shareholders.
F. Share Certificates. If permitted by Fund policies, and if a shareholder
of the Fund requests a certificate representing shares, Chase as Transfer
Agent, will countersign and mail a share certificate to the investor at
his/her address as it appears on the Fund's shareholder records.
C-1
<PAGE>
G. Returned Checks. In the event that any check or other negotiable
instrument for the payment of shares is returned unpaid for any reason,
Chase will take such steps, as Chase may, in its discretion, deem
appropriate and notify the Fund of such action. However, the Fund
remains ultimately liable for any returned checks or negotiable
instruments of its shareholders.
H. Shareholder & Broker-Dealer Correspondence. Acknowledge all
correspondence from shareholders and broker-dealers relating to share
accounts and undertake such other shareholder and broker-dealer
correspondence as may from time to time be mutually agreed upon.
I. Tax Reporting. Chase shall issue appropriate shareholder tax forms as
required.
J. Dividend Disbursing. Chase will prepare and mail checks, place wire
transfers or credit income and capital gain payments to shareholders.
The Fund will advise Chase of the declaration of any dividend or
distribution and the record and payable date thereof at least five (5)
days prior to the record date. Chase will, on or before the payment date
of any such dividend or distribution, notify the Fund's Custodian of the
estimated amount required to pay any portion of such dividend or
distribution payable in cash, and on or before the payment date of such
distribution, the Fund will instruct its Custodian to make available to
Chase sufficient funds for the cash amount to be paid out. If a
shareholder is entitled to receive additional shares by virtue of any
such distribution or dividend, appropriate credits will be made to each
shareholder's account.
K. Escheatment. Chase shall provide escheatment services only with respect
to the escheatment laws of the Commonwealth of Massachusetts, including
those which relate to reciprocal agreements with other states.
L. Telephone Services. Chase will provide staff coverage, training and
supervision in connection with the Fund's telephone line for shareholder
inquiries, and will respond to inquiries concerning shareholder records,
transactions processed by Chase, procedures to effect the shareholder
records and inquiries of a general nature relative to shareholder
services.
M. 12b-1. Chase will calculate and process all 12b-1 payments in accordance
with each Fund's current prospectus.
N. Commission Payments. Chase will calculate and process all commission
payments in accordance with each Fund's current prospectus.
O. Requests for Information. Chase will provide all required information in
a timely fashion in support of regulatory filings.
P. SAS 70. Chase will make available to the Funds' sponsor independent
auditor reports in compliance with SAS 70.
C-2
<PAGE>
Q. Regulatory Changes. Chase will provide assistance with the analysis and
implementation of any changes required by regulatory bodies.
C-3
<PAGE>
September 28, 1998
Nuveen Flagship Multistate Trust III
333 West Wacker Drive
Chicago, Illinois 60606
Re: Opinion of Counsel regarding Post-Effective Amendment No. 3 to the
Registration Statement filed 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 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 (collectively, the
"Shares"), par value $.01 per share, of each of the following series of the
Trust: Nuveen Flagship Georgia Municipal Bond Fund, Nuveen Flagship Louisiana
Municipal Bond Fund, Nuveen Flagship North Carolina Municipal Bond Fund, and
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. 3 to the Registration Statement (the "Amendment") to be
filed with the Securities and Exchange Commission on or about September 28, 1998
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;
<PAGE>
Nuveen Flagship Multistate Trust III
September 28, 1998
Page 2
(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 in the office of the Secretary of
State (the "Charter");
(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 28, 1998, 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 nonassessable, except that, as
set forth in the Registration Statement, shareholders of the Trust may, under
certain circumstances, be held personally liable for its obligations.
The opinion expressed herein is limited to the laws of the Commonwealth of
Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated July 17, 1998, and to all references to our Firm included in or made a
part of this registration statement of Nuveen Flagship Multistate Trust III
(comprising the 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).
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 21, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement on Form N-1A under the Securities Act of 1933, filed under
Registration Statement No. 333-16611, of our reports dated July 11, 1997,
relating to Nuveen Flagship Georgia Municipal Bond Fund, Nuveen Flagship
Louisiana Municipal Bond Fund, Nuveen Flagship North Carolina Municipal Bond
Fund and Nuveen Flagship Tennessee Municipal Bond Fund, incorporated by
reference in the Statement of Additional Information, which is part of such
Registration Statement.
/s/ Deloitte & Touche LLP
Dayton, Ohio
September 21, 1998
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 7458
<INVESTMENTS-AT-VALUE> 7893
<RECEIVABLES> 130
<ASSETS-OTHER> 185
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8208
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158
<TOTAL-LIABILITIES> 158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7637
<SHARES-COMMON-STOCK> 465
<SHARES-COMMON-PRIOR> 439
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435
<NET-ASSETS> 8050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 397
<OTHER-INCOME> 0
<EXPENSES-NET> 42
<NET-INVESTMENT-INCOME> 355
<REALIZED-GAINS-CURRENT> (8)
<APPREC-INCREASE-CURRENT> 288
<NET-CHANGE-FROM-OPS> 635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 258
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163
<NUMBER-OF-SHARES-REDEEMED> 150
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 2809
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173
<AVERAGE-NET-ASSETS> 5144
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> .39
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 7458
<INVESTMENTS-AT-VALUE> 7893
<RECEIVABLES> 130
<ASSETS-OTHER> 185
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8208
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158
<TOTAL-LIABILITIES> 158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7637
<SHARES-COMMON-STOCK> 79
<SHARES-COMMON-PRIOR> 58
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435
<NET-ASSETS> 8050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 397
<OTHER-INCOME> 0
<EXPENSES-NET> 42
<NET-INVESTMENT-INCOME> 355
<REALIZED-GAINS-CURRENT> (8)
<APPREC-INCREASE-CURRENT> 288
<NET-CHANGE-FROM-OPS> 635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 32
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 2809
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173
<AVERAGE-NET-ASSETS> 757
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .48
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.14
<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> 013
<NAME> NUVEEN FLAGSHIP ALABAMA MUNICIPAL BOND FUND - CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 7458
<INVESTMENTS-AT-VALUE> 7893
<RECEIVABLES> 130
<ASSETS-OTHER> 185
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8208
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158
<TOTAL-LIABILITIES> 158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7637
<SHARES-COMMON-STOCK> 203
<SHARES-COMMON-PRIOR> 20
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435
<NET-ASSETS> 8050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 397
<OTHER-INCOME> 0
<EXPENSES-NET> 42
<NET-INVESTMENT-INCOME> 355
<REALIZED-GAINS-CURRENT> (8)
<APPREC-INCREASE-CURRENT> 288
<NET-CHANGE-FROM-OPS> 635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 62
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 194
<NUMBER-OF-SHARES-REDEEMED> 13
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 2809
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173
<AVERAGE-NET-ASSETS> 1437
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .48
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .94
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 7458
<INVESTMENTS-AT-VALUE> 7893
<RECEIVABLES> 130
<ASSETS-OTHER> 185
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8208
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158
<TOTAL-LIABILITIES> 158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7637
<SHARES-COMMON-STOCK> 11
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435
<NET-ASSETS> 8050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 397
<OTHER-INCOME> 0
<EXPENSES-NET> 42
<NET-INVESTMENT-INCOME> 355
<REALIZED-GAINS-CURRENT> (8)
<APPREC-INCREASE-CURRENT> 288
<NET-CHANGE-FROM-OPS> 635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2809
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173
<AVERAGE-NET-ASSETS> 49
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .55
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> .19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 130363
<INVESTMENTS-AT-VALUE> 142619
<RECEIVABLES> 7552
<ASSETS-OTHER> 952
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151123
<PAYABLE-FOR-SECURITIES> 7012
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1033
<TOTAL-LIABILITIES> 8045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131997
<SHARES-COMMON-STOCK> 10777
<SHARES-COMMON-PRIOR> 10551
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1176)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12256
<NET-ASSETS> 143078
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7761
<OTHER-INCOME> 0
<EXPENSES-NET> 992
<NET-INVESTMENT-INCOME> 6769
<REALIZED-GAINS-CURRENT> 1432
<APPREC-INCREASE-CURRENT> 5917
<NET-CHANGE-FROM-OPS> 14118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5990
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 999
<NUMBER-OF-SHARES-REDEEMED> 1106
<SHARES-REINVESTED> 332
<NET-CHANGE-IN-ASSETS> 19622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2608)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1270
<AVERAGE-NET-ASSETS> 117586
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 130363
<INVESTMENTS-AT-VALUE> 142619
<RECEIVABLES> 7552
<ASSETS-OTHER> 952
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151123
<PAYABLE-FOR-SECURITIES> 7012
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1033
<TOTAL-LIABILITIES> 8045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131997
<SHARES-COMMON-STOCK> 314
<SHARES-COMMON-PRIOR> 11
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1176)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12256
<NET-ASSETS> 143078
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7761
<OTHER-INCOME> 0
<EXPENSES-NET> 992
<NET-INVESTMENT-INCOME> 6769
<REALIZED-GAINS-CURRENT> 1432
<APPREC-INCREASE-CURRENT> 5917
<NET-CHANGE-FROM-OPS> 14118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 327
<NUMBER-OF-SHARES-REDEEMED> 26
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 19622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2608)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1270
<AVERAGE-NET-ASSETS> 1559
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .63
<PER-SHARE-DIVIDEND> (.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.20
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 130363
<INVESTMENTS-AT-VALUE> 142619
<RECEIVABLES> 7552
<ASSETS-OTHER> 952
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151123
<PAYABLE-FOR-SECURITIES> 7012
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1033
<TOTAL-LIABILITIES> 8045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131997
<SHARES-COMMON-STOCK> 1681
<SHARES-COMMON-PRIOR> 1119
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1176)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12256
<NET-ASSETS> 143078
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7761
<OTHER-INCOME> 0
<EXPENSES-NET> 992
<NET-INVESTMENT-INCOME> 6769
<REALIZED-GAINS-CURRENT> 1432
<APPREC-INCREASE-CURRENT> 5917
<NET-CHANGE-FROM-OPS> 14118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 705
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 754
<NUMBER-OF-SHARES-REDEEMED> 235
<SHARES-REINVESTED> 42
<NET-CHANGE-IN-ASSETS> 19622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2608)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1270
<AVERAGE-NET-ASSETS> 15552
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.17
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 130363
<INVESTMENTS-AT-VALUE> 142619
<RECEIVABLES> 7552
<ASSETS-OTHER> 952
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151123
<PAYABLE-FOR-SECURITIES> 7012
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1033
<TOTAL-LIABILITIES> 8045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131997
<SHARES-COMMON-STOCK> 22
<SHARES-COMMON-PRIOR> 2
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1176)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12256
<NET-ASSETS> 143078
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7761
<OTHER-INCOME> 0
<EXPENSES-NET> 992
<NET-INVESTMENT-INCOME> 6769
<REALIZED-GAINS-CURRENT> 1432
<APPREC-INCREASE-CURRENT> 5917
<NET-CHANGE-FROM-OPS> 14118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23
<NUMBER-OF-SHARES-REDEEMED> 4
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 19622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2608)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1270
<AVERAGE-NET-ASSETS> 159
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .59
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.15
<EXPENSE-RATIO> .45
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 103541
<INVESTMENTS-AT-VALUE> 112853
<RECEIVABLES> 2274
<ASSETS-OTHER> 142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115269
<PAYABLE-FOR-SECURITIES> 2894
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 523
<TOTAL-LIABILITIES> 3417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102598
<SHARES-COMMON-STOCK> 7718
<SHARES-COMMON-PRIOR> 6853
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (59)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9312
<NET-ASSETS> 111852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5724
<OTHER-INCOME> 0
<EXPENSES-NET> 819
<NET-INVESTMENT-INCOME> 4905
<REALIZED-GAINS-CURRENT> 141
<APPREC-INCREASE-CURRENT> 3886
<NET-CHANGE-FROM-OPS> 8932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4237
<DISTRIBUTIONS-OF-GAINS> 275
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1434
<NUMBER-OF-SHARES-REDEEMED> 809
<SHARES-REINVESTED> 241
<NET-CHANGE-IN-ASSETS> 27259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 120
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 942
<AVERAGE-NET-ASSETS> 82436
<PER-SHARE-NAV-BEGIN> 11.10
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.55
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 103541
<INVESTMENTS-AT-VALUE> 112853
<RECEIVABLES> 2274
<ASSETS-OTHER> 142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115269
<PAYABLE-FOR-SECURITIES> 2894
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 523
<TOTAL-LIABILITIES> 3417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102598
<SHARES-COMMON-STOCK> 779
<SHARES-COMMON-PRIOR> 83
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (59)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9312
<NET-ASSETS> 111852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5724
<OTHER-INCOME> 0
<EXPENSES-NET> 819
<NET-INVESTMENT-INCOME> 4905
<REALIZED-GAINS-CURRENT> 141
<APPREC-INCREASE-CURRENT> 3886
<NET-CHANGE-FROM-OPS> 8932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 180
<DISTRIBUTIONS-OF-GAINS> 13
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 695
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 27259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 120
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 942
<AVERAGE-NET-ASSETS> 4256
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.55
<EXPENSE-RATIO> 1.45
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 103541
<INVESTMENTS-AT-VALUE> 112853
<RECEIVABLES> 2274
<ASSETS-OTHER> 142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115269
<PAYABLE-FOR-SECURITIES> 2894
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 523
<TOTAL-LIABILITIES> 3417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102598
<SHARES-COMMON-STOCK> 1186
<SHARES-COMMON-PRIOR> 689
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (59)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9312
<NET-ASSETS> 111852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5724
<OTHER-INCOME> 0
<EXPENSES-NET> 819
<NET-INVESTMENT-INCOME> 4905
<REALIZED-GAINS-CURRENT> 141
<APPREC-INCREASE-CURRENT> 3886
<NET-CHANGE-FROM-OPS> 8932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 486
<DISTRIBUTIONS-OF-GAINS> 37
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 551
<NUMBER-OF-SHARES-REDEEMED> 87
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> 27259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 120
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 942
<AVERAGE-NET-ASSETS> 10618
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.54
<EXPENSE-RATIO> 1.29
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 103541
<INVESTMENTS-AT-VALUE> 112853
<RECEIVABLES> 2274
<ASSETS-OTHER> 142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115269
<PAYABLE-FOR-SECURITIES> 2894
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 523
<TOTAL-LIABILITIES> 3417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102598
<SHARES-COMMON-STOCK> 2
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (59)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9312
<NET-ASSETS> 111852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5724
<OTHER-INCOME> 0
<EXPENSES-NET> 819
<NET-INVESTMENT-INCOME> 4905
<REALIZED-GAINS-CURRENT> 141
<APPREC-INCREASE-CURRENT> 3886
<NET-CHANGE-FROM-OPS> 8932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 27259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 120
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 942
<AVERAGE-NET-ASSETS> 16
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> (.61)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.55
<EXPENSE-RATIO> .52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary Information extracted from the
Form N-SAR and 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 181340
<INVESTMENTS-AT-VALUE> 193672
<RECEIVABLES> 3703
<ASSETS-OTHER> 3092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 200467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1379
<TOTAL-LIABILITIES> 1379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185212
<SHARES-COMMON-STOCK> 17549
<SHARES-COMMON-PRIOR> 17671
<ACCUMULATED-NII-CURRENT> 30
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1514
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12332
<NET-ASSETS> 199088
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11544
<OTHER-INCOME> 0
<EXPENSES-NET> 1726
<NET-INVESTMENT-INCOME> 9818
<REALIZED-GAINS-CURRENT> 2602
<APPREC-INCREASE-CURRENT> 3820
<NET-CHANGE-FROM-OPS> 16240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9438
<DISTRIBUTIONS-OF-GAINS> 28
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1219
<NUMBER-OF-SHARES-REDEEMED> 1847
<SHARES-REINVESTED> 506
<NET-CHANGE-IN-ASSETS> 9751
<ACCUMULATED-NII-PRIOR> 84
<ACCUMULATED-GAINS-PRIOR> (1060)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1726
<AVERAGE-NET-ASSETS> 185557
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary Information extracted from the
Form N-SAR and 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 181340
<INVESTMENTS-AT-VALUE> 193672
<RECEIVABLES> 3703
<ASSETS-OTHER> 3092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 200467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1379
<TOTAL-LIABILITIES> 1379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185212
<SHARES-COMMON-STOCK> 340
<SHARES-COMMON-PRIOR> 26
<ACCUMULATED-NII-CURRENT> 30
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1514
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12332
<NET-ASSETS> 199088
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11544
<OTHER-INCOME> 0
<EXPENSES-NET> 1726
<NET-INVESTMENT-INCOME> 9818
<REALIZED-GAINS-CURRENT> 2602
<APPREC-INCREASE-CURRENT> 3820
<NET-CHANGE-FROM-OPS> 16240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 57
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 314
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 9751
<ACCUMULATED-NII-PRIOR> 84
<ACCUMULATED-GAINS-PRIOR> (1060)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1726
<AVERAGE-NET-ASSETS> 1387
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary Information extracted from the
Form N-SAR and 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 181340
<INVESTMENTS-AT-VALUE> 193672
<RECEIVABLES> 3703
<ASSETS-OTHER> 3092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 200467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1379
<TOTAL-LIABILITIES> 1379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185212
<SHARES-COMMON-STOCK> 782
<SHARES-COMMON-PRIOR> 689
<ACCUMULATED-NII-CURRENT> 30
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1514
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12332
<NET-ASSETS> 199088
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11544
<OTHER-INCOME> 0
<EXPENSES-NET> 1726
<NET-INVESTMENT-INCOME> 9818
<REALIZED-GAINS-CURRENT> 2602
<APPREC-INCREASE-CURRENT> 3820
<NET-CHANGE-FROM-OPS> 16240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 343
<DISTRIBUTIONS-OF-GAINS> 1
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 192
<NUMBER-OF-SHARES-REDEEMED> 123
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> 9751
<ACCUMULATED-NII-PRIOR> 84
<ACCUMULATED-GAINS-PRIOR> (1060)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1726
<AVERAGE-NET-ASSETS> 7597
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Financial Summary Information extracted from the
Form N-SAR and 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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 181340
<INVESTMENTS-AT-VALUE> 193672
<RECEIVABLES> 3703
<ASSETS-OTHER> 3092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 200467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1379
<TOTAL-LIABILITIES> 1379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185212
<SHARES-COMMON-STOCK> 80
<SHARES-COMMON-PRIOR> 39
<ACCUMULATED-NII-CURRENT> 30
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1514
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12332
<NET-ASSETS> 199088
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11544
<OTHER-INCOME> 0
<EXPENSES-NET> 1726
<NET-INVESTMENT-INCOME> 9818
<REALIZED-GAINS-CURRENT> 2602
<APPREC-INCREASE-CURRENT> 3820
<NET-CHANGE-FROM-OPS> 16240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 35
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 9751
<ACCUMULATED-NII-PRIOR> 84
<ACCUMULATED-GAINS-PRIOR> (1060)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1726
<AVERAGE-NET-ASSETS> 666
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .66
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 11497
<INVESTMENTS-AT-VALUE> 12317
<RECEIVABLES> 225
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132
<TOTAL-LIABILITIES> 132
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12651
<SHARES-COMMON-STOCK> 1163
<SHARES-COMMON-PRIOR> 1011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 821
<NET-ASSETS> 13300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 690
<OTHER-INCOME> 0
<EXPENSES-NET> 78
<NET-INVESTMENT-INCOME> 612
<REALIZED-GAINS-CURRENT> 134
<APPREC-INCREASE-CURRENT> 396
<NET-CHANGE-FROM-OPS> 1142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 562
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 560
<NUMBER-OF-SHARES-REDEEMED> 438
<SHARES-REINVESTED> 30
<NET-CHANGE-IN-ASSETS> 3065
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (307)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172
<AVERAGE-NET-ASSETS> 11326
<PER-SHARE-NAV-BEGIN> 9.53
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .44
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> .56
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 11497
<INVESTMENTS-AT-VALUE> 12317
<RECEIVABLES> 225
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132
<TOTAL-LIABILITIES> 132
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12651
<SHARES-COMMON-STOCK> 73
<SHARES-COMMON-PRIOR> 17
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 821
<NET-ASSETS> 13300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 690
<OTHER-INCOME> 0
<EXPENSES-NET> 78
<NET-INVESTMENT-INCOME> 612
<REALIZED-GAINS-CURRENT> 134
<APPREC-INCREASE-CURRENT> 396
<NET-CHANGE-FROM-OPS> 1142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 65
<NUMBER-OF-SHARES-REDEEMED> 10
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 3065
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (307)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172
<AVERAGE-NET-ASSETS> 466
<PER-SHARE-NAV-BEGIN> 9.52
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.42)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.30
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 11497
<INVESTMENTS-AT-VALUE> 12317
<RECEIVABLES> 225
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132
<TOTAL-LIABILITIES> 132
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12651
<SHARES-COMMON-STOCK> 88
<SHARES-COMMON-PRIOR> 44
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 821
<NET-ASSETS> 13300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 690
<OTHER-INCOME> 0
<EXPENSES-NET> 78
<NET-INVESTMENT-INCOME> 612
<REALIZED-GAINS-CURRENT> 134
<APPREC-INCREASE-CURRENT> 396
<NET-CHANGE-FROM-OPS> 1142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58
<NUMBER-OF-SHARES-REDEEMED> 16
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 3065
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (307)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172
<AVERAGE-NET-ASSETS> 683
<PER-SHARE-NAV-BEGIN> 9.52
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.44)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.11
<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> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 11497
<INVESTMENTS-AT-VALUE> 12317
<RECEIVABLES> 225
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132
<TOTAL-LIABILITIES> 132
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12651
<SHARES-COMMON-STOCK> 11
<SHARES-COMMON-PRIOR> 3
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 821
<NET-ASSETS> 13300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 690
<OTHER-INCOME> 0
<EXPENSES-NET> 78
<NET-INVESTMENT-INCOME> 612
<REALIZED-GAINS-CURRENT> 134
<APPREC-INCREASE-CURRENT> 396
<NET-CHANGE-FROM-OPS> 1142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3065
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (307)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172
<AVERAGE-NET-ASSETS> 65
<PER-SHARE-NAV-BEGIN> 9.54
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .43
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> .35
<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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 282996
<INVESTMENTS-AT-VALUE> 305563
<RECEIVABLES> 6772
<ASSETS-OTHER> 2210
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314545
<PAYABLE-FOR-SECURITIES> 7611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1721
<TOTAL-LIABILITIES> 9332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 285362
<SHARES-COMMON-STOCK> 24286
<SHARES-COMMON-PRIOR> 23281
<ACCUMULATED-NII-CURRENT> 74
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2790)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22567
<NET-ASSETS> 305213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17161
<OTHER-INCOME> 0
<EXPENSES-NET> 2492
<NET-INVESTMENT-INCOME> 14669
<REALIZED-GAINS-CURRENT> 1207
<APPREC-INCREASE-CURRENT> 8713
<NET-CHANGE-FROM-OPS> 24589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13691
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2614
<NUMBER-OF-SHARES-REDEEMED> 2250
<SHARES-REINVESTED> 641
<NET-CHANGE-IN-ASSETS> 31904
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> (3997)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2549
<AVERAGE-NET-ASSETS> 268855
<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.46
<EXPENSE-RATIO> .82
<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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 282996
<INVESTMENTS-AT-VALUE> 305563
<RECEIVABLES> 6772
<ASSETS-OTHER> 2210
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314545
<PAYABLE-FOR-SECURITIES> 7611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1721
<TOTAL-LIABILITIES> 9332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 285362
<SHARES-COMMON-STOCK> 504
<SHARES-COMMON-PRIOR> 49
<ACCUMULATED-NII-CURRENT> 74
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2790)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22567
<NET-ASSETS> 305213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17161
<OTHER-INCOME> 0
<EXPENSES-NET> 2492
<NET-INVESTMENT-INCOME> 14669
<REALIZED-GAINS-CURRENT> 1207
<APPREC-INCREASE-CURRENT> 8713
<NET-CHANGE-FROM-OPS> 24589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 106
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 457
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 31904
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> (3997)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2549
<AVERAGE-NET-ASSETS> 2521
<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.46
<EXPENSE-RATIO> 1.58
<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> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 282996
<INVESTMENTS-AT-VALUE> 305563
<RECEIVABLES> 6772
<ASSETS-OTHER> 2210
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314545
<PAYABLE-FOR-SECURITIES> 7611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1721
<TOTAL-LIABILITIES> 9332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 285362
<SHARES-COMMON-STOCK> 1805
<SHARES-COMMON-PRIOR> 1362
<ACCUMULATED-NII-CURRENT> 74
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2790)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22567
<NET-ASSETS> 305213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17161
<OTHER-INCOME> 0
<EXPENSES-NET> 2492
<NET-INVESTMENT-INCOME> 14669
<REALIZED-GAINS-CURRENT> 1207
<APPREC-INCREASE-CURRENT> 8713
<NET-CHANGE-FROM-OPS> 24589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 784
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 538
<NUMBER-OF-SHARES-REDEEMED> 147
<SHARES-REINVESTED> 52
<NET-CHANGE-IN-ASSETS> 31904
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> (3997)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2549
<AVERAGE-NET-ASSETS> 17423
<PER-SHARE-NAV-BEGIN> 11.05
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .39
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.45
<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> 064
<NAME> NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND- CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 282996
<INVESTMENTS-AT-VALUE> 305563
<RECEIVABLES> 6772
<ASSETS-OTHER> 2210
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314545
<PAYABLE-FOR-SECURITIES> 7611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1721
<TOTAL-LIABILITIES> 9332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 285362
<SHARES-COMMON-STOCK> 47
<SHARES-COMMON-PRIOR> 22
<ACCUMULATED-NII-CURRENT> 74
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2790)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22567
<NET-ASSETS> 305213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17161
<OTHER-INCOME> 0
<EXPENSES-NET> 2492
<NET-INVESTMENT-INCOME> 14669
<REALIZED-GAINS-CURRENT> 1207
<APPREC-INCREASE-CURRENT> 8713
<NET-CHANGE-FROM-OPS> 24589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 31904
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> (3997)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2549
<AVERAGE-NET-ASSETS> 355
<PER-SHARE-NAV-BEGIN> 11.04
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.44
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
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 Secretary of the Fund, and that as such 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 22, 1998, and (3) that said
resolution has not been amended or rescinded and remains in full force and
effect.
September 24, 1998
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, 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.
