<PAGE>
NUVEEN
Municipal
Bond Funds
November 30, 1997
SEMIANNUAL REPORT
[PHOTO APPEARS HERE]
Dependable, tax-free income
to help you keep more of
what you earn.
LOUISIANA
<PAGE>
CONTENTS
1 Dear Shareholder
3 Answering Your Questions
6 Performance Overview
8 Portfolio of Investments
14 Statement of Net Assets
15 Statement of Operations
16 Statement of Changes in Net Assets
17 Notes to Financial Statements
23 Financial Highlights
26 Additional Investment Opportunities
27 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.
It's a pleasure to share with you the Nuveen Flagship Louisiana Municipal Bond
Fund's outstanding performance record for the 12 months ended November 30, 1997.
Over the past year, investors continued to enjoy attractive, tax-free dividends
generated by the fund's portfolio of municipal bonds. As of November 30, 1997,
Class A shareholders were receiving a current yield on net asset value of 4.55%.
To match this yield, investors in the 34% combined federal and state income tax
bracket would have had to earn at least 6.89% on taxable alternatives.
During this same period, the fund provided Class A shareholders with a highly
competitive total return on net asset value of 7.68% with income and capital
gains reinvested, outpacing the average return of 6.48% for its peer group, the
Louisiana municipal bond fund category. You will find additional details on the
fund's performance on pages 6-7.
THE YEAR IN REVIEW
Over the past year, U.S. investors have benefited from robust economic growth
with little evidence of inflationary pressures. With unemployment rates at
20-year lows and the current economic expansion entering its seventh year, the
presence of benign inflation has sparked debate over whether the traditional
link between growth and inflation has been broken. During 1997, expectations
that excess growth would generate inflation disrupted the markets on several
occasions, most notably following the Federal Reserve's interest rate tightening
in March and speeches by Fed Chairman Alan Greenspan. Still, falling commodity
prices kept producer prices in check, while low import
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1
<PAGE>
"The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation."
prices--due in part to the weakness in Asian markets--limited U.S. companies'
ability to raise consumer prices. This combination has kept inflation subdued
and the Federal Reserve "on hold" since March. The reduction in the federal
deficit and passage of the Taxpayer Relief Act of 1997 offer additional
encouragement to long-term fixed-income investors.
HELPING YOU BUILD A BETTER PORTFOLIO
The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation. Stock market volatility,
especially late in the year, provided a vivid illustration of the steadying
effect that fixed-income investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds provide an excellent balance to other
stock and bond investments. Your financial adviser can introduce you to a
variety of other Nuveen products and services to round out your investment
portfolio, including the Nuveen Growth and Income Stock Fund and two balanced
stock and bond funds.
In addition, we recently expanded our private asset management capabilities
through the acquisition of Rittenhouse Financial Services, a well-respected
growth investment manager. We encourage you to talk with your financial adviser
about ways to complement your current Nuveen investments by taking advantage of
these additional products and services.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
January 15, 1998
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2
<PAGE>
ANSWERING YOUR QUESTIONS
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, managing director of Nuveen's portfolio management team, talks about
the municipal bond market and offers insights into factors that affected the
performance of the fund over the past year.
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED THE PERFORMANCE OF MUNICIPAL BONDS
OVER THE PAST YEAR?
Over the past 12 months, the performance of the municipal bond market was
influenced by three major factors: the continued strength of the U.S. economy,
minimal inflation, and volatility in the equity markets. During 1997, these
factors contributed to a positive environment for fixed-income investments, as
reflected in the steady-to-declining interest rates evident during the year.
Between December 1996 and November 1997, the yield on the 30-year Treasury bond
dropped from 6.36% to 6.05%, and the municipal market followed suit, as the
yield on the Bond Buyer 40 declined from 5.63% to 5.36%. The spread between tax-
free municipal bonds and taxable Treasury bonds remained tight, making municipal
bonds very attractive. The strong total returns produced in this environment
were somewhat muted by a heavy supply of newly issued bonds that temporarily
reduced bond prices. The increased supply worked to our advantage, however, as
it expanded opportunities to find value in the marketplace.
HOW HAS THE FUND PERFORMED DURING THIS PERIOD?
As Tim mentioned in his letter to shareholders, the fund performed well during
the one-year period ended November 30, 1997. The total return on net asset value
for Class A shares of the fund was 7.68%, which compares favorably with the one-
year average return of 6.48% for the peer group of Louisiana municipal bond
funds tracked by Lipper Analytical Services--a 120 basis point difference. Once
again, this fund was the top performer in its category, ranking first among the
11 municipal bond funds in the grouping.
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3
<PAGE>
"Through the quality research provided by Nuveen's renowned research team, we
continue to uncover bonds that we feel are undervalued by the rest of the
market."
GIVEN THE CURRENT MUNICIPAL MARKET, WHERE WERE YOU ABLE TO FIND VALUE?
Through the quality research provided by Nuveen's renowned research team, we
continue to uncover bonds that we feel are undervalued by the rest of the
market. Over the past year, we found a number of non-rated securities that were
well-positioned in terms of financial health and ability to repay the bond
obligation. For example, one of the fund's non-rated holdings, bonds issued by
the New Orleans Aquarium, was recently pre-refunded, resulting in a substantial
increase in price for those bonds.
In addition, we feel there is tremendous value in high-grade housing bonds. A
few deals were unexpectedly called by their issuers this year, so bond buyers
appear to be avoiding the entire sector and are effectively driving yields
higher. Since Nuveen has such a large, experienced housing research staff, we
were able to buy these securities with greater confidence. We have also found
good value in higher-rated bonds because credit spreads remained tight. This
enabled us to purchase higher-rated securities without sacrificing much yield.
Presently, the marginally higher yield offered by lower-rated bonds does not
adequately compensate the fund for the increased credit risk.
WHAT ARE YOUR KEY STRATEGIES FOR THE COMING YEAR?
To sustain such outstanding performance, we take a holistic approach to
portfolio management--assessing all of the factors that determine a fund's
performance and taking advantage of all of them to contribute to total return
and dividend stability. In the coming year, one focus will be boosting the
credit quality of the fund. As long as credit spreads remain tight, we will
continue to
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4
<PAGE>
"Looking at the year ahead, we believe the overall market will continue to
strike a good balance between supply and demand."
take advantage of opportunities to purchase bonds with high credit quality at
yields that are similar to bonds with lower ratings. We believe that if credit
spreads widen, these high-quality issues will increase in value relative to
lower-rated bonds.
As part of our value investing approach, we will also continue to look for
individual bonds that offer good long-term value with the potential for
appreciating returns. Our thorough research helps us find investment quality
bonds that offer the best values--such as bonds from specific regions and
sectors that have the best potential for performance and appreciation. We plan
to continue to search for bonds with pre-refunding potential, as well as those
that we feel are undervalued by the market as a whole.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
Looking at the year ahead, we believe the overall market will continue to strike
a good balance between supply and demand. We expect supply to increase as new
issuers continue to enter the market. A continued decline in yields could also
cause new supply to come to market through refunding of current debt. On the
demand side, volatility in the equity markets, plus the potential for a
weakening of the economy, could spark increased interest in bonds of all types.
The financial crises in Asia, coupled with the continued strength of the dollar
and low commodity prices, are all contributing to the excellent inflation
picture. This backdrop should help offset stronger labor markets and limit the
effects of any bond market corrections. In the meantime, positive underlying
fundamentals provide good support for the municipal market.
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5
<PAGE>
NUVEEN FLAGSHIP LOUISIANA
MUNICIPAL BOND FUND
PERFORMANCE OVERVIEW
AS OF NOVEMBER 30, 1997
- ----------------------
MORNINGSTAR RATING/1/
- ----------------------
[4 STARS]
1 Overall rating for Class A shares within the municipal bond category for the
period ended November 30, 1997. Morningstar proprietary ratings reflect
historical risk-adjusted performance and are subject to change every month.
Ratings are calculated from a fund's three-, five- and 10-year average annual
returns in excess of 90-day Treasury bill returns, with appropriate fee
adjustments and a risk factor that reflects fund performance below 90-day
Treasury bill returns. The fund earned four stars for the three- and five-
year periods ended November 30, 1997. In an investment category, 10% of funds
receive five stars and 22.5% receive four stars. For the period ending
November 30, 1997, 1,481 municipal bond funds were rated for the three-year
period, 695 for the five-year period, and 332 for the 10-year period.
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
- ----------------------------------------------------------------------------------------
SHARE CLASS A B C R
<S> <C> <C> <C> <C>
Inception Date 9/89 2/97 2/94 2/97
........................................................................................
Net Asset Value (NAV) $11.44 $11.43 $11.43 $ 11.45
........................................................................................
CUSIP 67065P881 67065P873 67065P865 67065P857
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Total Net Assets ($000) $96,544
........................................................................................
Average Weighted Maturity (Years) 21.62
........................................................................................
Average Weighted Duration (Years) 8.18
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED TOTAL RETURN /2/
- ----------------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
1-Year 7.68% 3.16% 6.83% 7.10% 7.94%
........................................................................................
5-Year 7.67% 6.75% 7.03% 7.06% 7.72%
........................................................................................
Since Inception 8.55% 7.98% 7.95% 7.94% 8.58%
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE YIELDS
- ----------------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.14% 4.92% 4.41% 4.62% 5.34%
........................................................................................
SEC 30-Day Yld 4.55% 4.36% 3.81% 4.01% 4.76%
........................................................................................
Taxable Equiv Yld3 6.89% 6.61% 5.77% 6.08% 7.21%
- ----------------------------------------------------------------------------------------
</TABLE>
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 up-front sales charge. Class B shares have a
contingent deferred sales charge (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 B
shares automatically convert to Class A shares eight years after purchase.
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 34%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
4 The fund paid a capital gains distribution to shareholders in December 1996
of $0.0025 per share.
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6
<PAGE>
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CREDIT QUALITY
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
BBB/NR 14%
A 13%
AAA/Pre-refunded 64%
AA 9%
________________________________________________________________________________
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DIVERSIFICATION
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Utilities 8%
Other 7% Health Care 18%
Tax Obligation (Limited) 9% Education/Civic Org. 4%
Energy 5% Housing (Single-Family) 13%
U.S. Guaranteed 13% Long-Term Care 5%
Forest and Paper Products 5% Tax Obligation (G.O.) 13%
________________________________________________________________________________
- --------------------------------------------------------------------------------
DIVIDEND HISTORY (A SHARES)/4/
- --------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
December 1996 0.0498
January 1997 0.04994
February 0.049
March 0.049
April 0.049
May 0.049
June 0.049
July 0.049
August 0.049
September 0.049
October 0.049
November 0.049
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7
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP LOUISIANA
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC MATERIALS -- 1.7%
$ 1,500,000 Saint Charles Parish, Louisiana, Pollution Control 11/02 at 102 BBB $ 1,648,695
Revenue, Union Carbide Project,
7.350%, 11/01/22
- -----------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS -- 4.2%
750,000 Louisiana Public Facilities Authority, Revenue 10/99 at 102 A+ 804,945
Refunding, Loyola University Project, Series 89-A,
7.250%, 10/01/09
380,000 Louisiana Public Facilities Authority, Revenue 4/02 at 102 A+ 420,250
Refunding, College and University, Loyola University,
6.750%, 4/1/10
775,000 Louisiana Public Facilities Authority, Revenue No Opt. Call Aaa 820,446
Refunding, Student Loan, Senior Series A-2, 6.600%,
3/01/03
1,000,000 Louisiana Public Facilities Authority, Tulane 12/07 at 102 AAA 1,027,330
University of Louisiana, 5.600%, 12/15/27
1,000,000 Louisiana Public Facilities Authority, Revenue 9/07 at 102 AAA 986,570
Refunding, Xavier University of Louisiana Project,
5.250%, 9/01/27
- -----------------------------------------------------------------------------------------------------------------------
ENERGY -- 4.9%
1,000,000 Lake Charles, Louisiana, Harbor and Terminal District 12/02 at 102 BBB 1,096,290
Port Facilities, Revenue Refunding, Occidental
Petroleum Corporation, 7.200%, 12/01/20
500,000 Louisiana Offshore Terminal Authority, Deepwater 9/01 at 102 A 551,865
Port, Revenue Refunding, Loop Inc., First Stage B,
7.200%, 9/01/08
475,000 Louisiana Offshore Terminal Authority, Deepwater Port 9/00 at 102 A 519,204
Revenue, 7.600%, 9/01/10
2,500,000 St. Bernard Parish, Louisiana, Exempt Facility Revenue, 11/06 at 102 AA 2,598,475
Mobil Oil Corporation Project, 5.900%, 11/01/26
- -----------------------------------------------------------------------------------------------------------------------
FOREST AND PAPER PRODUCTS -- 4.9%
1,525,000 De Soto Parish, Louisiana, Environmental Improvement 6/05 at 102 A- 1,660,923
Revenue, International Paper Company Project,
Series B, 6.550%, 4/01/19
3,000,000 Natchitoches Parish, Louisiana, Solid Waste Disposal 12/03 at 102 A- 3,100,110
Revenue, Willamette Industries Project,
5.875%, 12/01/23
</TABLE>
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8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE -- 17.2%
Louisiana Public Facilities Authority, Hospital Revenue
Refunding, Lafayette General Medical Center Project:
$ 1,000,000 6.400%, 10/1/12 10/02 at 102 AAA $1,087,380
2,000,000 6.500%, 10/1/22 10/02 at 102 AAA 2,181,520
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue, 12/03 at 102 AAA 1,029,550
Our Lady Of The Lake Regional Medical Center,
5.900%, 12/03/21
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue 7/07 at 101 AAA 991,120
Refunding, Womans Hospital Foundation Project,
5.375%, 10/1/22
1,325,000 Louisiana Public Facilities Authority, Revenue Refunding, 5/02 at 102 AAA 1,435,956
Series B, Alton Ochsner Medical Foundation Project,
6.500%, 5/15/22
3,400,000 Louisiana Public Facilities Authority, Revenue Refunding, No Opt. Call AA+ 3,334,142
Health Facilities, Sisters Mercy, Series A,
5.000%, 6/01/19
2,500,000 Louisiana Public Facilities Authority, General Health 11/04 at 102 AAA 2,725,300
Inc. Project 6.375%, 1/01/24
500,000 Louisiana Public Facilities Authority, Mary Bird Perkins 1/05 at 102 AAA 540,290
Cancer Center, 6.200%, 1/01/19
2,180,000 St Tammany Parish, Louisiana, Hospital Service District 10/04 at 102 AAA 2,368,505
No. 2, Hospital Revenue, Slidell Memorial
Hospital and Medical Center, 6.250%, 10/01/14
885,000 Tangipahoa Parish, Louisiana, Hospital Service District 2/04 at 102 AAA 952,694
No. 1, Hospital Revenue, 6.250%, 2/01/24
- ------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY -- 2.2%
750,000 Lake Charles, Louisiana, Non Profit Housing Development No Opt. Call AAA 757,500
Corporation, Mortgage Revenue, Chateau Project,
Series A, 7.875%, 2/15/25
735,000 Louisiana Public Facilities Authority, Walmsley Housing No Opt. Call AAA 796,564
Corporation, Series A, 7.500%, 6/01/21
500,000 Louisiana Public Facilities Authority, Voa National
Housing Corporation, 7.750%, 11/01/16 11/01 at 102 AA 536,640
</TABLE>
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9
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP LOUISIANA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/SINGLE FAMILY -- 13.1%
$ 1,260,000 East Baton Rouge, Louisiana, Mortgage Finance Authority, 8/00 at 102 Aaa $ 1,326,591
Single Family Mortgage Purchase, BKD Securities
Program, Series A, 7.875%, 8/01/23
2,235,000 East Baton Rouge, Louisiana, Mortgage Finance Authority, 10/07 at 102 Aaa 2,280,639
Single Family Revenue, Series D, 5.900%, 10/01/30
345,000 Louisiana Housing Finance Agency, Mortgage Revenue, 6/05 at 102 Aaa 366,297
Single Family Mortgage, Series A-2, 5.600%, 6/01/17
Louisiana Housing Finance Agency, Mortgage Revenue,
Single Family Mortgage, Series B-2:
1,000,000 5.600%, 6/01/17 6/07 at 102 Aaa 1,005,900
2,500,000 5.750%, 12/01/28 6/07 at 102 Aaa 2,514,625
Louisiana Housing Finance Agency, Mortgage Revenue,
Single Family Mortgage, Series C-1:
575,000 7.750%, 12/01/22 No Opt. Call Aaa 602,439
2,000,000 5.750%, 12/01/28 12/07 at 102 Aaa 2,010,320
New Orleans, Louisiana, Home Mortgage Authority,
Single Family Mortgage Revenue, Series A:
1,000,000 6.100%, 12/01/29 12/06 at 102 Aaa 1,031,540
1,000,000 5.850%, 12/01/30 12/07 at 102 Aaa 1,012,910
258,730 St. Bernard Parish, Louisiana, Home Mortgage Authority, No Opt. Call A1 284,256
Single Family Mortgage Revenue, Series A,
8.000%, 3/25/12
170,987 St. Mary, Louisiana, Public Tollroad Financing Authority, No Opt. Call Aaa 189,690
Single Family Mortgage Revenue, Series A,
7.625%, 3/25/12
- -------------------------------------------------------------------------------------------------------------------------
LONG TERM CARE -- 5.4%
3,000,000 Louisiana Housing Finance Agency, Mortgage Revenue, 9/05 at 103 AAA 3,306,120
St. Dominic Assistant Care, 6.950%, 9/01/36
1,740,000 Louisiana Housing Finance Agency, Mortgage Revenue, 1/04 at 101 AAA 1,870,309
Villa Maria Retirement Center Project, 7.100%, 1/20/35
- -------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL -- 12.6%
500,000 Louisiana State Refunding, Series B, 5.625%, 8/01/13 No Opt. Call AAA 533,920
New Orleans, Louisiana, Refunding,
2,000,000 0.000%, 9/01/10 No Opt. Call AAA 1,059,820
5,785,000 0.000%, 9/01/16 No Opt. Call AAA 2,188,350
3,000,000 Orleans Parish, Louisiana, Parishwide School District, 3/06 at 100 AAA 2,916,360
5.000%, 9/01/20
</TABLE>
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10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/GENERAL -- CONTINUED
$ 13,875,000 Orleans Parish, Louisiana, School Board, 0.000%, 2/01/15 No Opt. Call AAA $5,482,568
- ------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED -- 8.9%
1,250,000 East Baton Rouge Parish, Louisiana, Sales and Use Tax, 2/03 at 101 1/2 AAA 1,185,438
Series ST-A, 4.900%, 2/1/18
1,000,000 Jefferson, Louisiana, Sales Tax District, Special Sales 12/02 at 100 AAA 1,106,020
Tax Revenue, Series B, 6.750%, 12/01/06
1,530,000 Lafayette Parish, Louisiana, School Board, Sales Tax 4/04 at 101 AAA 1,484,069
Revenue, 4.875%, 4/01/13
685,000 Louisiana Public Facilities Authority, Revenue Refunding, 8/99 at 101 1/2 AAA 730,148
Jefferson Parish, Eastbank Project, 7.700%, 8/01/10
1,500,000 Office Facilities Corporation, A Louisiana Non-Profit 12/01 at 103 BBB+ 1,690,935
Corporation, Capital Facilities, 7.750%, 12/01/10
750,000 Puerto Rico Commonwealth Highway and Transportation 7/16 at 100 A 761,340
Authority, Highway Revenue, Series Y, 5.500%, 7/01/36
1,500,000 Saint John Baptist Parish, Louisiana, Sales Tax District, 12/99 at 103 Baa 1,621,860
Series 1989, 7.800%, 12/01/14
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.5%
505,000 New Orleans, Louisiana, Aviation Board, Series B-1, 10/07 at 102 AAA 502,748
5.450%, 10/01/27
- ------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED -- 13.0%
775,000 Louisiana Public Facilities Authority, Hospital Revenue, No Opt. Call AAA 956,211
Southern Baptist Hospital Inc. Project, 8.000%, 5/15/12
1,125,000 Louisiana Public Facilities Authority, Hospital Revenue, 10/02 at 102 A3*** 1,282,905
Womans Hospital Foundation Project, 7.250%, 10/01/22
500,000 Louisiana Public Facilities Authority, Revenue Refunding, 6/99 at 102 Aaa 533,765
Sisters of Mercy, Series B, 7.375%, 6/01/19
(Pre-refunded to 6/01/99)
10,000,000 Louisiana Public Facilities Authority, Series B, No Opt. Call AAA 3,033,000
0.000%, 12/1/19
1,000,000 Louisiana State General Obligation, 7.125%, 9/01/10 9/00 at 102 Aaa 1,096,350
(Pre-refunded to 9/01/00)
525,000 Louisiana Offshore Terminal Authority, Deepwater Port 9/00 at 102 N/R*** 579,983
Revenue, 7.600%, 9/01/10 (Pre-refunded to 9/01/00)
2,750,000 New Orleans, Louisiana, Audubon Park Commission, 4/02 at 102 N/R*** 3,185,655
Aquarium Revenue, Series A, 8.000%, 4/01/12
</TABLE>
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11
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP LOUISIANA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED -- CONTINUED
$ 1,400,000 Ouachita Parish, Louisiana, Hospital Service District 7/01 at 102 A*** $1,571,332
No.1, Glenwood Regional Medical Center, 7.500%, 7/1/21
(Pre-refunded to 7/01/01)
250,000 Shreveport, Louisiana, Home Mortgage Authority, Single No Opt. Call Aaa 282,503
Family Mortgage Revenue, Series A, 6.750%, 9/01/10
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES -- 8.2%
3,000,000 Lake Charles, Louisiana, Harbor & Terminal District, 8/02 at 103 A3 3,457,620
Port Facilities Revenue, Trunkline LNG Company
Project, 7.750%, 8/15/22
250,000 Puerto Rico Electric Power Authority, Power Revenue, 7/05 at 100 BBB+ 246,000
Formerly Puerto Rico Commonwealth Water
Resource Authority, Series Z, 5.250%, 7/1/21
1,000,000 Saint Charles Parish, Louisiana, Environmental 11/02 at 102 BBB 1,032,960
Improvement Revenue, Louisiana Power
and Light Company Project, Series A, 6.200%, 5/01/23
1,000,000 Saint Charles Parish, Louisiana, Environmental 11/00 at 102 BBB- 1,030,690
Improvement Revenue, Louisiana Power and Light
Company Project, 6.375%, 11/01/25
500,000 Saint Charles Parish, Louisiana, Pollution Control 12/99 at 103 Baa3 544,910
Revenue, Louisiana Power and Light, Series 1984-2,
8.000%, 12/01/14
1,500,000 St. Charles Parish, Louisiana, Solid Waste Disposal 12/02 at 102 BBB 1,627,950
Revenue, Louisiana Power and Light Company Project,
Series A, 7.000%, 12/01/22
</TABLE>
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12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER AND SEWER -- 1.7%
$ 1,500,000 Louisiana Public Facilities Authority, Baton Rouge 2/03 at 101 AA- $ 1,623,300
Water Works Company Project, 6.400%, 2/01/10
- -------------------------------------------------------------------------------------------------------------------------
$110,219,717 Total Investments -- (cost $87,174,628) -- 98.5% 95,122,610
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES -- 0.2%
$ 200,000 Louisiana Offshore Terminal Authority, Deepwater Port
Revenue, Variable Rate Demand Bonds, 3.850%, 9/01/08 VMIG-1 200,000
- -------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.3% 1,221,45
------------------------------------------------------------------------------------------------
Net Assets -- 100% $ 96,544,064
================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year)
and prices of the earliest optional call or
redemption. There may be other call provisions at
varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
*** 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.
+ 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.
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13
<PAGE>
STATEMENT OF NET ASSETS (UNAUDITED)
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
LOUISIANA
- -------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $95,122,610
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 200,000
Cash 136,606
Receivables:
Interest 1,478,396
Investments sold 5,000
Shares sold 218,232
Other assets 568
- -------------------------------------------------------------------------------------------
Total assets 97,161,412
- -------------------------------------------------------------------------------------------
LIABILITIES
Payable for shares redeemed 149,973
Accrued expenses:
Management fees (note 6) 37,026
12b-1 distribution and service fees (notes 1 and 6) 22,605
Other 4,725
Dividends payable 403,019
- -------------------------------------------------------------------------------------------
Total liabilities 617,348
- -------------------------------------------------------------------------------------------
Net assets (note 7) $96,544,064
===========================================================================================
CLASS A SHARES (NOTE 1)
Net assets $82,028,378
Shares outstanding 7,171,734
Net asset value and redemption price per share $ 11.44
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 11.94
===========================================================================================
CLASS B SHARES (NOTE 1)
Net assets $ 3,779,238
Shares outstanding 330,568
Net asset value, offering and redemption price per share $ 11.43
===========================================================================================
CLASS C SHARES (NOTE 1)
Net assets $10,713,588
Shares outstanding 937,318
Net asset value, offering and redemption price per share $ 11.43
===========================================================================================
CLASS R SHARES (NOTE 1)
Net assets $ 22,860
Shares outstanding 1,997
Net asset value, offering and redemption price per share $ 11.45
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
______
14
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
LOUISIANA
<S> <C>
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME
Tax-exempt interest income (note 1) $2,712,949
- -----------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 250,041
12b-1 service fees Class A (notes 1 and 6) 79,402
12b-1 distribution and service fees Class B (notes 1 and 6) 10,475
12b-1 distribution and service fees Class C (notes 1 and 6) 34,909
Shareholders' servicing agent fees and expenses 16,580
Custodian's fees and expenses 24,416
Trustees' fees and expenses (note 6) 772
Professional fees 9,326
Shareholders' reports - printing and mailing expenses 5,446
Federal and state registration fees 2,331
Other expenses 1,678
- -----------------------------------------------------------------------------------------
Total expenses before expense reimbursement 435,376
Expense reimbursement (note 6) (33,761)
- -----------------------------------------------------------------------------------------
Net expenses 401,615
- -----------------------------------------------------------------------------------------
Net investment income 2,311,334
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 203,864
Net change in unrealized appreciation or depreciation of investments 2,521,765
- -----------------------------------------------------------------------------------------
Net gain from investments 2,725,629
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations $5,036,963
=========================================================================================
</TABLE>
______
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSESTS (UNAUDITED)
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP LOUISIANA
-----------------------------------------
SIX MONTHS ENDED YEAR ENDED
11/30/97 5/31/97*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 2,311,334 $ 4,309,839
Net realized gain from investment transactions
(notes 1 and 4) 203,864 185,297
Net change in unrealized appreciation or depreciation
of investments 2,521,765 2,691,765
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 5,036,963 7,186,901
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (2,050,224) (4,001,489)
Class B (46,798) (7,151)
Class C (214,329) (300,999)
Class R (181) (1)
From overdistributed net investment income:
Class A (9,180) -
Class B (210) -
Class C (960) -
Class R (1) -
From accumulated net realized gains from investment
transactions:
Class A - (16,962)
Class B - -
Class C - (1,376)
Class R - -
- --------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (2,321,883) (4,327,978)
- --------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 12,296,659 12,680,296
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 1,555,112 2,019,609
- --------------------------------------------------------------------------------------------------------------
13,851,771 14,699,905
- --------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (4,615,680) (10,629,223)
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 9,236,091 4,070,682
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets 11,951,171 6,929,605
Net assets at the beginning of period 84,592,893 77,663,288
- --------------------------------------------------------------------------------------------------------------
Net assets at the end of period $96,544,064 $ 84,592,893
==============================================================================================================
Balance of undistributed (overdistributed) net investment
income at end of period $ (10,350) $ 199
==============================================================================================================
</TABLE>
*Information represents eight months of Flagship Louisiana and four months
of Nuveen Flagship Louisiana (see note 1).
See accompanying notes to financial statements.
______
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 Louisiana Municipal Bond Fund (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Advisor") of the Fund, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, Flagship Louisiana Double Tax
Exempt Fund ("Flagship Louisiana") was reorganized into the Trust and renamed
Nuveen Flagship Louisiana Municipal Bond Fund ("Nuveen Flagship Louisiana").
Prior to the reorganization, Flagship Louisiana was a sub-trust of the Flagship
Tax Exempt Funds Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
SECURITIES VALUATION
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
SECURITIES TRANSACTIONS
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
November 30, 1997, the Fund had no such outstanding purchase commitments.
INTEREST INCOME
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
______
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
INCOME TAXES
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Louisiana state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Fund. Net
realized capital gain and market discount distributions are subject to federal
taxation.
FLEXIBLE SALES CHARGE PROGRAM
The Fund offers Class A, B, C and R Shares. Class 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.
______
18
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the six months ended November 30, 1997.
EXPENSE ALLOCATION
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
______
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 11/30/97 YEAR ENDED 5/31/97*
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 567,545 $ 6,420,100 822,022 $ 9,004,313
Class B 249,018 2,818,723 82,598 911,240
Class C 268,612 3,035,337 252,430 2,764,643
Class R 1,980 22,499 9 100
Shares issued to shareholders
due to reinvestment
of distributions:
Class A 121,985 1,370,106 168,536 1,844,320
Class B 1,603 18,125 104 1,144
Class C 14,846 166,790 15,928 174,145
Class R 8 91 -- --
- --------------------------------------------------------------------------------------------------------
1,225,597 13,851,771 1,341,627 14,699,905
- --------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (370,346) (4,181,802) (861,984) (9,454,331)
Class B (2,755) (31,049) -- --
Class C (35,624) (402,829) (107,483) (1,174,892)
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------
(408,725) (4,615,680) (969,467) (10,629,223)
- --------------------------------------------------------------------------------------------------------
Net increase 816,872 $ 9,236,091 372,160 $ 4,070,682
========================================================================================================
</TABLE>
*Information represents eight months of Flagship Louisiana and four months of
Nuveen Flagship Louisiana (see note 1).
3. DISTRIBUTIONS TO SHAREHOLDERS
On December 9, 1997, the Fund declared dividend distributions from its tax-
exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0490
Class B .0420
Class C .0440
Class R .0510
- --------------------------------------------------------------------------------------------------------
</TABLE>
At the same time, the Fund also declared taxable distributions, which includes
capital gains and/or taxable market discount, of $.0387 per share.
______
20
<PAGE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities for the six months ended November 30, 1997, aggregated $17,456,732
and $8,817,597, respectively. Purchases and sales (including maturities) of
temporary municipal investments for the six months ended November 30, 1997,
aggregated $7,100,000 and $9,100,000, respectively.
At November 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At November 30, 1997, net unrealized appreciation aggregated $7,947,982, all of
which related to appreciated securities.
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $202,200 of which
approximately $183,600 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the six months ended November 30, 1997, the Distributor compensated
authorized dealers directly with approximately $144,200 in commission advances
at the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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
______
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
the Distributor. During the six months ended November 30, 1997, the Distributor
retained approximately $25,100 in such 12b-1 fees. The remaining 12b-1 fees
charged to the Fund were paid to compensate authorized dealers for providing
services to shareholders relating to their investments. The Distributor also
collected and retained approximately $1,200 of CDSC on share redemptions during
the six months ended November 30, 1997.
7. COMPOSITION OF NET ASSETS
At November 30, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
Capital paid-in $88,282,900
Balance of undistributed (overdistributed) net investment income (10,350)
Accumulated net realized gain from investment transactions 323,532
Net unrealized appreciation of investments 7,947,982
- -------------------------------------------------------------------------------
Net assets $96,544,064
===============================================================================
</TABLE>
______
22
<PAGE>
FINANCIAL HIGHLIGHTS
______
23
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- --------------------------
NET
NUVEEN FLAGSHIP LOUISIANA** NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME (B) INVESTMENTS INCOME GAINS PERIOD VALUE (A)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/89)
1998 (d) $11.10 $.29 $ .34 $(.29) $ -- $11.44 5.76%
1997 10.71 .59 .39 (.59) -- 11.10 9.37
1996 10.80 .59 (.08) (.60) -- 10.71 4.77
1995 10.48 .60 .32 (.60) -- 10.80 9.20
1994 10.93 .61 (.40) (.62) (.04)*** 10.48 1.77
1993 10.30 .64 .67 (.63) (.05) 10.93 13.12
1992 10.02 .65 .35 (.65) (.07) 10.30 10.35
1991 9.63 .66 .40 (.67) -- 10.02 11.47
1990 (c) 9.58 .44 .04 (.43) -- 9.63 6.52*
CLASS B (2/97)
1998 (d) 11.09 .25 .34 (.25) -- 11.43 5.38
1997 (c) 11.10 .16 -- (.17) -- 11.09 1.44
CLASS C (2/94)
1998 (d) 11.09 .26 .34 (.26) -- 11.43 5.49
1997 10.70 .53 .39 (.53) -- 11.09 8.78
1996 10.80 .53 (.09) (.54) -- 10.70 4.12
1995 10.48 .54 .32 (.54) -- 10.80 8.59
1994 (c) 11.29 .16 (.81) (.16) -- 10.48 (17.21)*
CLASS R (2/97)
1998 (d) 11.09 .30 .37 (.31) -- 11.45 6.07
1997 (c) 11.17 .15 (.08) (.15) -- 11.09 .67
- ------------------------------------------------------------------------------------------------------------------------------
</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) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its
predecessor Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
______
24
<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
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (B) MENT (B) RATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 82,028 .88%* 5.09%* .81%* 5.16%* 10%
76,030 1.03 5.14 .79 5.38 25
72,005 1.09 5.17 .80 5.46 26
68,145 1.18 5.45 .83 5.80 44
66,281 1.12 5.10 .66 5.56 22
54,483 1.16 5.40 .61 5.95 29
38,873 1.22 5.70 .49 6.43 43
27,762 1.17 6.00 .38 6.79 57
16,678 1.48* 5.36* .44* 6.40* 32
3,779 1.64* 4.33* 1.56* 4.41* 10
917 1.65* 4.50* 1.46* 4.69* 25
10,714 1.43* 4.54* 1.36* 4.61* 10
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
23 .67* 5.28* .60* 5.35* 10
-- .08* 5.27* .04* 5.31* 25
- -----------------------------------------------------------------------------------------------
</TABLE>
______
25
<PAGE>
ADDITIONAL INVESTMENT OPPORTUNITIES
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your financial
goals.
GROWTH FUNDS
Nuveen Rittenhouse Growth Fund
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
NATIONAL FUNDS
Long-Term
Insured
Intermediate
Limited Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Fund, contact your financial
adviser. If you would like to add to your current investment on a regular basis,
you can sign up for Nuveen's systematic investing program, which allows you to
invest a fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you give your investment the added
growth potential of long-term compounding.
For more information on any of these service options, call your adviser, or
Nuveen at (800) 225-8530.
______
26
<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
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
______
27
<PAGE>
SERVING INVESTORS
FOR GENERATIONS
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
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 products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 225-8530
www.nuveen.com
<PAGE>
NUVEEN
Municipal
Bonds Funds
November 30, 1997
Semiannual Report
[PHOTO APPEARS HERE]
Dependable, tax-free income
to help you keep more of
what you earn.
Alabama
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Performance Overview
8 Portfolio of Investments
12 Statement of Net Assets
13 Statement of Operations
14 Statement of Changes in Net Assets
15 Notes to Financial Statements
21 Financial Highlights
24 Additional Investment Opportunities
25 Fund Information
<PAGE>
[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.
Dear Shareholder
It's a pleasure to share with you the Nuveen Flagship Alabama Municipal Bond
Fund's outstanding performance record for the 12 months ended November 30, 1997.
Over the past year, investors continued to enjoy attractive, tax-free dividends
generated by the fund's portfolio of municipal bonds. As of November 30, 1997,
Class A shareholders were receiving a current yield on net asset value of 4.81%.
To match this yield, investors in the 33.5% combined federal and state income
tax bracket would have had to earn at least 7.23% on taxable alternatives.
During this same period, the fund provided Class A shareholders with a highly
competitive total return on net asset value of 8.01% with income reinvested, far
outpacing the average return of 6.76% for its peer group, the Lipper Alabama
municipal bond fund category. You will find additional details on the fund's
performance on pages 6-7.
The Year in Review
Over the past year, U.S. investors have benefited from robust economic growth
with little evidence of inflationary pressures. With unemployment rates at
20-year lows and the current economic expansion entering its seventh year, the
presence of benign inflation has sparked debate over whether the traditional
link between growth and inflation has been broken. During 1997, expectations
that excess growth would generate inflation disrupted the markets on several
occasions, most notably following the Federal Reserve's interest rate tightening
in March and speeches by Fed Chairman Alan Greenspan. Still, falling commodity
prices kept producer prices in check, while low import
1
<PAGE>
"The events of 1997
have focused renewed
attention on the need
for diversification and
appropriate asset allocation."
prices-due in part to the weakness in Asian markets--limited U.S. companies'
ability to raise consumer prices. This combination has kept inflation subdued
and the Federal Reserve "on hold" since March. The reduction in the federal
deficit and passage of the Taxpayer Relief Act of 1997 offer additional
encouragement to long-term fixed-income investors.
Helping You Build A Better Portfolio
The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation. Stock market volatility,
especially late in the year, provided a vivid illustration of the steadying
effect that fixed-income investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds provide an excellent balance to other
stock and bond investments. Your financial adviser can introduce you to a
variety of other Nuveen products and services to round out your investment
portfolio, including the Nuveen Growth and Income Stock Fund and two balanced
stock and bond funds.
In addition, we recently expanded our private asset management capabilities
through the acquisition of Rittenhouse Financial Services, a well-respected
growth investment manager. We encourage you to talk with your financial adviser
about ways to complement your current Nuveen investments by taking advantage of
these additional products and services.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
January 15, 1998
2
<PAGE>
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, managing director of Nuveen's
portfolio management team, talks about the
municipal bond market and offers insights into
factors that affected the performance of the fund
over the past year.
Answering Your Questions
What economic and market factors influenced the
performance of municipal bonds over the past year?
Over the past 12 months, the performance of the municipal bond market was
influenced by three major factors: the continued strength of the U.S. economy,
minimal inflation and volatility in the equity markets. During 1997, these
factors contributed to a positive environment for fixed-income investments, as
reflected in the steady-to-declining interest rates evident during the year.
Between December 1996 and November 1997, the yield on the 30-year Treasury bond
dropped from 6.36% to 6.05%, and the municipal market followed suit, as the
yield on the Bond Buyer 40 declined from 5.63% to 5.36%. The spread between tax-
free municipal bonds and taxable Treasury bonds remained tight, making municipal
bonds very attractive.
How has the fund performed during this period?
As Tim mentioned in his letter to shareholders, the fund performed very well
during the one-year period ended November 30, 1997. The total return on net
asset value for Class A shares of the fund was 8.01%, which compares favorably
with the one-year average return of 6.76% for the peer group of Alabama
municipal bond funds tracked by Lipper Analytical Services-a 125 basis point
difference. Once again, this fund was the top performer in its category, ranking
first among the eight municipal bond funds in the grouping.
3
<PAGE>
"We concentrated on identifying individual bonds that enhanced the structure of
the portfolio, allowing the fund to rally as the market moved forward"
Given the current municipal market, where were you able to find value?
We concentrated on identifying individual bonds that enhanced the structure of
the portfolio, allowing the fund to rally as the market moved forward.
Specifically, we purchased longer duration bonds with good call protection at
the lower prices available earlier this year. These bonds are going to be
increasingly difficult to find as other market participants struggle to maintain
good structure in their portfolios. We also executed "swaps" earlier in the
year, which allowed the fund to maintain its tax-free distribution yield even as
interest rates declined.
What are your key strategies for the coming year?
To sustain such outstanding performance, we take a holistic approach to
portfolio management--assessing all of the factors that determine a fund's
performance and taking advantage of all of them to contribute to total return
and dividend stability. In the coming year, one focus will be maintaining good
call protection, which helps sustain the fund's dividend, regardless of the
direction that interest rates take.
While credit spreads are tight, we will continue to take advantage of
opportunities to purchase bonds with high credit quality at yields that are
similar to bonds with lower ratings. We believe that if credit spreads widen,
these high-quality issues will increase in value relative to lower-rated bonds.
4
<PAGE>
"Looking at the year ahead, we believe the overall market will continue to
strike a good balance between supply and demand."
What is your outlook for the municipal market?
Looking at the year ahead, we believe the overall market will continue to strike
a good balance between supply and demand. We expect supply to increase as new
issuers continue to enter the market. A continued decline in yields could also
cause new supply to come to market through refunding of current debt. On the
demand side, volatility in the equity markets, plus the potential for a
weakening of the economy, could spark increased interest in bonds of all types.
The financial crises in Asia, coupled with the continued strength of the dollar
and low commodity prices, are all contributing to the excellent inflation
picture. This backdrop should help offset stronger labor markets and limit the
effects of any bond market corrections. In the meantime, positive underlying
fundamentals provide good support for the municipal market.
5
<PAGE>
Nuveen Flagship Alabama
Municipal Bond Fund
Performance Overview
As of November 30, 1997
Fund Highlights
<TABLE>
<CAPTION>
================================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 4/94 2/97 2/97 2/97
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $10.45 $10.46 $10.47 $10.51
- --------------------------------------------------------------------------------
CUSIP 67065P105 67065P204 67065P303 67065P402
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $7,198
- --------------------------------------------------------------------------------
Average Weighted Maturity (Years) 21.64
- --------------------------------------------------------------------------------
Average Weighted Duration (Years) 8.47
- --------------------------------------------------------------------------------
</TABLE>
Annualized Total Return(1)
<TABLE>
<CAPTION>
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 8.01% 3.45% 7.38% 7.69% 8.80%
- --------------------------------------------------------------------------------
3-Year 11.06% 9.49% 10.44% 10.68% 11.32%
- --------------------------------------------------------------------------------
Since Inception 7.94% 6.68% 7.34% 7.57% 8.16%
- --------------------------------------------------------------------------------
</TABLE>
Tax-Free Yields
<TABLE>
<CAPTION>
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.05% 4.84% 4.30% 4.53% 5.25%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 4.81% 4.61% 4.07% 4.27% 5.17%
- --------------------------------------------------------------------------------
Taxable Equiv Yld(2) 7.23% 6.93% 6.12% 6.42% 7.77%
- --------------------------------------------------------------------------------
</TABLE>
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 up-front sales charge. Class B shares have a
contingent deferred sales charge (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 B
shares convert automatically to Class A shares eight years after purchase.
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 33.5%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Credit Quality
[PIE CHART APPEARS HERE]
AAA 67%
AA 19%
A 10%
BBB/NR 4%
- ------------------------------------------------------------------
Diversification
[PIE CHART APPEARS HERE]
Water & Sewer 21%
Other 4%
Transportation 7%
Utilities 11%
Health Care 24%
Capital Goods 4%
U.S. Guaranteed 3%
Education/Civic Org. 14%
Tax Obligation (G.O)12%
- ------------------------------------------------------------------
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
December 1996 0.0449
January 1997 0.045
February 0.0442
March 0.0442
April 0.0442
May 0.0442
June 0.044
July 0.044
August 0.044
September 0.044
October 0.044
November 0.044
7
<PAGE>
<TABLE>
Portfolio of Investments (Unaudited)
Nuveen Flagship Alabama
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Capital Goods - 3.7%
$ 250,000 Tallahassee, Alabama, Industrial Development 8/06 at 102 A1 $266,018
Board, Revenue Refunding, United Tech Composite
Product, Series A, 6.100%, 8/01/14
- -------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 13.5%
495,000 Alabama Agricultural & Mechanical University, 11/05 at 102 AAA 501,782
Formerly Alabama Agricultural & Mechanical College,
5.500%, 11/01/20
150,000 Birmingham Southern College, Alabama, Private 6/06 at 102 A3 156,168
Educational Building Authority, Tuition,
6.000%, 12/01/21
200,000 Troy State University, Troy State University/ 6/07 at 102 AAA 206,712
City of Troy Project, 5.650%, 6/01/27
110,000 University South, Alabama, University Revenues, 5/06 at 102 AAA 108,587
Refunding, Tuition, 5.000%, 11/15/15
- -------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 1.5%
100,000 Courtland, Alabama, Industrial Development Board, 9/05 at 102 Baa1 107,776
Solid Waste Disposal Revenue, Champion
International Corporation Project, Series A,
6.500%, 9/01/25
- -------------------------------------------------------------------------------------------------------------------
Health Care - 23.4%
600,000 Alabama Special Care Facilities Financing Authority, 11/05 at 101 AA+ 561,468
Birmingham Revenue Refunding, Daughters Charity,
St. Vincents, 5.000%, 11/01/25
150,000 Birmingham, Alabama, Special Care Facilities 6/07 at 102 AAA 151,658
Financing Authority, Health Care Facility Revenue,
Children's Hospital, 5.500%, 6/01/22
200,000 Birmingham, Alabama, Special Care Facilities 8/05 at 102 AAA 209,322
Financing Authority, Revenue Refunding, Carraway
Methodist Health System, Series A, 5.875%, 8/15/15
100,000 Colbert County, Northwest Alabama Health Care 6/05 at 102 AAA 104,542
Authority, Health Care Facilities Revenue,
Helen Keller Hospital, 5.750%, 6/01/15
300,000 Huntsville, Alabama, Health Care Authority, Series A, 6/07 at 102 AAA 290,199
5.000%, 6/01/17 (WI)
25,000 Huntsville, Alabama, Health Care Authority, Health 6/02 at 110 AAA 27,701
Care Facilities Revenue, Series B, 6.500%, 6/01/13
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------------
Health Care - continued
<S> <C> <C> <C> <C>
$ 100,000 Lauderdale County & Florence, Alabama, Health Care 7/06 at 102 AAA $ 104,265
Authority, Revenue Refunding, Eliza Coffee Memorial
Hospital, 5.750%, 7/01/19
150,000 Puerto Rico Industrial Tourist Educational Medical & 7/05 at 102 AAA 163,090
Environmental Control Facilities Financing Authority,
Hospital Revenue, Series A, 6.250%, 7/01/24
70,000 Puerto Rico Industrial Tourist Educational Medical & 8/05 at 101 1/2 AAA 75,311
Environmental Control Facilities Financing Authority,
Hospital Revenue Refunding, Pila Hospital Project,
Series A, 5.875%, 8/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 1.6%
85,000 Alabama Housing Finance Authority, Single Family 4/05 at 102 Aaa 89,570
Mortgage Revenue, Collateralized Home Mortgage,
Series A-2, 6.400%, 10/01/20
25,000 Alabama Housing Finance Authority, Single Family 4/04 at 102 Aaa 26,821
Mortgage Revenue, Home Mortgage, Series A-1,
6.600%, 4/01/19
- ---------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 11.5%
150,000 Birmingham, Alabama, Refunding, Series A, 4/02 at 102 AA 155,709
5.750%, 4/01/19
180,000 Mobile, Alabama, Capital Improvement, 2/06 at 102 AAA 188,334
5.750%, 2/15/16
200,000 Northport, Alabama, Series A, 5.700%, 3/01/21 3/06 at 102 AAA 207,694
Puerto Rico Commonwealth:
150,000 6.450%, 7/01/17 7/04 at 102 A 166,200
100,000 6.500%, 7/01/23 7/04 at 101 1/2 A 110,481
- ---------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 1.5%
100,000 Alabama State Public School & College Authority, No Opt. Call Aa 107,430
Refunding, Series A, 6.000%, 8/01/02
- ---------------------------------------------------------------------------------------------------------------------------------
Transportation - 7.2%
Alabama State Docks Department, Docks
Facilities Revenue:
200,000 6.100%, 10/01/13 10/06 at 102 AAA 215,136
200,000 5.375%, 10/01/17 10/07 at 102 AAA 200,246
100,000 Huntsville-Madison County, Alabama, Airport Authority 1/07 at 102 AAA 99,490
Airport Terminal Revenue, 5.400%, 7/01/19
</TABLE>
9
<PAGE>
Portfolio of Investments (Unaudited)
Nuveen Flagship Alabama - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed - 3.3%
$ 50,000 Puerto Rico Commonwealth Highway & Transportation 7/02 at 101 1/2 AAA $ 55,666
Authority, Highway Revenue, Series T,
6.625%, 7/01/18 (Pre-refunded to 7/01/02)
160,000 Puerto Rico Electric Power Authority, Power Revenue, 7/01 at 102 Aaa 178,080
Formerly Puerto Rico Commonwealth Water
Resource Authority, Series P, 7.000%, 7/01/21
(Pre-refunded to 7/01/01)
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 11.0%
150,000 Clark & Mobile County, Alabama, Gas District 12/06 at 102 AAA 154,701
Natural Gas System Revenue, Refunding,
5.600%, 12/01/17
90,000 Huntsville, Alabama, Electric System Revenue, 12/03 at 102 AA 96,879
6.100%, 12/01/10
200,000 Oneonta, Alabama, Utilities Board, Utility Revenue 11/06 at 102 AAA 202,944
Refunding, 5.500%, 11/01/23
165,000 Puerto Rico Electric Power Authority, Power Revenue, 7/04 at 102 BBB+ 181,351
Formerly Puerto Rico Commonwealth Water
Resource Authority Power, Series T, 6.375%, 7/01/24
150,000 Puerto Rico Electric Power Authority, Power Revenue, No Opt. Call AAA 154,722
Formerly Puerto Rico Commonwealth Water
Resource Authority, Series Aa, 5.000%, 7/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 20.5%
25,000 Alabama Water Pollution Control Authority, 8/05 at 100 AAA 27,803
Revolving Fund Loan, Series A, 6.750%, 8/15/17
400,000 Bayou Louisiana Batre, Alabama, Utilities Board, 3/07 at 102 AA 412,340
Water & Sewer Revenue Refunding & Improvement,
5.750%, 3/01/27
375,000 Cherokee County, Alabama, Water Authority, Water 4/07 at 102 AAA 392,149
Revenue, Refunding, 5.750%, 4/01/22
Jefferson County, Alabama, Sewer Revenue Refunding,
Series A:
100,000 5.625%, 2/01/22 2/07 at 101 AAA 102,876
200,000 5.375%, 2/01/27 2/07 at 100 AAA 199,254
100,000 Jefferson County, Alabama, Sewer Revenue, 2/07 at 101 AAA 104,514
Series D, 5.750%, 2/01/27
</TABLE>
- ----
10
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Water and Sewer - continued
$ 100,000 Mobile, Alabama, Water & Sewer Commissions, 1/05 at 102 AAA $ 104,131
Water & Sewer Revenue, Series 95,
5.500%, 1/01/10
125,000 Pritchard, Alabama, Waterworks & Sewer Board, 11/04 at 102 AAA 134,356
Water & Sewer Revenue Refunding,
6.125%, 11/15/14
- ---------------------------------------------------------------------------------------------------------------------------------
$ 6,880,000 Total Investments - (cost $6,766,386) - 98.7% 7 ,103,476
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.3% 94,715
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $7 ,198,191
======================================================================================================
* Optional Call Provisions: Dates (month and year)
and prices of the earliest optional call or
redemption. There may be other call provisions at
varying prices at later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
(WI) Security purchased on a when-issued basis (see note 1).
</TABLE>
11 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets (Unaudited)
November 30, 1997
Nuveen Flagship
Alabama
- -----------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $7,103,476
Cash 323,948
Receivables:
Fund Manager (note 6) 7,169
Interest 106,624
Other assets 41
- -----------------------------------------------------------------------------------------
Total assets 7,541,258
- -----------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 288,418
Shares redeemed 15,522
Accrued expenses:
12b-1 distribution and service fees (notes 1 and 6) 2,215
Other 7,925
Dividends payable 28,987
- -----------------------------------------------------------------------------------------
Total liabilities 343,067
- -----------------------------------------------------------------------------------------
Net assets (note 7) $7,198,191
=========================================================================================
Class A Shares (note 1)
Net assets $5,060,074
Shares outstanding 484,279
Net asset value and redemption price per share $ 10.45
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 10.91
=========================================================================================
Class B Shares (note 1)
Net assets $ 709,458
Shares outstanding 67,799
Net asset value, offering and redemption price per share $ 10.46
=========================================================================================
Class C Shares (note 1)
Net assets $1,428,553
Shares outstanding 136,460
Net asset value, offering and redemption price per share $ 10.47
=========================================================================================
Class R Shares (note 1)
Net assets $ 106
Shares outstanding 10
Net asset value, offering and redemption price per share $ 10.51
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations (Unaudited)
Six months ended November 30, 1997
Nuveen Flagship Alabama
- -----------------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $175,627
- -----------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 17,783
12b-1 service fees -- Class A (notes 1 and 6) 4,844
12b-1 distribution and service fees -- Class B (notes 1 and 6) 3,139
12b-1 distribution and service fees -- Class C (notes 1 and 6) 3,608
Shareholders' servicing agent fees and expenses 2,226
Custodian's fees and expenses 25,744
Trustees' fees and expenses (note 6) 37
Professional fees 5,300
Shareholders' reports -- printing and mailing expenses 346
Federal and state registration fees 2,906
Organizational expenses (note 1) 10,166
Other expenses 92
- -----------------------------------------------------------------------------------------
Total expenses before expense reimbursement 76,191
Expense reimbursement (note 6) (58,659)
- -----------------------------------------------------------------------------------------
Net expenses 17,532
- -----------------------------------------------------------------------------------------
Net investment income 158,095
- -----------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 5,575
Net change in unrealized appreciation or depreciation of investments 190,108
- -----------------------------------------------------------------------------------------
Net gain from investments 195,683
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations $353,778
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets (Unaudited)
Nuveen Flagship Alabama
-----------------------------
Six months ended Year ended
11/30/97 5/31/97*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 158,095 $ 197,497
Net realized gain from investment transactions (notes 1 and 4) 5,575 588
Net change in unrealized appreciation or depreciation
of investments 190,108 138,286
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 353,778 336,371
- --------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (123,279) (195,673)
Class B (14,419) (2,069)
Class C (19,636) (212)
Class R (3) (1)
- --------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (157,337) (197,955)
- --------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 2,206,882 2,438,658
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 81,178 99,346
- --------------------------------------------------------------------------------------------------------------------
2,288,060 2,538,004
- --------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (527,838) (691,292)
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 1,760,222 1,846,712
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets 1,956,663 1,985,128
Net assets at the beginning of period 5,241,528 3,256,400
- --------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $7,198,191 $5,241,528
====================================================================================================================
Balance of undistributed net investment income at end of period $ 815 $ 57
====================================================================================================================
*Information represents eight months of Flagship Alabama and four months of Nuveen Flagship Alabama (see note 1).
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
Notes to Financial Statements (Unaudited)
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 "Fund"), among others. The Trust
was organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co.
Incorporated and Nuveen Advisory Corp., respectively, the
distributor ("Distributor") and investment advisor ("Adviser") of
the Fund, entered into an agreement under which Nuveen acquired
Flagship Resources Inc. and after the close of business on January
31, 1997, consolidated their respective mutual fund businesses.
This agreement was approved at a meeting by the shareholders of
the Flagship Funds in December 1996.
After the close of business on January 31, 1997, Flagship Alabama
Double Tax Exempt Fund ("Flagship Alabama") was reorganized into
the Trust and renamed Nuveen Flagship Alabama Municipal Bond Fund
("Nuveen Flagship Alabama"). Prior to the reorganization, Flagship
Alabama was a sub-trust of the Flagship Tax Exempt Funds Trust.
The Fund seeks to provide high tax-free income and preservation of
capital through investments in a diversified portfolio of quality
municipal bonds.
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial
statements in accordance with generally accepted accounting
principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio
are provided by a pricing service approved by the Fund's Board of
Trustees. When price quotes are not readily available (which is
usually the case for municipal securities), the pricing service
establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers
and general market conditions. Temporary investments in securities
that have variable rate and demand features qualifying them as
short-term securities are valued at amortized cost, which
approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis.
Realized gains and losses from such transactions are determined on
the specific identification method. Securities purchased or sold
on a when-issued or delayed delivery basis may have extended
settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the
custodian to segregate assets in a separate account with a current
value at least equal to the amount of the when-issued and delayed
delivery purchase commitments. At November 30, 1997, the Fund had
an outstanding when-issued purchase commitment of $288,418.
Interest Income
Interest income is determined on the basis of interest accrued,
adjusted for amortization of premiums and accretion of discounts
on long-term debt securities when required for federal income tax
purposes.
15
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly
and payment is made or reinvestment is credited to shareholder
accounts on the first business day after month-end. Net realized
capital gains and/or market discount from investment transactions,
if any, are distributed to shareholders not less frequently than
annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income,
net realized capital gains and/or market discount are recorded on
the ex-dividend date. The amount and timing of distributions are
determined in accordance with federal income tax regulations,
which may differ from generally accepted accounting principles.
Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either
distributions in excess of net investment income, distributions in
excess of net realized gains and/or distributions in excess of net
ordinary taxable income from investment transactions, where
applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes.
The Fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its tax-exempt net investment income, in
addition to any significant amounts of net realized capital gains
and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or
market discount as amounts in excess of $.001 per share.
Furthermore, the Fund intends to satisfy conditions which will
enable interest from municipal securities, which is exempt from
regular federal and Alabama state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the
Fund. Net realized capital gain and market discount distributions
are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class 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.
16
<PAGE>
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments
including futures, forward, swap, option contracts, and other
financial instruments with similar characteristics. Although the
Fund is authorized to invest in such financial instruments, and
may do so in the future, it did not make any such investments
during the six months ended November 30, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a
specific class of shares are prorated among the classes based on
the relative net assets of each class. Expenses directly
attributable to a class of shares, which presently only includes
12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from
operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund
(approximately $60,800) will be reimbursed to the Adviser on a
straight-line basis over a period of three years. As of November
30, 1997, $30,430 has been reimbursed.
17
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six months ended 11/30/97 Year ended 5/31/97*
-------------------------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 89,387 $ 923,005 165,385 $1,650,047
Class B 8,676 89,667 58,298 585,381
Class C 115,767 1,194,210 20,200 203,130
Class R -- -- 10 100
Shares issued to
shareholders due to
reinvestment of distributions:
Class A 6,577 67,530 9,936 99,346
Class B 825 8,533 -- --
Class C 493 5,115 -- --
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------------
221,725 2,288,060 253,829 2,538,004
- --------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (50,952) (527,838) (69,498) (691,292)
Class B -- -- -- --
Class C -- -- -- --
Class R -- -- -- --
- --------------------------------------------------------------------------------------------------------------
(50,952) (527,838) (69,498) (691,292)
- --------------------------------------------------------------------------------------------------------------
Net increase 170,773 $1,760,222 184,331 $1,846,712
==============================================================================================================
</TABLE>
* Information represents eight months of Flagship Alabama and four months of
Nuveen Flagship Alabama (see note 1).
3. Distributions to Shareholders
On December 9, 1997, the Fund declared dividend distributions from its tax-
exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0440
Class B .0375
Class C .0395
Class R .0460
- --------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in
municipal securities for the six months ended November 30, 1997,
aggregated $2,260,644 and $363,091, respectively. Purchases and
sales (including maturities) of temporary municipal investments
for the six months ended November 30, 1997, aggregated $1,200,000
and $1,200,000, respectively.
At November 30, 1997, the identified cost of investments owned for
federal income tax purposes was the same as the cost for financial
reporting purposes for each Fund.
At May 31, 1997, the Fund's last fiscal year end, the Fund had an
unused capital loss carryforward of $11,473 available for federal
income tax purposes to be applied against future capital gains, if
any. If not applied, the carryforward will expire in the year
2005.
5. Unrealized Appreciation (Depreciation)
At November 30, 1997, net unrealized appreciation aggregated
$337,090, all of which related to appreciated securities.
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the
Adviser, the Fund pays an annual management fee, payable monthly,
at the rates set forth below which are based upon the average
daily net asset value of the Fund:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
--------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
--------------------------------------------------------------
</TABLE>
The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office
facilities. The Trust pays no compensation directly to its
Trustees who are affiliated with the Adviser or to its officers,
all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time,
which may be terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor
collected sales charges on purchases of Class A Shares of
approximately $18,200 of which approximately $15,900 were paid out
as concessions to authorized dealers. The Distributor also
received 12b-1 service fees on Class A Shares, substantially all
of which were paid to compensate authorized dealers for providing
services to shareholders relating to their investments.
19
<PAGE>
Notes to Financial Statements (Unaudited) -- continued
During the six months ended November 30, 1997, the Distributor
compensated authorized dealers directly with approximately
$15,500 in commission advances at the time of purchase. To
compensate for commissions advanced to authorized dealers, all
12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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 six months ended November 30, 1997,
the Distributor retained approximately $6,700 in such 12b-1 fees.
The remaining 12b-1 fees charged to the Fund were paid to
compensate authorized dealers for providing services to
shareholders relating to their investments.
7. Composition of Net Assets
At November 30, 1997, the Fund had an unlimited number of $.01
par value shares authorized. Net assets consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C>
Capital paid-in $6,868,888
Balance of undistributed net investment income 815
Accumulated net realized gain (loss) from investment transactions (8,602)
Net unrealized appreciation of investments 337,090
- --------------------------------------------------------------------------------------------------------
Net assets $7,198,191
========================================================================================================
</TABLE>
20
<PAGE>
Financial Highlights
21
<PAGE>
Financial Highlights (Unaudited)
Selected data for a common share outstanding throughout
each period is as follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
----------------------- --------------------------
Net
Nuveen Flagship Alabama** Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income (b) investments income gains period value (a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (4/94)
1998 (d) $10.12 $.26 $ .33 $(.26) $-- $10.45 5.92%
1997 9.77 .53 .35 (.53) -- 10.12 9.22
1996 9.94 .53 (.17) (.53) -- 9.77 3.72
1995 9.66 .52 .28 (.52) -- 9.94 8.77
1994 (c) 9.58 .03 .09 (.04) -- 9.66 9.34*
Class B (2/97)
1998 (d) 10.14 .22 .33 (.23) -- 10.46 5.43
1997 (c) 10.16 .11 (.02) (.11) -- 10.14 .94
Class C (2/97)
1998 (d) 10.14 .23 .34 (.24) -- 10.47 5.63
1997 (c) 10.16 .12 (.02) (.12) -- 10.14 .99
Class R (2/97)
1998 (d) 10.13 .32 .34 (.28) -- 10.51 6.54
1997 (c) 10.16 .16 (.05) (.14) -- 10.13 1.08
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31,
1997, reflects the financial highlights of Flagship Alabama.
(a) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
22
<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
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment(b) ment(b) rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5,060 2.20%* 3.23%* .38%* 5.05%* 6%
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* --
709 2.95* 2.49* 1.13* 4.31* 6
591 2.79* 2.18* .71* 4.26* 72
1,429 2.75* 2.67* .94* 4.48* 6
205 2.62* 2.35* .40* 4.57* 72
-- .60* 5.64* -- 6.24* 6
-- .91* 5.26* -- 6.17* 72
- ------------------------------------------------------------------------------
</TABLE>
- ---
23
<PAGE>
Additional Investment
Opportunities
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed
to help you reach your financial goals.
Growth Funds
Nuveen Rittenhouse Growth Fund
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate
Limited Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Fund, contact your financial
adviser. If you would like to add to your current investment on a regular basis,
you can sign up for Nuveen's systematic investing program, which allows you to
invest a fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you give your investment the added
growth potential of long-term compounding.
For more information on any of these service options, call your adviser, or
Nuveen at (800) 225-8530.
24
<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
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, Illinois
- ---
25
<PAGE>
Serving Investors
for Generations
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
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 products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 225-8530
www.nuveen.com
<PAGE>
NUVEEN
Municipal
Bond Funds
November 30, 1997
Semiannual Report
[PHOTO APPEARS HERE]
Dependable, tax-free income
to help you keep more of
what you earn.
Georgia
<PAGE>
Contents
1 Dear Shareholder
3 Answering Your Questions
6 Performance Overview
8 Portfolio of Investments
16 Statement of Net Assets
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Notes to Financial Statements
25 Financial Highlights
28 Additional Investment Opportunities
29 Fund Information
<PAGE>
[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.
Dear Shareholder
It's a pleasure to share with you the Nuveen Flagship Georgia Municipal Bond
Fund's outstanding performance record for the 12 months ended November 30, 1997.
Over the past year, investors continued to enjoy attractive, tax-free dividends
generated by the fund's portfolio of municipal bonds. As of November 30, 1997,
Class A shareholders were receiving a current yield on net asset value of 4.57%.
To match this yield, investors in the 35% combined federal and state income tax
bracket would have had to earn at least 7.03% on taxable alternatives.
During this same period, the fund provided Class A shareholders with a highly
competitive total return on net asset value of 9.77% with income reinvested, far
outpacing the average return of 6.87% for its peer group, the Lipper Georgia
municipal bond fund category. You will find additional details on the fund's
performance on pages 6-7.
The Year in Review
Over the past year, U.S. investors have benefited from robust economic growth
with little evidence of inflationary pressures. With unemployment rates at
20-year lows and the current economic expansion entering its seventh year, the
presence of benign inflation has sparked debate over whether the traditional
link between growth and inflation has been broken. During 1997, expectations
that excess growth would generate inflation disrupted the markets on several
occasions, most notably following the Federal Reserve's interest rate tightening
in March and speeches by Fed Chairman Alan Greenspan. Still, falling commodity
prices kept producer prices in check, while low import prices--due in part to
the
1
<PAGE>
"The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation."
weakness in Asian markets--limited U.S. companies' ability to raise consumer
prices. This combination has kept inflation subdued and the Federal Reserve "on
hold" since March. The reduction in the federal deficit and passage of the
Taxpayer Relief Act of 1997 offer additional encouragement to long-term fixed-
income investors.
Helping You Build A Better Portfolio
The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation. Stock market volatility,
especially late in the year, provided a vivid illustration of the steadying
effect that fixed-income investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds provide an excellent balance to other
stock and bond investments. Your financial adviser can introduce you to a
variety of other Nuveen products and services to round out your investment
portfolio, including the Nuveen Growth and Income Stock Fund and two balanced
stock and bond funds.
In addition, we recently expanded our private asset management capabilities
through the acquisition of Rittenhouse Financial Services, a well-respected
growth investment manager. We encourage you to talk with your financial adviser
about ways to complement your current Nuveen investments by taking advantage of
these additional products and services.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Tim R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
January 15, 1998
2
<PAGE>
Answering Your Questions
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, managing director of Nuveen's portfolio management team, talks about
the municipal bond market and offers insights into factors that affected the
performance of the fund over the past year.
What economic and market factors influenced the performance of municipal bonds
over the past year?
Over the past 12 months, the performance of the municipal bond market was
influenced by three major factors: the continued strength of the U.S. economy,
minimal inflation, and volatility in the equity markets. During 1997, these
factors contributed to a positive environment for fixed-income investments, as
reflected in the steady-to-declining interest rates evident during the year.
Between December 1996 and November 1997, the yield on the 30-year Treasury bond
dropped from 6.36% to 6.05%, and the municipal market followed suit, as the
yield on the Bond Buyer 40 declined from 5.63% to 5.36%. The spread between tax-
free municipal bonds and taxable Treasury bonds remained tight, making municipal
bonds very attractive. The strong total returns produced in this environment
were somewhat muted by a heavy supply of newly issued bonds that temporarily
reduced bond prices. The increased supply worked to our advantage, however, as
it expanded opportunities to find value in the marketplace.
How has the fund performed during this period?
As Tim mentioned in his letter to shareholders, the fund performed well during
the one-year period ended November 30, 1997. The total return on net asset value
for Class A shares of the fund was 9.77%, which compares favorably with the one-
year average return of 6.87% for the peer group of Georgia municipal bond
3
<PAGE>
"The price appreciation of the bonds in the portfolio has allowed us to maintain
strong dividends even as interest rates fell during the year."
funds tracked by Lipper Analytical Services--a 290 basis point difference. Once
again, this fund was one of the top performers in its category, ranking second
among the 32 municipal bond funds in the grouping.
Given the current municipal market, where were you able to find value?
One of the ways that we achieved such outstanding performance and created value
for shareholders was by finding well-structured bonds to add to the portfolio.
We looked for bonds with the combination of maturity, credit quality and call
protection that we felt would appreciate in value. Well-structured state bonds
are becoming more difficult to find in the competitive marketplace, so those
bonds in our portfolio are increasing in value. The price appreciation of the
bonds in the portfolio has allowed us to maintain strong dividends even as
interest rates fell during the year.
What are your key strategies for the coming year?
To sustain this level of performance, we take a holistic approach to portfolio
management--assessing all of the factors that determine a fund's performance and
taking advantage of all of them to contribute to total return and dividend
stability. In the coming year, we will continue to selectively purchase the
bonds that we feel will keep the portfolio balanced in all of these areas. With
the future of the economy so uncertain and many experts calling for a market
correction, we will lean toward a more cautious portfolio management strategy in
the coming months.
4
<PAGE>
"Looking at the year ahead, we believe the overall market will continue to
strike a good balance between supply and demand."
As part of our value investing approach, we will also continue to look for
individual bonds that offer good long-term value with the potential for
appreciating returns. Our thorough research helps us find investment quality
bonds that offer the best values--such as bonds from specific regions and
sectors that have the best potential for performance and appreciation. We plan
to continue to search for bonds with pre-refunding potential, as well as those
that we feel are undervalued by the market as a whole.
What is your outlook for the municipal market?
Looking at the year ahead, we believe the overall market will continue to strike
a good balance between supply and demand. We expect supply to increase as new
issuers continue to enter the market. A continued decline in yields could also
cause new supply to come to market through refunding of current debt. On the
demand side, volatility in the equity markets, plus the potential for a
weakening of the economy, could spark increased interest in bonds of all types.
The financial crises in Asia, coupled with the continued strength of the dollar
and low commodity prices, are all contributing to the excellent inflation
picture. This backdrop should help offset stronger labor markets and limit the
effects of any bond market corrections. In the meantime, positive underlying
fundamentals provide good support for the municipal market.
5
<PAGE>
Nuveen Flagship Georgia
Municipal Bond Fund
Performance Overview
As of November 30, 1997
Fund Highlights
<TABLE>
<CAPTION>
================================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 3/86 2/97 1/94 2/97
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $11.08 $11.09 $11.05 $11.04
- --------------------------------------------------------------------------------
CUSIP 67065P501 67065P600 67065P709 67065P808
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $134,497
- --------------------------------------------------------------------------------
Average Weighted Maturity (Years) 22.11
- --------------------------------------------------------------------------------
Average Weighted Duration (Years) 8.63
- --------------------------------------------------------------------------------
</TABLE>
Annualized Total Return1
<TABLE>
<CAPTION>
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 9.77% 5.12% 9.12% 9.08% 9.57%
- --------------------------------------------------------------------------------
5-Year 7.26% 6.35% 6.67% 6.62% 7.22%
- --------------------------------------------------------------------------------
10-Year 8.39% 7.93% 7.92% 7.77% 8.38%
- --------------------------------------------------------------------------------
</TABLE>
Tax-Free Yields
<TABLE>
<CAPTION>
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Dist Rate 5.09% 4.87% 4.38% 4.56% 5.33%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 4.57% 4.38% 3.83% 4.03% 4.78%
- --------------------------------------------------------------------------------
Taxable Equiv Yld2 7.03% 6.74% 5.89% 6.20% 7.35%
- --------------------------------------------------------------------------------
</TABLE>
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 up-front sales charge. Class B shares have a
contingent deferred sales charge (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 B
shares automatically convert to Class A shares eight years after purchase.
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%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Credit Quality
[PIE CHART APPEARS HERE]
A 19%
AA 16%
BBB/NR 8%
AAA/Pre-refunded 57%
- --------------------------------------------------------------------------------
Diversification
[PIE CHART APPEARS HERE]
Utilities 9%
Health Care 12%
Tax Obligation (Limited) 21%
U.S. Guaranteed 15%
Water & Sewer 4%
Tax Obligation (G.O.) 6%
Other 6%
Housing (Multi-Family) 14%
Housing (Single-Family) 13%
- --------------------------------------------------------------------------------
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
December 1996 0.04786
January 1997 0.04799
February 1997 0.0471
March 1997 0.0471
April 1997 0.0471
May 1997 0.0471
June 1997 0.047
July 1997 0.047
August 1997 0.047
September 1997 0.047
October 1997 0.047
November 1997 0.047
7
<PAGE>
Portfolio of Investments (Unaudited)
Nuveen Flagship Georgia
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer Cyclical - 0.4%
$ 500,000 White County, Georgia, Development Authority 6/02 at 102 BBB+ $ 533,940
Industrial Development Revenue,
Springs Industries, Inc., 6.850%, 6/01/10
- --------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 2.4%
1,000,000 Cartersville, Georgia, Development Authority 5/02 at 102 A+ 1,096,230
Water and Wastewater Facilities,
Anheuser Busch, 6.750%, 2/01/12
2,000,000 Cartersville, Georgia, Development Authority 5/07 at 101 A+ 2,097,920
Sewer Facilities, Anheuser Busch,
6.125%, 5/01/27
- --------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 1.3%
1,000,000 Private Colleges & Universities Facilities No Opt. Call AAA 1,168,980
Authority, Georgia Revenue,
Mercer University Project, 6.500%, 11/01/15
500,000 Private Colleges & Universities Authority, 6/04 at 102 AAA 544,900
Georgia Revenue, Spelman College Project,
6.200%, 6/01/14
- --------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.0%
1,000,000 Savannah, Georgia, Economic Development No Opt. Call A1 1,102,990
Authority, Pollution Control Revenue,
Union Camp Corporation Project,
6.150%, 3/01/17
Wayne County, Georgia, Development Authority,
Solid Waste Disposal Revenue,
Rayonier Inc. Project:
1,000,000 6.100%, 11/01/07 5/03 at 102 BBB+ 1,062,580
500,000 8.000%, 7/01/15 7/00 at 102 BBB+ 541,785
- --------------------------------------------------------------------------------------------------------------------------
Health Care - 11.9%
3,000,000 Chatham County, Georgia, Hospital Authority, 1/07 at 102 AAA 3,004,860
Revenue Refunding & Improvement Hospital,
Memorial Medical Center A,
5.250%, 1/01/16
500,000 Cherokee County, Georgia, Hospital Authority 12/00 at 102 AAA 548,810
Revenue Certificates, Series 1990,
7.250%, 12/01/15
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Health Care -- continued
$1,000,000 Coffee County, Georgia, Hospital Authority, 12/06 at 102 N/R $ 1,019,120
Anticipation Certificates, Coffee
Regional Medical, Series A,
6.750%, 12/01/16
Dalton, Georgia, Development Authority,
Revenue Certificates, Hamilton
Health Care System:
2,000,000 5.500%, 8/15/26 No Opt. Call AAA 2,073,560
2,000,000 5.250%, 8/15/26 2/07 at 102 AAA 1,976,440
2,600,000 Fulco, Georgia, Hospital Authority, Anticipation 9/02 at 102 Baa1 2,865,668
Certificates, Georgia Baptist Health Care,
Series A, 6.375%, 9/01/22
2,250,000 Fulco, Georgia, Hospital Authority, Anticipation 9/02 at 102 Baa1 2,479,905
Certificates, Georgia Baptist Health, Series B,
6.375%, 9/01/22
1,000,000 Gainesville and Hall County, Georgia, Hospital 10/05 at 102 AAA 1,064,110
Authority, Anticipation Certificates,
Northeast Georgia Healthcare Project,
6.000%, 10/01/20
1,000,000 Gwinnett County, Georgia, Hospital Authority 9/07 at 101 AAA 989,510
Anticipation Certificates, Gwinnett Hospital
System Inc. Project, Series A,
5.250%, 9/01/27
- -------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 13.4%
1,840,000 Augusta, Georgia, Housing Authority, Mortgage 5/05 at 102 Aa 1,941,973
Revenue, River Glen
Apartments, Series A,
6.500%, 5/01/27
755,000 Clayton County, Georgia, Housing Authority, 12/05 at 102 AAA 768,824
Multifamily Housing Revenue, Advantages
of Atlanta Apartments Project,
5.700%, 12/01/16
1,000,000 De Kalb County, Georgia, Housing Authority, 1/05 at 102 AAA 1,090,840
Multifamily Housing Revenue, The Lakes at
Indian Creek Project, 7.150%, 1/01/25
3,470,000 De Kalb County, Georgia, Housing Authority 1/06 at 102 A 3,634,443
Multifamily Housing Revenue,
Regency Woods I & II Project, Series A,
6.500%, 1/01/26
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Unaudited)
Nuveen Flagship Georgia -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- continued
<S> <C> <C> <C> <C>
$4,000,000 Fulton County, Georgia, Housing Authority, 7/06 at 102 A $ 4,154,200
Multifamily Housing Revenue,
Concorde Place Apartments Project,
Series A, 6.375%, 1/01/27
4,715,000 Lawrenceville, Georgia, Housing Authority, 6/07 at 102 AAA 5,043,211
Multifamily Revenue, Knollwood Park
Apartments Project, 6.250%, 12/01/29
1,300,000 Macon, Georgia, Housing Authority, Mortgage 10/04 at 102 Aaa 1,371,474
Revenue, The Vistas, Series A,
6.450%, 4/01/26
- ------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 12.7%
Fulton County, Georgia, Housing Authority,
Single Family Revenue, Series A:
355,000 6.550%, 3/01/18 3/05 at 102 AAA 377,748
120,000 6.600%, 3/01/28 3/05 at 102 AAA 126,526
1,290,000 Fulton County, Georgia, Housing Authority, 9/06 at 102 AAA 1,339,820
Single Family Revenue, Mortgage Backed
Securities, Series A, 6.125%, 9/01/18
2,000,000 Fulton County, Georgia, Housing Authority, 9/06 at 102 AAA 2,082,660
Mortgage Backed Securities, Series A,
6.200%, 9/01/27
Georgia State Housing and Finance Authority,
Single Family Mortgage, Series A:
1,215,000 6.500%, 12/01/17 12/04 at 102 AA+ 1,284,000
750,000 6.600%, 12/01/23 12/04 at 102 AA+ 795,008
Georgia State Housing and
Finance Authority,
Single Family Mortgage, Subseries A-2:
1,000,000 6.400%, 12/01/15 3/05 at 102 AA+ 1,053,380
4,000,000 6.450%, 12/01/27 6/06 at 102 AA+ 4,254,240
2,500,000 Georgia State Housing and Finance Authority, 6/05 at 102 AA+ 2,650,550
Single Family Mortgage, Subseries B-2,
6.550%, 12/01/27
290,000 Georgia State Residential Finance Authority, 12/99 at 103 AA+ 304,938
Home Ownership Mortgage, Series D,
Subseries D-3, 7.800%, 6/01/21
325,000 Georgia State Residential Finance Authority, 12/00 at 103 AA+ 343,678
Home Ownership Mortgage, Series A
Subseries A, 2, 7.750%, 6/01/18
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- continued
<C> <S> <C> <C> <C>
$1,570,000 Georgia State Residential Finance Authority, 12/01 at 103 AA+ $ 1,666,398
Home Ownership Mortgage, Series A,
7.250%, 12/01/21
750,000 Georgia State Residential Finance Authority, 12/98 at 103 AA+ 781,763
Single Family Insured Mortgage, FHA-lnsured,
Virginia Guaranteed, Series B, Subseries B-1,
8.000%, 12/01/16
- ------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 5.6%
Peach County, Georgia, School District:
1,015,000 6.300%, 2/01/14 2/05 at 102 AAA 1,114,998
3,810,000 6.400%, 2/01/19 2/05 at 102 AAA 4,220,413
450,000 Puerto Rico Commonwealth, 6.450%, 7/01/17 7/04 at 101 1/2 AAA 501,584
1,500,000 Washington County, Georgia, School District, 1/05 at 102 AAA 1,706,070
6.875%, 1/01/14
- ------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 20.2%
1,000,000 Atlanta, Georgia, Solid Waste Management 12/06 at 100 AA 1,000,710
Authority, Landfill Closure Project,
5.250%, 12/01/21
570,000 Burke County, Georgia, Development Authority, 2/01 at 102 A 621,272
Industrial Development Revenue, Georgia
Safe Corporation Project, 7.500%, 2/01/11
1,150,000 Burke County, Georgia, Economic Development 12/02 at 102 A 1,266,967
Authority, Industrial Development Revenue,
Ritz Instrument Transformers,
7.250%, 12/01/11
1,750,000 Butts County, Georgia, Certificates of 12/04 at 102 AAA 1,965,005
Participation, 6.750%, 12/01/14
1,000,000 Clarke County, Georgia, Hospital Authority, 1/07 at 100 AAA 958,560
Athens Regional Medical Project,
5.000%, 1/01/27
1,215,000 Clayton County, Georgia, Solid Waste 2/02 at 102 AA 1,305,906
Management Authority, Series A,
6.500%, 2/01/12
3,000,000 Cobb, Marietta, Georgia, Coliseum and Exhibit 10/19 at 100 AAA 3,194,790
Hall Authority, 5.625%, 10/01/26
800,000 Downtown Marietta Development Authority, 1/02 at 102 Aaa 877,336
Georgia Revenue, Cobb County Lease,
6.600%, 1/01/19
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Unaudited)
Nuveen Flagship Georgia -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- continued
<C> <S> <C> <C> <C>
$1,000,000 Downtown Smyrna Development Authority, 2/05 at 102 AAA $ 1,143,000
Georgia Revenue, 6.600%, 2/01/17
2,765,000 Metropolitan Atlanta Rapid Transit Authority, No Opt. Call AA- 3,121,602
Georgia Sales Tax Revenue, Series N,
6.250%, 7/01/18
500,000 Metropolitan Atlanta Rapid Transit Authority, No Opt. Call AAA 572,760
Georgia Sales Tax Revenue, Series P,
6.250%, 7/01/20
Puerto Rico Commonwealth Highway and
Transportation Authority, Highway Revenue,
Series Y:
2,000,000 5.500%, 7/01/26 7/06 at 101 1/2 A 2,012,660
6,000,000 5.500%, 7/01/36 7/16 at 100 A 6,090,720
550,000 Puerto Rico Commonwealth Infrastructure 7/98 at 102 BBB+ 573,986
Financing Authority, Series A,
7.750%, 7/01/08
1,055,000 Upper Oconee Basin Water Authority, 7/08 at 102 AAA 1,039,354
Georgia Revenue, 5.250%, 7/01/27 (WI)
1,250,000 Ware County, Georgia, Hospital Authority, 3/02 at 102 AAA 1,364,563
Revenue Anticipation Certificates, Series A,
6.625%, 3/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 0.8%
1,000,000 Atlanta, Georgia, Airport Facilities, 1/07 at 101 AAA 1,027,900
5.250%, 1/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 14.7%
Chatham County, Georgia, Hospital Authority,
Memorial Medical Center Inc., Series A:
100,000 7.000%, 1/01/10 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 109,716
1,130,000 7.000%, 1/01/21 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 1,239,791
505,000 Cherokee County, Georgia, Water and Sewer No Opt. Call AAA 692,229
Authority, 9.750%, 8/01/09
4,765,000 Colquitt County, Georgia, Development Authority, No Opt. Call Aaa 1,310,423
Subseries C, 0.000%, 12/01/21
1,475,000 Colquitt County, Georgia, Development Authority, No Opt. Call Aaa 405,640
Series A, 1st Mortgage, 0.000%, 12/01/21
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- continued
<C> <S> <C> <C> <C>
$500,000 Colquitt County, Georgia, Hospital Authority, 3/02 at 102 AAA $ 556,720
Colquitt Regional Medical Center,
6.700%, 3/01/12 (Pre-refunded to 3/01/02)
1,000,000 Conyers, Georgia, Water and Sewer, Series A, 7/04 at 102 AAA 1,150,610
6.600%, 7/01/15
500,000 Dade County, Georgia, Water and Sewer 7/99 at 102 AAA 536,810
Authority, Water and Sewer Revenue,
7.600%, 7/01/15 (Pre-refunded to 7/01/99)
3,000,000 Fulco, Georgia, Hospital Authority, Revenue 9/02 at 102 Baa1*** 3,290,580
Anticipation Certificates, Georgia Baptist
Health Care, Series A, 6.250%, 9/01/13
(Pre-refunded to 9/01/02)
500,000 Gainesville, Georgia, Water and Sewer Revenue, 11/00 at 102 AAA 551,925
Series B, 7.200%, 11/15/10
(Pre-refunded to 11/15/00)
1,855,000 Marietta, Georgia, Development Authority, 12/99 at 102 AAA 2,003,548
Life College Inc. Project, 7.250%, 12/01/19
(Pre-refunded to 12/01/99)
1,200,000 Metropolitan Atlanta Rapid Transit Authority, 7/99 at 102 AAA 1,281,024
Georgia Sales Tax Revenue, Series L,
7.200%, 7/01/20 (Pre-refunded to 7/01/99)
1,650,000 Metropolitan Atlanta Rapid Transit Authority, 7/04 at 102 AAA 1,904,892
Georgia Sales Tax Revenue, Second Indenture,
Series A, 6.900%, 7/1/20
(Pre-refunded to 7/01/04)
2,100,000 Richmond County, Georgia, Development No Opt. Call Aaa 577,521
Authority, Subseries C, 0.000%, 12/01/21
4,810,000 Richmond County, Georgia, Development No Opt. Call Aaa 1,322,798
Authority, 1st Mortgage, Series A, 0.000%, 12/01/21
500,000 Ware County, Georgia, Hospital Authority, 3/01 at 102 AAA 541,330
Revenue Anticipation Certificates,
7.125%, 3/1/15 (Pre-refunded to 3/01/01)
8,800,000 Washington, Georgia, Wilkes Payroll No Opt. Call Aaa 2,420,087
Development Authority, Subseries C,
0.000%, 12/01/21
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Unaudited)
Nuveen Flagship Georgia -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities -- 8.5%
<C> <S> <C> <C> <C>
$1,800,000 Appling County, Georgia, Development Authority, 1/04 at 101 AAA $2,021,345
Pollution Control Revenue, Oglethorpe Power
Corporation Hatch Project, 7.150%, 1/01/21
1,500,000 Georgia Municipal Electric Authority, Power 1/15 at 100 A 1,680,450
Revenue, Series B, 6.375%, 1/01/16
1,000,000 Georgia Municipal Electric Authority, Power 1/10 at 100 AAA 1,049,570
Revenue, Series Z, 5.500%, 1/01/12
Monroe County, Georgia, Development Authority,
Pollution Control Revenue, Oglethorpe Power
Scherer, Series A:
500,000 6.750%, 1/01/10 No Opt. Call A 575,454
1,000,000 6.800%, 1/01/12 No Opt. Call A 1,158,470
2,000,000 Georgia Municipal Electric Authority, 1/07 at 101 AAA 1,986,620
Project One, Subseries A, 5.125%, 1/01/16
1,250,000 Puerto Rico Electric Power Authority, Power 7/04 at 100 BBB+ 1,253,350
Revenue, Formerly Puerto Rico
Commonwealth Water Resource Authority,
Series T, 5.500%, 7/01/20
1,500,000 Puerto Rico Electric Power Authority, Power No Opt. Call AAA 563,520
Revenue, Formerly Puerto Rico
Commonwealth Water Resource Authority,
Capital Appreciation, Series N,
0.000%, 7/01/17
3,000,000 Puerto Rico Electric Power Authority, Power No Opt. Call AAA 1,122,750
Revenue, Formerly Puerto Rico
Commonwealth Water Resource Authority,
Capital Appreciation, Series 0,
0.000%, 7/01/17
- ---------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 4.4%
Brunswick, Georgia, Water and Sewer Revenue, Refunding
and Improvement:
500,000 6.000%, 10/01/11 No Opt. Call AAA 555,840
400,000 6.100%, 10/01/19 No Opt. Call AAA 452,231
2,000,000 Cherokee County, Georgia, Water and Sewer No Opt. Call AAA 2,101,860
Authority, Refunding and Improvement,
5.500%, 8/01/23
1,500,000 Henry County, Georgia, Water and Sewer No Opt. Call AAA 1,718,490
Authority, 6.150%, 2/01/20
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - continued
$ 1,000,000 Milledgeville, Georgia, Water and Sewer No Opt. Call AAA $ 1,111,310
Revenue, 6.000%, 12/01/16
- ------------------------------------------------------------------------------------------------------------------------
$142,815,000 Total Investments - (cost $121,435,728) - 98.3% 132,164,042
=================-------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.7%
$ 1,000,000 Burke County, Georgia, Economic Development Authority,
================= Pollution Control Revenue, Variable Rate Demand
Bonds, 3.800%, 9/01/25+ VMIG-1 $ 1,000,000
--------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.0% 1,333,378
--------------------------------------------------------------------------------------------------
Net Assets - 100% $134,497,420
==================================================================================================
* Optional Call Provisions: Dates (month and year) and prices of earliest optional call or redemption.
There may be other provisions at varying prices at later dates.
** Ratings: Using the higher of Standard and 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 (see 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.
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets (Unaudited)
November 30, 1997
Nuveen Flagship
Georgia
- -----------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $132,164,042
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 1,000,000
Cash 229,762
Receivables:
Interest 2,657,952
Shares sold 164,705
Other assets 3,122
- -----------------------------------------------------------------------------------------
Total assets 136,219,583
- -----------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 1,037,439
Shares redeemed 38,010
Accrued expenses:
Management fees (note 6) 40,569
12b-1 distribution and service fees (notes 1 and 6) 29,670
Other 12,724
Dividends payable 563,751
- -----------------------------------------------------------------------------------------
Total liabilities 1,722,163
- -----------------------------------------------------------------------------------------
Net assets (note 7) $134,497,420
=========================================================================================
Class A Shares (note 1)
Net assets $117,447,169
Shares outstanding 10,604,173
Net asset value and redemption price per share $ 11.08
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 11.57
=========================================================================================
Class B Shares (note 1)
Net assets $ 1,353,500
Shares outstanding 122,081
Net asset value, offering and redemption price per share $ 11.09
=========================================================================================
Class C Shares (note 1)
Net assets $ 15,519,214
Shares outstanding 1,404,308
Net asset value, offering and redemption price per share $ 11.05
=========================================================================================
Class R Shares (note 1)
Net assets $ 177,537
Shares outstanding 16,083
Net asset value, offering and redemption price per share $ 11.04
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations (Unaudited)
Six months ended November 30, 1997
Nuveen Flagship
Georgia
- -----------------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $3,811,801
- -----------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 359,141
12b-1 service fees -- Class A (notes 1 and 6) 116,257
12b-1 distribution and service fees -- Class B (notes 1 and 6) 2,953
12b-1 distribution and service fees -- Class C (notes 1 and 6) 51,469
Shareholders' servicing agent fees and expenses 29,231
Custodian's fees and expenses 27,485
Trustees' fees and expenses (note 6) 1,162
Professional fees 9,326
Shareholders' reports -- printing and mailing expenses 10,003
Federal and state registration fees 1,416
Other expenses 2,606
- -----------------------------------------------------------------------------------------
Total expenses before expense reimbursement 611,049
Expense reimbursement (note 6) (117,314)
- -----------------------------------------------------------------------------------------
Net expenses 493,735
- -----------------------------------------------------------------------------------------
Net investment income 3,318,066
- -----------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 1,617,023
Net change in unrealized appreciation or depreciation of investments 4,389,586
- -----------------------------------------------------------------------------------------
Net gain from investments 6,006,609
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations $9,324,675
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (Unaudited)
Nuveen Flagship Georgia
-------------------------------
Six months ended Year ended
11/30/97 5/31/97*
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 3,318,066 $ 6,488,615
Net realized gain from investment transactions
(notes 1 and 4) 1,617,023 816,979
Net change in unrealized appreciation or depreciation
of investments 4,389,586 3,379,145
- ----------------------------------------------------------------------------------------
Net increase in net assets from operations 9,324,675 10,684,739
- ----------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (2,988,293) (5,973,872)
Class B (12,548) (779)
Class C (313,900) (513,629)
Class R (3,371) (289)
In excess of undistributed net investment income:
Class A (10,703) --
Class B (45) --
Class C (1,124) --
Class R (12) --
- ----------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (3,329,996) (6,488,569)
- ----------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 10,161,990 18,042,463
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 2,276,518 3,251,554
- ----------------------------------------------------------------------------------------
12,438,508 21,294,017
- ----------------------------------------------------------------------------------------
Cost of shares redeemed (7,392,517) (19,327,898)
- ----------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 5,045,991 1,966,119
Net increase in net assets 11,040,670 6,162,289
Net assets at the beginning of period 123,456,750 117,294,461
- ----------------------------------------------------------------------------------------
Net assets at the end of period $134,497,420 $123,456,750
========================================================================================
Balance of undistributed (overdistributed) net investment
income at end of period $ (11,884) $ 46
========================================================================================
* Information represents eight months of Flagship Georgia and four months of Nuveen
Flagship Georgia (see note 1).
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Notes to Financial Statements (Unaudited)
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 Georgia Municipal Bond Fund (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Fund, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, Flagship Georgia Double Tax
Exempt Fund ("Flagship Georgia") was reorganized into the Trust and renamed
Nuveen Flagship Georgia Municipal Bond Fund ("Nuveen Flagship Georgia").
Prior to the reorganization, Flagship Georgia was a sub-trust of the Flagship
Tax Exempt Funds Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject
to market fluctuation during this period. The Fund has instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
November 30, 1997, the Fund had an outstanding when-issued purchase commitment
of $1,037,439.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
19
<PAGE>
Notes to Financial Statements (Unaudited) - continued
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to
the extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Georgia state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Fund. Net
realized capital gain and market discount distributions are subject to federal
taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class 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.
20
<PAGE>
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the six months ended November 30, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently
only includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
21
<PAGE>
Notes to Financial Statements (Unaudited) - continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six months ended 11/30/97 Year ended 5/31/97*
-----------------------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 446,298 $ 4,882,217 1,320,552 $ 13,778,494
Class B 110,841 1,214,197 10,720 112,660
Class C 358,123 3,906,343 393,868 4,129,100
Class R 14,625 159,233 2,104 22,209
Shares issued to shareholders
due to reinvestment
of distributions:
Class A 188,832 2,038,017 287,354 2,992,929
Class B 520 5,704 -- --
Class C 21,358 230,097 24,846 258,440
Class R 247 2,700 18 185
- ---------------------------------------------------------------------------------------
1,140,844 12,438,508 2,039,462 21,294,017
- ---------------------------------------------------------------------------------------
Shares redeemed:
Class A (582,396) (6,363,687) (1,627,331) (16,977,352)
Class B -- -- -- --
Class C (94,315) (1,018,927) (225,854) (2,350,546)
Class R (911) (9,903) -- --
- ---------------------------------------------------------------------------------------
(677,622) (7,392,517) (1,853,185) (19,327,898)
- ---------------------------------------------------------------------------------------
Net increase 463,222 $ 5,045,991 186,277 $ 1,966,119
=======================================================================================
</TABLE>
*Information represents eight months of Flagship Georgia and four months of
Nuveen Flagship Georgia (see note 1).
3. Distributions to Shareholders
On December 9, 1997, the Fund declared dividend distributions from its tax-
exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0470
Class B .0405
Class C .0420
Class R .0490
- ----------------------------------------------------------------
</TABLE>
22
<PAGE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities for the six months ended November 30, 1997, aggregated $15,335,763
and $11,492,263, respectively. Purchases and sales (including maturities) of
temporary municipal investments for the six months ended November 30, 1997,
aggregated $9,500,000 and $8,500,000, respectively.
At November 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At May 31, 1997, the Fund's last fiscal year end, the Fund had unused capital
loss carryforwards of $2,608,045 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, $704,617 of the
carryforwards will expire in the year 2001, $1,400,169 will expire in the year
2002, and $503,259 will expire in the year 2003.
5. Unrealized Appreciation (Depreciation)
At November 30, 1997, net unrealized appreciation aggregated $10,728,314, all of
which related to appreciated securities.
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
Average daily net asset value Management fee
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $109,300 of which
approximately $95,200 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
_____
23
<PAGE>
Notes to Financial Statements (Unaudited) - continued
During the six months ended November 30, 1997, the Distributor compensated
authorized dealers directly with approximately $102,400 in commission advances
at the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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 six months
ended November 30, 1997, the Distributor retained approximately $25,200 in such
12b-1 fees. The remaining 12b-1 fees charged to the Fund were paid to compensate
authorized dealers for providing services to shareholders relating to their
investments. The Distributor also collected and retained approximately $700 of
CDSC on share redemptions during the six months ended November 30, 1997.
7. Composition of Net Assets
At November 30, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
Capital paid-in $124,772,012
Balance of undistributed (overdistributed)
net investment income (11,884)
Accumulated net realized gain (loss)
from investment transactions (991,022)
Net unrealized appreciation of investments 10,728,314
- ---------------------------------------------------------
Net assets $134,497,420
=========================================================
</TABLE>
_____
24
<PAGE>
Financial Highlights
25
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Unaudited)
Selected data for a share outstanding throughout each period is as follows:
Class (Inception date) Operating performance Less distributions
------------------------- ---------------------------
Net
Nuveen Flagship Georgia** Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ending beginning investment from investment from capital end of asset
May 31, of period income (b) investments income gains period value (a)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1998 (d) $10.57 $.28 $ .51 $(.28) $ -- $11.08 7.55%
1997 10.20 .57 .37 (.57) -- 10.57 9.39
1996 10.46 .57 (.25) (.58) -- 10.20 3.05
1995 10.23 .58 .23 (.58) -- 10.46 8.31
1994 10.62 .59 (.39) (.59) -- 10.23 1.83
1993 10.16 .62 .45 (.61) -- 10.62 10.84
1992 9.95 .63 .21 (.63) -- 10.16 8.81
1991 9.67 .64 .28 (.64) -- 9.95 9.90
1990 9.88 .65 (.22) (.64) -- 9.67 4.55
1989 9.30 .65 .59 (.66) -- 9.88 13.77
1988 9.19 .66 .11 (.66) -- 9.30 8.61
Class B (2/97)
1998 (d) 10.57 .24 .52 (.24) -- 11.09 7.26
1997 (c) 10.66 .14 (.11) (.12) -- 10.57 .31
Class C (1/94)
1998 (d) 10.55 .25 .50 (.25) -- 11.05 7.18
1997 10.18 .51 .37 (.51) -- 10.55 8.80
1996 10.44 .51 (.25) (.52) -- 10.18 2.48
1995 10.21 .52 .23 (.52) -- 10.44 7.72
1994 (c) 10.91 .19 (.69) (.20) -- 10.21 (10.96)*
Class R (2/97)
1998 (d) 10.57 .29 .47 (.29) -- 11.04 7.29
1997 (c) 10.65 .18 (.06) (.20) -- 10.57 1.11
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31,
1997, reflects the financial highlights of Flagship Georgia.
(a) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
26
<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
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment (b) ment (b) rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$117,447 .87%* 4.96%* .69%* 5.14%* 9%
111,518 1.02 5.20 .78 5.44 39
107,862 1.08 5.18 .80 5.46 59
113,354 1.09 5.53 .83 5.79 40
123,068 1.06 5.11 .70 5.47 39
101,196 1.08 5.42 .62 5.88 30
70,650 1.14 5.74 .57 6.31 21
44,829 1.22 6.10 .72 6.60 24
36,034 1.23 6.23 .84 6.62 34
35,637 1.21 6.49 .96 6.74 23
29,701 1.18 6.87 .91 7.14 46
1,354 1.62* 4.17* 1.44* 4.35* 9
113 1.63* 4.49* 1.32* 4.80* 39
15,519 1.42* 4.41* 1.24* 4.59* 9
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
178 .67* 5.13* .49* 5.31* 9
22 .68* 5.41* .38* 5.71* 39
- --------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Additional Investment Opportunities
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth Funds
Nuveen Rittenhouse Growth Fund
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-Term
Insured
Intermediate
Limited Term
State Funds
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Fund, contact your financial
adviser. If you would like to add to your current investment on a regular basis,
you can sign up for Nuveen's systematic investing program, which allows you to
invest a fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you give your investment the added
growth potential of long-term compounding.
For more information on any of these service options, call your adviser, or
Nuveen at (800) 225-8530.
28
<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
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, Illinois
29
<PAGE>
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Serving Investors
for Generations
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
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 products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 225-8530
www.nuveen.com
<PAGE>
NUVEEN
MUNICIPAL
BONDS FUNDS
NOVEMBER 30, 1997
SEMIANNUAL REPORT
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
[PHOTO APPEARS HERE]
NORTH
CAROLINA
<PAGE>
CONTENTS
1 DEAR SHAREHOLDER
3 ANSWERING YOUR QUESTIONS
6 PERFORMANCE OVERVIEW
8 PORTFOLIO OF INVESTMENTS
16 STATEMENT OF NET ASSETS
17 STATEMENT OF OPERATIONS
18 STATEMENT OF CHANGES IN NET ASSETS
19 NOTES TO FINANCIAL STATEMENTS
25 FINANCIAL HIGHLIGHTS
28 ADDITIONAL INVESTMENT OPPORTUNITIES
29 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.
It's a pleasure to share with you the Nuveen Flagship North Carolina Municipal
Bond Fund's outstanding performance record for the 12 months ended November 30,
1997. Over the past year, investors continued to enjoy attractive, tax-free
dividends generated by the fund's portfolio of municipal bonds. As of November
30, 1997, Class A shareholders were receiving a current yield on net asset value
of 4.31%. To match this yield, investors in the 36.5% combined federal and state
income tax bracket would have had to earn at least 6.79% on taxable
alternatives.
During this same period, the fund provided Class A shareholders with a
competitive total return on net asset value of 6.93% with income reinvested,
outpacing the average return of 6.64% for its peer group, the Lipper North
Carolina municipal bond fund category. You will find additional details on the
fund's performance on pages 6-7.
THE YEAR IN REVIEW
Over the past year, U.S. investors have benefited from robust economic growth
with little evidence of inflationary pressures. With unemployment rates at 20-
year lows and the current economic expansion entering its seventh year, the
presence of benign inflation has sparked debate over whether the traditional
link between growth and inflation has been broken. During 1997, expectations
that excess growth would generate inflation disrupted the markets on several
occasions, most notably following the Federal Reserve's interest rate tightening
in March and speeches by Fed Chairman Alan Greenspan. Still, falling commodity
prices kept producer
_____
1
<PAGE>
"The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation."
prices in check, while low import prices--due in part to the weakness in Asian
markets--limited U.S. companies' ability to raise consumer prices. This
combination has kept inflation subdued and the Federal Reserve "on hold" since
March. The reduction in the federal deficit and passage of the Taxpayer Relief
Act of 1997 offer additional encouragement to long-term fixed-income investors.
HELPING YOU BUILD A BETTER PORTFOLIO
The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation. Stock market volatility,
especially late in the year, provided a vivid illustration of the steadying
effect that fixed-income investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds provide an excellent balance to other
stock and bond investments. Your financial adviser can introduce you to a
variety of other Nuveen products and services to round out your investment
portfolio, including the Nuveen Growth and Income Stock Fund and two balanced
stock and bond funds.
In addition, we recently expanded our private asset management capabilities
through the acquisition of Rittenhouse Financial Services, a well-respected
growth investment manager. We encourage you to talk with your financial adviser
about ways to complement your current Nuveen investments by taking advantage of
these additional products and services.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
January 15, 1998
_____
2
<PAGE>
ANSWERING YOUR QUESTIONS
[PHOTO OF TED NEILD APPEARS HERE]
TED NEILD, MANAGING DIRECTOR OF NUVEEN'S PORTFOLIO MANAGEMENT TEAM, TALKS ABOUT
THE MUNICIPAL BOND MARKET AND OFFERS INSIGHTS INTO FACTORS THAT AFFECTED THE
PERFORMANCE OF THE FUND OVER THE PAST YEAR.
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED THE PERFORMANCE OF MUNICIPAL BONDS
OVER THE PAST YEAR?
Over the past 12 months, the performance of the municipal bond market was
influenced by three major factors: the continued strength of the U.S. economy,
minimal inflation, and volatility in the equity markets. During 1997, these
factors contributed to a positive environment for fixed-income investments, as
reflected in the steady-to-declining interest rates evident during the year.
Between December 1996 and November 1997, the yield on the 30-year Treasury bond
dropped from 6.36% to 6.05%, and the municipal market followed suit, as the
yield on the Bond Buyer 40 declined from 5.63% to 5.36%. The spread between tax-
free municipal bonds and taxable Treasury bonds remained tight, making municipal
bonds very attractive.
HOW HAS THE FUND PERFORMED DURING THIS PERIOD?
As Tim mentioned in his letter to shareholders, the fund performed very well
during the one-year period ended November 30, 1997. The total return on net
asset value for Class A shares of the fund was 6.93%, which compares favorably
with the one-year average return of 6.64% for the peer group of North Carolina
municipal bond funds tracked by Lipper Analytical Services.
_____
3
<PAGE>
"We will continue to focus on sustaining a high level of tax-free income while
maintaining the fund's favorable duration."
GIVEN THE CURRENT MUNICIPAL MARKET, WHERE WERE YOU ABLE TO FIND VALUE?
The fund has benefited from a high embedded yield due to past purchases of
higher-yielding municipal bonds. We were able to add value through the purchase
of high quality housing bonds and, with the assistance of Nuveen Research, the
purchase of several higher-yielding investment-grade securities. We also
continued to look for value for shareholders in individual bonds that enhanced
the structure of the portfolio, allowing the fund to rally as the market moved
forward. Specifically, we purchased longer duration bonds with good call
protection at the lower prices available earlier this year.
WHAT ARE YOUR KEY STRATEGIES FOR THE COMING YEAR?
We take a holistic approach to portfolio management--assessing all of the
factors that determine a fund's performance and taking advantage of all of them
to contribute to total return and dividend stability. In the coming year, one
focus will be maintaining good call protection, which helps sustain the fund's
dividend, regardless of the direction that interest rates take.
We will continue to focus on sustaining a high level of tax-free income while
maintaining the fund's favorable duration. We will look for opportunities to
purchase essential service bonds while reducing the weighting in health care
bonds. North Carolina enjoys a favorable
_____
4
<PAGE>
"Looking at the year ahead, we believe the overall market will continue to
strike a good balance between supply and demand."
climate for call protection. This call protection, and where possible the
purchase of non-callable bonds, will be used to extend and/or maintain the
fund's overall duration.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
Looking at the year ahead, we believe the overall market will continue to strike
a good balance between supply and demand. We expect supply to increase as new
issuers continue to enter the market. A continued decline in yields could also
cause new supply to come to market through refunding of current debt. On the
demand side, volatility in the equity markets, plus the potential for a
weakening of the economy, could spark increased interest in bonds of all types.
The financial crises in Asia, coupled with the continued strength of the dollar
and low commodity prices, are all contributing to the excellent inflation
picture. This backdrop should help offset stronger labor markets and limit the
effects of any bond market corrections. In the meantime, positive underlying
fundamentals provide good support for the municipal market.
_____
5
<PAGE>
Nuveen Flagship North Carolina
Municipal Bond Fund
PERFORMANCE OVERVIEW
As of November 30, 1997
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------
SHARE CLASS A B C R
<S> <C> <C> <C> <C> <C>
Inception Date 3/86 2/97 10/93 2/97
....................................................................................................
Net Asset Value (NAV) $10.51 $10.52 $10.50 $ 10.50
....................................................................................................
CUSIP 67065P840 67065P832 67065P824 67065P816
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total Net Assets ($000) $194,638
....................................................................................................
Average Weighted Maturity (Years) 19.87
....................................................................................................
Average Weighted Duration (Years) 7.37
- ----------------------------------------------------------------------------------------------------
ANNUALIZED TOTAL RETURN/1/
- ----------------------------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
1-Year 6.93% 2.47% 6.29% 6.34% 6.99%
....................................................................................................
5-Year 6.28% 5.36% 5.69% 5.67% 6.29%
....................................................................................................
10-Year 8.10% 7.64% 7.63% 7.50% 8.11%
- ----------------------------------------------------------------------------------------------------
TAX-FREE YIELDS
- ----------------------------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
Dist Rate 5.08% 4.87% 4.33% 4.51% 5.26%
....................................................................................................
SEC 30-Day Yld 4.31% 4.13% 3.56% 3.76% 4.51%
....................................................................................................
Taxable Equiv Yld/2/ 6.79% 6.50% 5.61% 5.92% 7.10%
- ----------------------------------------------------------------------------------------------------
</TABLE>
/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 up-front sales charge. Class B shares
have a contingent deferred sales charge (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 B shares automatically convert to Class A shares eight years
after purchase. 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
36.5%. Represents the yield on a taxable investment necessary to equal the
yield of the Nuveen fund on an after-tax basis.
_____
6
<PAGE>
Credit Quality
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
AA 36%
A 18%
BBB/NR 14%
AAA/Pre-refunded 32%
</TABLE>
- --------------------------------------------------------------------------------
Diversification
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Health Care 24%
Other 3%
Tax Obligation (Limited) 17%
Education/Civic Org. 3%
U.S. Guaranteed 15%
Water & Sewer 7%
Housing (Single-Family) 11%
Forest/Paper Products 9%
Utilities 11%
</TABLE>
- --------------------------------------------------------------------------------
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
0.0452 Dec. 1996
0.0454 Jan. 1997
0.0445 Feb. 1997
0.0445 March 1997
0.0445 April 1997
0.0445 May 1997
0.0445 June 1997
0.0445 July 1997
0.0445 Aug. 1997
0.0445 Sept. 1997
0.0445 Oct. 1997
0.0445 Nov. 1997
</TABLE>
7
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP NORTH CAROLINA
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION AND CIVIC ORGANIZATIONS -- 3.5%
North Carolina Educational Facilities Finance Agency,
High Point College:
$ 165,000 7.050%, 12/01/05 12/00 at 102 A3 $ 175,781
175,000 7.100%, 12/01/06 12/00 at 102 A3 186,601
4,220,000 North Carolina Educational Facilities Finance Agency, 10/06 at 102 AA+ 4,141,592
Revenue Refunding, Duke University Project,
Series B, 5.000%, 10/01/17
1,000,000 North Carolina State Education Assistance Authority, 7/05 at 102 A 1,052,860
Guaranteed Student Loan, Series A,
6.300%, 7/01/15
295,000 University North Carolina, Chapel Hill, Student Fee, 6/01 at 102 AA+ 326,733
Student Recreation Center, 7.000%, 6/01/08
2,750,000 University North Carolina, Chapel Hill Revenue No Opt. Call AA 841,720
Refunding, Utilities System, 0.000%, 8/01/20
- --------------------------------------------------------------------------------------------------------------------------
ENERGY -- 0.6%
1,100,000 New Hanover County, North Carolina, Industrial 7/02 at 102 BBB 1,176,615
Facilities & Pollution Control Financing Authority,
Revenue Refunding, Occidental Petro,
6.700%, 7/01/19
- --------------------------------------------------------------------------------------------------------------------------
FOREST AND PAPER PRODUCTS -- 9.5%
1,400,000 Haywood County, North Carolina Facilities & Pollution 9/05 at 102 Baa1 1,484,840
Control Financing Authority, Environmental
Improvement Revenue, Champion International
Corporation Project, 6.250%, 9/01/25
Haywood County, North Carolina, Industrial Facilities
& Pollution Control, Fingauth Solid Waste Disposal
Revenue, Champion International Corporation Project:
4,000,000 5.500%, 10/01/18 10/03 at 102 Baa1 4,026,880
3,100,000 6.000%, 3/01/20 3/06 at 102 Baa1 3,217,800
Martin County, North Carolina, Industrial Facilities &
Pollution Control Financing Authority, Solid Waste
Disposal, Weyerhaeuser:
1,900,000 7.250%, 9/01/14 9/01 at 103 A 2,112,325
6,000,000 6.800%, 5/01/24 5/04 at 102 A 6,657,540
1,000,000 6.000%, 11/01/25 11/05 at 102 A 1,040,130
</TABLE>
_____
8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE -- 24.1%
Charlotte, North Carolina, Mecklenberg Hospital
Health Care System Revenue, Series A:
$ 5,300,000 5.750%, 1/15/21 1/06 at 102 AA $5,467,957
5,500,000 5.875%, 1/15/26 1/06 at 102 AA 5,745,025
9,000,000 Charlotte, North Carolina, Mecklenberg Hospital 1/07 at 102 AA 8,738,640
Health Care System Revenue, Carolinas Healthcare
System, Series A, 5.125%, 1/15/22
3,500,000 North Carolina, Medical Care Commission, Health 5/07 at 100 AA 3,424,015
Care Facilities Revenue, Carolina Medicorp Project,
5.250%, 5/01/26
1,000,000 North Carolina Medical Care Community Hospital, 2/02 at 102 Baa3 1,086,170
Annie Pen Memorial Hospital Project,
7.500%, 8/15/21
2,275,000 North Carolina, Medical Care Commission, Hospital 8/02 at 102 Baa1 2,437,960
Revenue, Halifax Memorial Hospital Project:
6.750%, 8/15/14
2,200,000 North Carolina, Medical Care Commission, Hospital 10/99 at 102 BBB+ 2,326,060
Revenue, Roanoke Chowan Hospital Project,
7.750%, 10/01/19
600,000 North Carolina, Medical Care Commission, Hospital 10/99 at 102 N/R 632,598
Revenue, Transylvania Community Hospital Project,
8.000%, 10/01/19
3,400,000 North Carolina, Medical Care Commission, Hospital 10/00 at 102 BBB 3,705,762
Revenue, Community General Hospital of
Thomasville, 8.100%, 10/01/15
2,500,000 Northern Hospital District, Surry County, North 10/01 at 102 BBB 2,694,225
Carolina, Health Care Facilities, Revenue
Refunding, 7.875%, 10/01/21
4,000,000 Pitt County, North Carolina, Pitt County Memorial 12/05 at 102 AA- 3,946,240
Hospital, Refunding, 5.250%, 12/01/21
5,750,000 University North Carolina, Chapel Hill, University 2/06 at 102 AA 5,666,280
North Carolina Hospital Revenue, 5.250%, 2/15/26
1,950,000 Wake County, North Carolina, Hospital Revenue, No Opt. Call AAA 999,219
Crossover Refunding System, 0.000%, 10/01/10
</TABLE>
_____
9
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP NORTH CAROLINA -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/MULTIFAMILY -- 0.3%
$ 620,000 North Carolina Housing Finance Agency, Multifamily 7/02 at 102 AA $ 664,683
Revenue, Series B, 6.900%, 7/01/24
- -------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY -- 10.9%
275,000 North Carolina Housing Finance Agency, Single 9/98 at 102 AA 283,228
Family Revenue, Series E, 8.125%, 9/01/19
710,000 North Carolina Housing Finance Agency, Single 3/98 at 102 AA 728,687
Family Revenue, Series G, 7.800%, 3/01/21
865,000 North Carolina Housing Finance Agency, Single 3/01 at 102 AA 925,403
Family Revenue, Series O, 7.600%, 3/01/21
North Carolina Housing Finance Agency, Single
Family Revenue, Series Y:
2,000,000 6.300%, 9/01/15 9/04 at 102 AA 2,142,840
1,845,000 6.350%, 3/01/18 9/04 at 102 AA 1,969,833
1,940,000 North Carolina Housing Finance Agency, Single 9/05 at 102 AA 2,054,538
Family Revenue, Series BB, 6.500%, 9/01/26
3,500,000 North Carolina Housing Finance Agency, Single 3/05 at 102 AA 3,644,620
Family, Series DD, 6.200%, 9/01/27
4,360,000 North Carolina Housing Finance Agency, Single 3/06 at 102 AA 4,551,230
Family, Series LL, 6.200%, 3/01/26
4,000,000 North Carolina Housing Finance Agency, Single 3/07 at 101 1/2 AA 4,072,240
Family, Series RR, 5.850%, 9/01/28
725,000 Winston Salem, North Carolina, Single Family 9/00 at 102 A1 756,443
Mortgage Revenue, 8.000%, 9/01/07
- -------------------------------------------------------------------------------------------------------------------
INDUSTRIAL/OTHER -- 0.8%
1,400,000 Gaston County, North Carolina, Industrial Facilities 11/01 at 103 N/R 1,533,574
& Pollution Control Financing Authority,
Industrial Development, 8.850%, 11/01/15
- -------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL -- 1.1%
Puerto Rico Commonwealth:
220,000 8.000%, 7/01/07 7/98 at 102 A 230,087
2,000,000 5.400%, 7/01/25 7/06 at 101 1/2 A 1,991,360
- -------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED -- 16.9%
500,000 Asheville, North Carolina, Certificates of 2/02 at 102 A1 529,735
Participation, Refunding, 6.500%, 2/01/08
1,000,000 Asheville, North Carolina, Certificates of 6/07 at 101 AAA 983,180
Participation, Series A, 5.125%, 6/01/18
</TABLE>
_____
10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/LIMITED -- CONTINUED
$ 1,500,000 Buncombe County, North Carolina, Certificates of 12/02 at 102 A1 $ 1,612,245
Participation, 6.625%, 12/01/10
1,615,000 Charlotte, North Carolina, Water & Sewer, 4/05 at 102 AAA 1,671,590
5.400%, 4/01/20
Charlotte, North Carolina, Water & Sewer, Series A:
500,000 5.400%, 4/01/19 4/05 at 102 AAA 518,775
1,830,000 5.400%, 4/01/20 4/05 at 102 AAA 1,894,123
600,000 Durham, North Carolina, Certificates of Participation, 6/05 at 102 AA 626,736
New Durham Corporation, 5.800%, 6/01/15
Harnett County, North Carolina, Certificates
of Participation:
1,000,000 6.200%, 12/01/06 12/04 at 102 AAA 1,107,560
1,750,000 6.200%, 12/01/09 12/04 at 102 AAA 1,910,685
500,000 6.400%, 12/01/14 12/04 at 102 AAA 552,100
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 1,302,275
1,000,000 5.850%, 4/01/17 4/07 at 102 AAA 1,053,510
10,000,000 Puerto Rico, Commonwealth Highway & 7/16 at 100 A 10,151,200
Transportation Authority, Highway Revenue,
Series Y, 5.500%, 7/01/36
2,450,000 Puerto Rico, Commonwealth Infrastructure Financing 7/98 at 102 BBB+ 2,556,845
Authority, Series A, 7.750%, 7/01/08
1,000,000 Puerto Rico, Public Buildings Authority, Revenue No Opt. Call A 1,040,450
Refunding, Series L, 5.500%, 7/01/21
Ramseur, North Carolina, Refunding:
120,000 5.750%, 6/01/18 6/07 at 102 N/R 120,431
125,000 5.750%, 6/01/19 6/07 at 102 N/R 125,306
125,000 5.750%, 6/01/20 6/07 at 102 N/R 124,999
130,000 5.750%, 6/01/21 6/07 at 102 N/R 129,966
105,000 5.750%, 6/01/22 6/07 at 102 N/R 104,917
715,000 Stokes County, North Carolina, Certificates of 3/01 at 102 AAA 783,204
Participation, 7.000%, 3/01/06
1,410,000 Union County, North Carolina, Certificates of 4/03 at 102 AAA 1,536,717
Participation, 6.375%, 4/01/12
2,375,000 Winston Salem, North Carolina, Special Obligation, 4/05 at 102 AA 2,405,970
Solid Waste Management Project, 5.500%, 4/01/16
</TABLE>
_____
11
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP NORTH CAROLINA -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED -- 15.3%
$ 145,000 Asheville, North Carolina, Housing Development 11/09 at 100 N/R*** $ 194,812
Corporation, First Lien Revenue, Asheville Gardens,
10.500%, 5/01/11 (Pre-refunded to 11/01/09)
1,900,000 Craven, North Carolina, Regional Medical Authority, 10/00 at 102 AAA 2,091,539
Health Care Facilities Revenue, Insured, 7.200%,
10/01/19 (Pre-refunded to 10/01/00)
750,000 Cumberland County, North Carolina, Hospital Facilities 10/98 at 102 AAA 789,255
Revenue, Cumberland County Hospital System Inc.,
7.875%, 10/01/14 (Pre-refunded to 10/01/98)
Durham, North Carolina, Certificates of Participation,
New Durham Corporation:
705,000 7.250%, 9/01/10 (Pre-refunded to 9/01/00) 9/00 at 102 Aa*** 775,394
1,000,000 6.750%, 12/01/11 (Pre-refunded to 12/01/01) 12/01 at 102 Aa3*** 1,109,910
1,450,000 Greensboro, North Carolina, Certificates of 7/98 at 102 AAA 1,512,901
Participation, Greensboro Center City Corporation,
7.900%, 7/01/09 (Pre-refunded to 7/01/98)
2,030,000 North Carolina, Medical Care Commission, Health 2/99 at 102 A*** 2,147,436
Care Facilities Revenue, Gaston Health Care
Support Project, 7.250%, 2/15/19
(Pre-refunded to 2/15/99)
2,055,000 North Carolina, Medical Care Commission, Health 10/99 at 102 AAA 2,229,798
Care Facilities Revenue, Stanly Memorial Hospital
Project, 7.800%, 10/01/19
(Pre-refunded to 10/01/99)
North Carolina, Eastern Municipal Power Agency,
Power System Revenue Refunding, Series A:
995,000 6.500%, 1/01/18 No Opt. Call Aaa 1,169,473
4,080,000 8.000%, 1/01/21 (Pre-refunded to 1/01/98) 1/98 at 102 Aaa 4,176,819
690,000 7.500%, 1/01/21 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 729,999
500,000 7.625%, 1/01/23 (Pre-refunded to 1/01/98) 1/98 at 102 AAA 511,695
500,000 7.250%, 1/01/23 (Pre-refunded to 1/01/99) 1/99 at 102 Aaa 527,660
95,000 North Carolina Medical Care Commission, Hospital No Opt. Call AAA 110,913
Revenue, Memorial Mission Hospital Project,
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*** 196,530
200,000 8.150%, 10/01/99 (Pre-refunded to 10/01/98) 10/98 at 102 N/R*** 210,770
1,000,000 8.625%, 10/01/11 (Pre-refunded to 10/01/98) 10/98 at 102 N/R*** 1,057,610
</TABLE>
_____
12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED -- CONTINUED
North Carolina Municipal Power Agency, No. 1
Catawba Electric Revenue Refunding:
$ 355,000 7.625%, 1/01/14 (Pre-refunded to 1/01/98) 1/98 at 102 AAA $ 363,303
700,000 7.000%, 1/01/16 (Pre-refunded to 1/01/98) 1/98 at 102 A-*** 715,939
600,000 7.875%, 1/01/19 (Pre-refunded to 1/01/98) 1/98 at 102 AAA 614,172
700,000 Pender County, North Carolina, Certificates of 6/01 at 102 Baa1*** 792,848
Participation, 7.700%, 6/01/11
(Pre-refunded to 6/01/01)
1,000,000 Pitt County, North Carolina, Certificates of 4/00 at 102 AAA 1,082,020
Participation, 6.900%, 4/01/08
(Pre-refunded to 4/01/00)
Puerto Rico Commonwealth, Public Improvement,
Series A:
500,000 7.750%, 7/01/06 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 521,535
780,000 8.000%, 7/01/07 (Pre-refunded to 7/01/98) 7/98 at 102 A*** 814,538
2,000,000 7.750%, 7/01/13 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 2,086,140
Puerto Rico Commonwealth, Aqueduct & Sewer
Authority, Series A:
1,000,000 7.900%, 7/01/07 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 1,043,940
850,000 7.875%, 7/01/17 (Pre-refunded to 7/01/98) 7/98 at 102 AAA 887,230
200,000 Puerto Rico Electric Power Authority, Power Revenue, 7/98 at 102 AAA 208,904
Formerly Puerto Rico Commonwealth Water
Resource Authority, Series M, 8.000%,
7/01/08 (Pre-refunded to 7/01/98)
Spindale, North Carolina:
100,000 7.600%, 2/01/07 (Pre-refunded to 2/01/98) 2/98 at 102 AAA 102,652
100,000 7.600%, 2/01/08 (Pre-refunded to 2/01/98) 2/98 at 102 AAA 102,652
200,000 7.600%, 2/01/09 (Pre-refunded to 2/01/98) 2/98 at 102 AAA 205,304
295,000 University North Carolina, Charlotte, Revenue 1/98 at 102 N/R*** 301,874
Refunding, Series K, 7.500%, 1/01/04
(Pre-refunded to 1/02/98)
Washington County, North Carolina:
200,000 7.600%, 3/01/08 (Pre-refunded to 3/01/98) 3/98 at 102 AAA 205,932
200,000 7.600%, 3/01/09 (Pre-refunded to 3/01/98) 3/98 at 102 AAA 205,932
</TABLE>
_____
13
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP NORTH CAROLINA -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES -- 10.7%
Coastal Regional Solid Waste Management Authority,
North Carolina Solid Waste Disposal System,
Revenue Refunding:
$ 1,000,000 6.300%, 6/01/04 6/02 at 102 A $ 1,084,580
1,000,000 6.500%, 6/01/08 6/02 at 102 A 1,071,270
1,000,000 Concord, North Carolina, Utilities System Revenue, 12/05 at 102 AAA 1,015,370
5.500%, 12/01/19
Fayetteville, North Carolina, Public Works
Commission Revenue, Series A:
1,845,000 5.250%, 3/01/16 3/05 at 102 AAA 1,851,550
1,000,000 5.375%, 3/01/20 3/05 at 102 AAA 995,410
Greensboro, North Carolina, Enterprise System
Revenue, Series A:
2,000,000 6.000%, 9/01/16 9/04 at 102 A+ 2,109,800
3,400,000 5.375%, 6/01/19 6/05 at 102 AA- 3,431,484
5,300,000 North Carolina Eastern Municipal Power Agency, No Opt. Call AAA 5,831,378
Power System Revenue Refunding, 6.000%, 1/01/18
2,000,000 North Carolina Municipal Power Agency, No 1 No Opt. Call AAA 1,089,140
Catawba Electric Revenue Refunding,
0.000%, 1/01/10
870,000 Shelby, North Carolina, Comb Enterprise System 5/05 at 102 A 878,883
Revenue, Series A, 5.500%, 5/01/17
1,470,000 Shelby, North Carolina, Comb Enterprise System 5/05 at 102 A 1,485,009
Revenue, Series B, 5.500%, 5/01/17
- ----------------------------------------------------------------------------------------------------------------------
WATER AND SEWER-- 7.2%
2,000,000 Asheville, North Carolina, Water System Revenue, 8/06 at 102 AAA 2,079,300
5.700%, 8/01/25
3,000,000 Charlotte, North Carolina, Water & Sewer System 12/06 at 102 AA 3,004,950
Revenue, 5.250%, 12/01/21
3,000,000 Fayetteville, North Carolina, Public Works Commission 3/07 at 101 AAA 2,934,090
Revenue, 5.125%, 3/01/24
3,000,000 Union County, North Carolina, Enterprise System 6/06 at 102 AAA 3,077,040
Revenue, 5.500%, 6/01/17
Winston Salem, North Carolina, Water & Sewer
System Revenue, Series B:
750,000 5.600%, 6/01/14 6/05 at 102 AA+ 773,977
1,500,000 5.700%, 6/01/17 6/05 at 102 AA+ 1,559,115
</TABLE>
_____
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER AND SEWER -- CONTINUED
$ 540,760 Woodfin Treatment Facility Inc., North Carolina, No Opt. Call N/R $ 542,539
Certificates of Participation, 5.500%, 12/01/03
- ---------------------------------------------------------------------------------------------------------------------------------
$192,880,760 Total Investments -- (cost $184,855,747) - 100.9% 196,315,167
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.9%) (1,676,763)
----------------------------------------------------------------------------------------------------
Net Assets - 100% $ 194,638,404
----------------------------------------------------------------------------------------------------
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of
the earliest optional call or redemption. There may be other
call provisions at varying prices at later dates.
** Ratings: Using the higher of Standard and 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.
_____
15
<PAGE>
STATEMENT OF NET ASSETS (UNAUDITED)
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
NORTH CAROLINA
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $196,315,167
Cash 1,815,756
Receivables:
Interest 3,454,142
Shares sold 202,679
Other assets 9,465
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 201,797,209
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Investments purchased 5,933,328
Shares redeemed 258,583
Accrued expenses:
Management fees (note 6) 87,085
12b-1 distribution and service fees (notes 1 and 6) 35,686
Other 22,484
Dividends payable 821,639
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 7,158,805
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $194,638,404
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES (NOTE 1)
Net assets $185,434,663
Shares outstanding 17,635,799
Net asset value and redemption price per share $ 10.51
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 10.97
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES (NOTE 1)
Net assets $ 857,208
Shares outstanding 81,508
Net asset value, offering and redemption price per share $ 10.52
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES (NOTE 1)
Net assets $ 7,631,918
Shares outstanding 726,963
Net asset value, offering and redemption price per share $ 10.50
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS R SHARES (NOTE 1)
Net assets $ 714,615
Shares outstanding 68,029
Net asset value, offering and redemption price per share $ 10.50
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
_____
16
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
NORTH CAROLINA
- -----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $5,846,043
- -----------------------------------------------------------------------------------------------------------
EXPENSE
Management fees (note 6) 529,015
12b-1 service fees -- Class A (notes 1 and 6) 185,401
12b-1 distribution and service fees -- Class B (notes 1 and 6) 2,964
12b-1 distribution and service fees -- Class C (notes 1 and 6) 27,413
Shareholders' servicing agent fees and expenses 42,879
Custodian's fees and expenses 28,969
Trustees' fees and expenses (note 6) 1,832
Professional fees 10,241
Shareholders' reports -- printing and mailing expenses 17,769
Federal and state registration fees 3,246
Other expenses 4,367
- -----------------------------------------------------------------------------------------------------------
Total expenses 854,096
- -----------------------------------------------------------------------------------------------------------
Net investment income 4,991,947
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 1,393,696
Net change in unrealized appreciation or depreciation of investments 2,946,907
- -----------------------------------------------------------------------------------------------------------
Net gain from investments 4,340,603
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $9,332,550
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
_____
17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NORTH CAROLINA
--------------------------------
SIX MONTHS ENDED YEAR ENDED
11/30/97 5/31/97*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 4,991,947 $ 10,118,809
Net realized gain from investment transactions
(notes 1 and 4) 1,393,696 1,921,251
Net change in unrealized appreciation or depreciation
of investments 2,946,907 2,403,810
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 9,332,550 14,443,870
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (4,729,611) (9,701,977)
Class B (12,842) (1,977)
Class C (165,795) (326,112)
Class R (16,120) (4,651)
- ------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (4,924,368) (10,034,717)
- ------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 7,650,318 13,538,981
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 2,881,482 5,178,488
- ------------------------------------------------------------------------------------------------------------------
10,531,800 18,717,469
- ------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (9,637,719) (25,396,297)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions 894,081 (6,678,828)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 5,302,263 (2,269,675)
Net assets at the beginning of period 189,336,141 191,605,816
- ------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $ 194,638,404 $ 189,336,141
- ------------------------------------------------------------------------------------------------------------------
Balance of undistributed net investment income at end of period $ 151,671 $ 84,092
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship North Carolina and four months
of Nuveen Flagship North Carolina (see note 1).
See accompanying notes to financial statements.
_____
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 North Carolina Municipal Bond Fund (the
"Fund"), among others. The Trust was organized as a Massachusetts business trust
on July 1, 1996.
The John Nuveen Company ("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 North Carolina Double
Tax Exempt Fund ("Flagship North Carolina") was reorganized into the Trust and
renamed Nuveen Flagship North Carolina Municipal Bond Fund. Prior to the
reorganization, Flagship North Carolina was a sub-trust of the Flagship Tax
Exempt Funds Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
SECURITIES VALUATION
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
SECURITIES TRANSACTIONS
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
November 30, 1997, the Fund had no such outstanding purchase commitments.
INTEREST INCOME
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
_____
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
INCOME TAXES
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and North Carolina state income taxes, to
retain such tax-exempt status when distributed to the shareholders of the Fund.
Net realized capital gain and market discount distributions are subject to
federal taxation.
FLEXIBLE SALES CHARGE PROGRAM
The Fund offers Class A, B, C and R Shares. Class 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.
_____
20
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the six months ended November 30, 1997.
EXPENSE ALLOCATION
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
_____
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 11/30/97 YEAR ENDED 5/31/97*
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 567,148 $ 5,917,846 1,139,324 $ 11,564,705
Class B 57,579 600,235 26,319 268,174
Class C 80,760 843,457 128,427 1,308,314
Class R 27,665 288,780 39,185 397,788
Shares issued to shareholders
due to reinvestment
of distributions:
Class A 262,912 2,735,655 489,500 4,984,798
Class B 438 4,584 48 488
Class C 12,585 130,565 18,772 190,950
Class R 1,023 10,678 221 2,252
- ------------------------------------------------------------------------------------------------------------
1,010,110 10,531,800 1,841,796 18,717,469
- ------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (865,093) (9,032,972) (2,374,729) (24,226,252)
Class B (2,876) (30,230) -- --
Class C (54,991) (573,825) (115,427) (1,170,045)
Class R (65) (692) -- --
- ------------------------------------------------------------------------------------------------------------
(923,025) (9,637,719) (2,490,156) (25,396,297)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) 87,085 $ 894,081 (648,360) $ (6,678,828)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Information represents eight months of Flagship North Carolina and four
months of Nuveen Flagship North Carolina (see note 1).
3. DISTRIBUTIONS TO SHAREHOLDERS
On December 9, 1997, the Fund declared dividend distributions from its tax-
exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dividend per share:
<S> <C>
Class A $.0445
Class B .0380
Class C .0395
Class R .0460
- --------------------------------------------------------------------------------
</TABLE>
At the same time, the Fund also declared taxable distributions, which includes
capital gains and/or taxable market discount, of $.0023 per share.
_____
22
<PAGE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities for the six months ended November 30, 1997, aggregated $27,878,190
and $22,691,948, respectively. Purchases and sales (including maturities) of
temporary municipal investments for the six months ended November 30, 1997,
aggregated $3,800,000 and $3,800,000, respectively.
At November 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At May 31, 1997, the Fund's last fiscal year end, the Fund had an unused capital
loss carryforward of $1,060,262 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, the carryforward
will expire in the year 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At November 30, 1997, net unrealized appreciation aggregated $11,459,420, all of
which related to appreciated securities.
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $118,900 of which
approximately $102,200 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
_____
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
During the six months ended November 30, 1997, the Distributor compensated
authorized dealers directly with approximately $54,500 in commission advances at
the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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 six months
ended November 30, 1997, the Distributor retained approximately $9,000 in such
12b-1 fees. The remaining 12b-1 fees charged to the Fund were paid to compensate
authorized dealers for providing services to shareholders relating to their
investments. The Distributor also collected and retained approximately $2,700 of
CDSC on share redemptions during the six months ended November 30, 1997.
7. COMPOSITION OF NET ASSETS
At November 30, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Capital paid-in $182,692,318
Balance of undistributed net investment income 151,671
Accumulated net realized gain from investment transactions 334,995
Net unrealized appreciation of investments 11,459,420
- --------------------------------------------------------------------------------
Net assets $194,638,404
- --------------------------------------------------------------------------------
</TABLE>
_____
24
<PAGE>
FINANCIAL HIGHLIGHTS
_____
25
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a common share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- ------------------------
NET
Nuveen Flagship North NETS REALIZED AND DIVIDENDS NET TOTAL
Carolina** ASSETS UNREALIZED FROM TAX- ASSETS RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSETS
MAY 31, OF PERIOD INCOME (B) INVESTMENT INCOME GAINS PERIOD VALUE (A)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1998 (d) $10.28 $ .27 $ .23 (.27) $ -- $ 10.51 4.87%
1997 10.05 .54 .23 (.54) -- 10.28 7.79
1996 10.23 .55 (.18) (.55) -- 10.05 3.67
1995 10.08 .57 .15 (.57) -- 10.23 7.45
1994 10.51 .57 (.42) (.58) -- 10.08 1.30
1993 9.97 .58 .55 (.59) -- 10.51 11.66
1992 9.70 .60 .27 (.60) -- 9.97 9.30
1991 9.46 .61 .24 (.61) -- 9.70 9.28
1990 9.59 .61 (.13) (.61) -- 9.46 5.16
1989 8.93 .62 .66 (.62) -- 9.59 14.78
1988 8.80 .62 .13 (.62) -- 8.93 8.77
Class B (2/97)
1998 (d) 10.28 .23 .24 (.23) -- 10.52 4.58
1997 (c) 10.33 .12 (.06) (.11) -- 10.28 .64
Class C (10/93)
1998 (d) 10.26 .24 .24 (.24) -- 10.50 4.68
1997 10.03 .48 .23 (.48) -- 10.26 7.20
1996 10.22 .49 (.18) (.50) -- 10.03 3.01
1995 10.06 .51 .16 (.51) -- 10.22 6.97
1994 (c) 10.84 .32 (.78) (.32) -- 10.06 (6.26)*
Class R (2/97)
1998 (d) 10.28 .28 .22 (.28) -- 10.50 4.86
1997 (c) 10.27 .18 .01 (.18) -- 10.28 1.92
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31,
1997, reflects the financial highlights of Flagship North
Carolina.
(a) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its
predecessor Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
_____
26
<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
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (B) MENT (B) RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 185,435 .86%* 5.17%* .86%* 5.17%* 12%
181,595 1.00 5.24 .93 5.31 23
185,016 1.03 5.19 .90 5.32 54
191,850 1.06 5.58 .91 5.73 35
196,087 1.04 5.26 .89 5.41 21
169,944 1.04 5.61 .95 5.70 12
131,488 1.05 6.03 .98 6.10 17
108,917 1.06 6.29 .99 6.36 12
96,348 1.05 6.29 .94 6.40 34
87,539 1.07 6.51 .92 6.66 21
68,077 1.03 6.73 .83 6.93 75
857 1.61* 4.41* 1.61* 4.41* 12
271 1.62* 4.60* 1.62* 4.60* 23
7,632 1.41* 4.62* 1.41* 4.62* 12
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
715 .66* 5.37* .66* 5.37* 12
405 .66* 5.57* .66* 5.57* 23
- -----------------------------------------------------------------------------------------
</TABLE>
_____
27
<PAGE>
ADDITIONAL INVESTMENT OPPORTUNITIES
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your financial
goals.
GROWTH FUNDS
Nuveen Rittenhouse Growth Fund
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
NATIONAL FUNDS
Long-Term
Insured
Intermediate
Limited Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Fund, contact your financial
adviser. If you would like to add to your current investment on a regular basis,
you can sign up for Nuveen's systematic investing program, which allows you to
invest a fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you give your investment the added
growth potential of long-term compounding.
For more information on any of these service options, call your adviser, or
Nuveen at (800) 225-8530.
_____
28
<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
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
____
29
<PAGE>
SERVING INVESTORS
FOR GENERATIONS
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
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 products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
VSA-NC-11.97
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 225-8530
www. nuveen. com
<PAGE>
NUVEEN
Municipal
Bond Funds
November 30, 1997
Semiannual Report
[PHOTO APPEARS HERE]
Dependable, tax-free income to help you keep more of what you earn.
South
Carolina
<PAGE>
CONTENTS
1 DEAR SHAREHOLDER
3 ANSWERING YOUR QUESTIONS
6 PERFORMANCE OVERVIEW
8 PORTFOLIO OF INVESTMENTS
11 STATEMENT OF NET ASSETS
12 STATEMENT OF OPERATIONS
13 STATEMENT OF CHANGES IN NET ASSETS
14 NOTES TO FINANCIAL STATEMENTS
20 FINANCIAL HIGHLIGHTS
22 ADDITIONAL INVESTMENT OPPORTUNITIES
23 FUND INFORMATION
<PAGE>
DEAR SHAREHOLDER
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwrtfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
It's a pleasure to share with you the Nuveen Flagship South Carolina Municipal
Bond Fund's outstanding performance record for the 12 months ended November 30,
1997. Over the past year, investors continued to enjoy attractive, tax-free
dividends generated by the fund's portfolio of municipal bonds. As of November
30, 1997, Class A shareholders were receiving a current yield on net asset value
of 4.73%. To match this yield, investors in the 36% combined federal and state
income tax bracket would have had to earn at least 7.39% on taxable
alternatives.
During this same period, the fund provided Class A shareholders with a highly
competitive total return on net asset value of 7.64% with income reinvested,
outpacing the average return of 6.44% for its peer group, the Lipper South
Carolina municipal bond fund category. You will find additional details on the
fund's performance on pages 6-7.
THE YEAR IN REVIEW
Over the past year, U.S. investors have benefited from robust economic growth
with little evidence of inflationary pressures. With unemployment rates at 20-
year lows and the current economic expansion entering its seventh year, the
presence of benign inflation has sparked debate over whether the traditional
link between growth and inflation has been broken. During 1997, expectations
that excess growth would generate inflation disrupted the markets on several
occasions, most notably following the Federal Reserve's interest rate tightening
in March and speeches by Fed Chairman Alan Greenspan.
1
<PAGE>
"The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation."
Still, falling commodity prices kept producer prices in check, while low import
prices--due in part to the weakness in Asian markets--limited U.S. companies'
ability to raise prices. This combination has kept inflation subdued and the
Federal Reserve "on hold" since March. The reduction in the federal deficit and
passage of the Taxpayer Relief Act of 1997 offer additional encouragement to
long-term fixed-income investors.
HELPING YOU BUILD A BETTER PORTFOLIO
The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation. Stock market volatility,
especially late in the year, provided a vivid illustration of the steadying
effect that fixed-income investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds provide an excellent balance to other
stock and bond investments. Your financial adviser can introduce you to a
variety of other Nuveen products and services to round out your investment
portfolio, including the Nuveen Growth and Income Stock Fund and two balanced
stock and bond funds.
In addition, we recently expanded our private asset management capabilities
through the acquisition of Rittenhouse Financial Services, a well-respected
growth investment manager. We encourage you to talk with your financial adviser
about ways to complement your current Nuveen investments by taking advantage of
these additional products and services.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
TIMOTHY R. SCHWERTFEGER
Chairman of the Board
January 15, 1998
_____
2
<PAGE>
ANSWERING YOUR QUESTIONS
[PHOTO OF TED NEILD APPEARS HERE]
TED NEILD, MANAGING DIRECTOR OF NUVEEN'S PORTFOLIO MANAGEMENT TEAM, TALKS ABOUT
THE MUNICIPAL BOND MARKET AND OFFERS INSIGHTS INTO FACTORS THAT AFFECTED THE
PERFORMANCE OF THE FUNDS OVER THE PAST YEAR.
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED THE PERFORMANCE OF MUNICIPAL BONDS
OVER THE PAST YEAR?
Over the past 12 months, the performance of the municipal bond market was
influenced by three major factors: the continued strength of the U.S. economy,
minimal inflation, and volatility in the equity markets. During 1997, these
factors contributed to a positive environment for fixed-income investments, as
reflected in the steady-to-declining interest rates evident during the year.
Between December 1996 and November 1997, the yield on the 30-year Treasury bond
dropped from 6.36% to 6.05%, and the municipal market followed suit, as the
yield on the Bond Buyer 40 declined from 5.63% to 5.36%. The spread between tax-
free municipal bonds and taxable Treasury bonds remained tight, making municipal
bonds very attractive.
HOW HAS THE FUND PERFORMED DURING THIS PERIOD?
As Tim mentioned in his letter to shareholders, the fund performed very well
during the one-year period ended November 30, 1997. The total return on net
asset value for Class A shares of the fund was 7.64%, which compares favorably
with the one-year average return of 6.44% for the peer group of South Carolina
municipal bond funds tracked by Lipper Analytical Services--a 120 basis point
difference. Once again, this fund was the top performer in its category, ranking
first among the 16 municipal bond funds in the grouping.
3
<PAGE>
"One focus will be maintaining good call protection, which helps sustain the
fund's dividend, regardless of the direction that interest rates take."
GIVEN THE CURRENT MUNICIPAL MARKET, WHERE WERE YOU ABLE TO FIND VALUE?
The fund has benefited from a high embedded yield and extremely high quality
holdings. Because of severe quality compression during the period, it was
possible to increase investments in high quality, essential service municipal
bonds. We also continued to look for value for shareholders in individual bonds
that enhanced the structure of the portfolio, allowing the fund to rally as the
market moved forward. Specifically, we purchased longer duration bonds with good
call protection at the lower prices available earlier this year.
Because of the limited issuance in South Carolina, home state bonds continue to
demand a premium over bonds available in the general market. Retail demand
exceeds the limited supply of South Carolina paper, so the fund continues to
enjoy good execution of trades given our strong relationships with the broker-
dealer community.
WHAT ARE YOUR KEY STRATEGIES FOR THE COMING YEAR?
We take a holistic approach to portfolio management--assessing all of the
factors that determine a fund's performance and taking advantage of all of them
to contribute to total return and dividend stability. In the coming year, one
focus will be maintaining good call protection, which helps sustain the fund's
dividend, regardless of the direction that interest rates take.
We will continue to focus on sustaining a high level of tax-free income while
maintaining the fund's favorable duration. We will look for opportunities to
purchase
4
<PAGE>
"Looking at the year ahead, we believe the overall market will continue to
strike a good balance between supply and demand."
housing bonds and essential service bonds with assistance of Nuveen Research.
While credit spreads are tight, we will continue to take advantage of
opportunities to purchase bonds with high credit quality at yields that are
similar to bonds with lower ratings. During the past year, the yield
differentials between AAA and BBB bonds narrowed significantly. We believe that
if credit spreads widen, these high-quality issues will increase in value
relative to lower-rated bonds.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
Looking at the year ahead, we believe the overall market will continue to strike
a good balance between supply and demand. We expect supply to increase as new
issuers continue to enter the market. A continued decline in yields could also
cause new supply to come to market through refunding of current debt. On the
demand side, volatility in the equity markets, plus the potential for a
weakening of the economy, could spark increased interest in bonds of all types.
The financial crises in Asia, coupled with the continued strength of the dollar
and low commodity prices, are all contributing to the excellent inflation
picture. This backdrop should help offset stronger labor markets and limit the
effects of any bond market corrections. In the meantime, positive underlying
fundamentals provide good support for the municipal market.
5
<PAGE>
Nuveen Flagship South Carolina
Municipal Bond Fund
PERFORMANCE OVERVIEW
As of November 30, 1997
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
- ------------------------------------------------------------------------
SHARE CLASS A B C R
<S> <C> <C> <C> <C>
Inception Date 7/93 2/97 2/97 2/97
........................................................................
Net Asset Value (NAV) $9.82 $9.80 $9.81 $9.82
........................................................................
CUSIP 67065P790 67065P782 67065P774 67065P766
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Total Net Assets ($000) $12,670
........................................................................
Average Weighted Maturity (Years) 20.33
........................................................................
Average Weighted Duration (Years) 8.66
- ------------------------------------------------------------------------
<CAPTION>
ANNUALIZED TOTAL RETURN/1/
- ------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
1-Year 7.64% 3.13% 6.68% 7.00% 7.82%
........................................................................
3-Year 10.45% 8.90% 9.72% 9.98% 10.51%
........................................................................
Since Inception 5.91% 4.89% 5.25% 5.48% 5.96%
- ------------------------------------------------------------------------
TAX FREE YIELDS
- ------------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.07% 4.86% 4.35% 4.53% 5.32%
........................................................................
SEC 30-Day Yld 4.73% 4.53% 3.98% 4.18% 4.93%
........................................................................
Taxable Equiv Yld/2/ 7.39% 7.08% 6.22% 6.53% 7.70%
- ------------------------------------------------------------------------
</TABLE>
/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 difference in sales
charges and expenses, which are primarily differences in distribution and
service fees. Class A shares have a 4.2% maximum up-front sales charge.
Class B shares have a contingent deferred sales charge (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 B shares automatically convert to Class A shares
eight years after purchase. 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 36%.
Represents the yield on a taxable investment necessary to equal the yield
of the Nuveen fund on an after-tax basis.
6
<PAGE>
Credit Quality
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
AA 28%
BBB/NR 3%
A 12%
AAA 57%
</TABLE>
- --------------------------------------------------------------------------------
Diversification
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Water & Sewer 19%
Tax Obligation (G.O.) 17%
Health Care 14%
Tax Obligation (Limited) 14%
Education/Civic Org. 10%
Utilities 6%
Housing (Multi-family) 5%
Transportation 5%
Forest/Paper Products 4%
Housing (Single-Family) 4%
Other 2%
</TABLE>
- --------------------------------------------------------------------------------
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
0.04235 Dec. 1996
0.04247 Jan. 1997
0.0417 Feb. 1997
0.0417 Mar. 1997
0.0417 Apr. 1997
0.0417 May 1997
0.0415 June 1997
0.0415 July 1997
0.0415 Aug. 1997
0.0415 Sept. 1997
0.0415 Oct. 1997
0.0415 Nov. 1997
</TABLE>
7
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP SOUTH CAROLINA
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION AND CIVIC ORGANIZATIONS - 9.8%
$ 400,000 Coastal Carolina University, South Carolina Revenue, 6/04 at 102 AAA $ 451,436
6.800%, 6/01/19
500,000 South Carolina State Education, Assistance Authority, 9/04 at 101 A 527,840
Guaranteed Student Loan, Sub Lien,
6.300%, 9/01/08
250,000 University South Carolina, University Revenues, 6/07 at 101 AAA 259,453
5.600%, 6/01/14
- -----------------------------------------------------------------------------------------------------------------------------
FOREST AND PAPER PRODUCTS - 4.1%
500,000 Darlington County, South Carolina, Industrial 4/06 at 102 A 522,285
Development Revenue, Sonoco Company
Project, 6.000%, 4/01/26
- -----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 13.6%
200,000 Greenville Hospital System, South Carolina Hospital No Opt. Call AAA 219,344
Facilities Revenue, 6.000%, 5/01/20
250,000 Greenwood County, South Carolina, Hospital Revenue, 10/03 at 102 AAA 259,268
Self Memorial Hospital, 5.875%, 10/01/17
500,000 Lexington County, South Carolina, Health Services 11/08 at 102 AAA 498,870
District Inc., Hospital Revenue Refunding and
Improvement, 5.000%, 11/01/09
250,000 South Carolina Jobs, Economic Development Authority, 11/05 at 102 AAA 260,740
Tuomey Regional Medical Center, Series A,
5.750%, 11/01/15
500,000 Spartanburg County, South Carolina, Health Services 4/07 at 101 AAA 486,070
District Inc., Hospital Revenue, Series B,
5.125%, 4/15/22
- -----------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 4.5%
300,000 South Carolina Regional Housing Development 7/02 at 102 Aa 314,214
Corporation Number 1, Multifamily Revenue,
Redwood Village Apartments, Series A,
6.625%, 7/07/17
250,000 South Carolina State Housing Finance and Development 11/05 at 102 AA- 256,865
Authority, Multifamily Revenue, Runaway Bay
Apartments Project, 6.125%, 12/01/15
</TABLE>
_____
8
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/SINGLE FAMILY - 4.2%
$ 250,000 South Carolina Housing Authority, Homeownership 7/04 at 102 AA $ 263,970
Mortgage Purchase, Series A, 6.150%, 7/01/08
250,000 South Carolina Housing Finance and Development 5/06 at 102 Aa2 262,628
Authority, Mortgage Revenue, Series A,
6.350%, 7/01/25
- ----------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 17.1%
250,000 Anderson County, South Carolina, School District 3/05 at 102 AAA 256,163
No. 004, 5.400%, 3/01/15
500,000 Cherokee County, South Carolina, School District 3/07 at 101 Aa1 490,270
No. 001, 5.000%, 3/01/17
365,000 Florence County, South Carolina, School District 3/06 at 102 AAA 381,345
No. 005, Series A, 5.700%, 3/01/17
250,000 Lexington County, South Carolina, Public Library 2/03 at 102 Aa2 269,535
System, 6.300%, 2/01/10
500,000 Lexington County, South Carolina, School District No. 3, 3/07 at 101 Aa1 493,270
5.000%, 3/01/17
250,000 Puerto Rico Commonwealth, 6.400%, 7/01/11 7/04 at 101 1/2 A 274,808
- ----------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 13.7%
Berkeley County, South Carolina, School District,
Certificates of Participation, Berkeley School Facilities
Group Inc.:
250,000 6.250%, 2/01/12 2/04 at 102 AAA 271,763
250,000 6.300%, 2/01/16 2/04 at 102 AAA 270,055
10,000 Charleston County, South Carolina, Certificates of 6/04 at 102 AAA 11,241
Participation, Series B, 6.875%, 6/01/14
400,000 Chesterfield County, South Carolina, School District, 7/05 at 102 AAA 425,772
Certificates of Participation, Chesterfield School
Facilities Inc., 6.000%, 7/01/15
250,000 Hilton Head Island, South Carolina, Public Facilities 3/05 at 102 AAA 261,288
Corporation, Certificates of Participation,
5.750%, 3/01/14
400,00 North Charleston, South Carolina, Certificates of 9/07 at 102 AAA 390,488
Participation, Refunding and Improvement,
Coliseum and Convention, 5.125%, 9/01/19
100,000 Puerto Rico Public Buildings Authority, Series L, No Opt. Call A 104,045
5.500%, 7/01/21
</TABLE>
_____
9
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP SOUTH CAROLINA - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - 4.5%
$ 300,000 Horry County, South Carolina, Airport Revenue, Series A, 7/07 at 102 AAA $ 307,662
5.700%, 7/01/27
250,000 Richland and Lexington, South Carolina, Airport District 1/05 at 100 AAA 261,570
Revenue, Columbia Metropolitan Airport,
6.000%, 1/01/15
- --------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 2.2%
240,000 Charleston County, South Carolina, Certificates of 6/04 at 102 AAA 276,398
Participation, Series B, 6.875%, 6/01/14
(Pre-refunded to 6/01/04)
- --------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 5.9%
250,000 Charleston County, South Carolina, Solid Waste User 1/05 at 102 AAA 266,380
Fee Revenue, 6.000%, 1/01/14
500,000 South Carolina Public Service Authority, 1/08 at 101 AAA 486,240
Santee Cooper, Series A, 5.125%, 1/01/32
- --------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 18.2%
250,000 Columbia, South Carolina, Waterworks and Sewer No Opt. Call AA 261,363
System Revenue, 5.375%, 2/01/12
250,000 Georgetown County, South Carolina, Water and Sewer 6/05 at 102 N/R 252,823
District Revenue Refunding and Improvement,
6.500%, 6/01/25
300,000 Greenville, South Carolina, Waterworks Revenue, 2/07 at 102 Aa1 307,275
5.500%, 2/01/22
500,000 Lexington, South Carolina, Water and Sewer Revenue, 4/07 at 102 AA 500,795
5.500%, 4/01/29
250,000 Spartanburg, South Carolina, Sanitation Sewer District, 6/07 at 101 AAA 253,183
Sewer System Revenue, 5.500%, 6/01/20
500,000 Spartanburg, South Carolina, Waterworks Revenue, 6/07 at 101 AAA 481,540
5.000%, 6/01/22
250,000 York County, South Carolina, Water and Sewer Revenue, 12/03 at 102 N/R 252,475
6.500%, 12/01/25
- ---------------------------------------------------------------------------------------------------------------------------------
$ 12,015,000 Total Investments - (cost $11,752,593) - 97.8% 12,390,730
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.2% 279,078
-------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 12,669,808
-------------------------------------------------------------------------------------------------------------
</TABLE>
* Optional Call Provisions: Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other provisions at varying prices at
later dates.
** Ratings: Using the higher of Standard and Poor's or
Moody's rating.
N/R- Investment is not rated.
See accompanying notes to financial statements.
_____
10
<PAGE>
STATEMENT OF NET ASSETS (UNAUDITED)
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
SOUTH CAROLINA
- ---------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $ 12,390,730
Cash 46,673
Receivables:
Fund Manager (note 6) 1,760
Interest 223,546
Shares sold 44,159
Other assets 39,098
- ---------------------------------------------------------------------------------------------------------
Total assets 12,745,966
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
12b-1 distribution and service fees (notes 1 and 6) 2,573
Other 22,260
Dividends payable 51,325
- ---------------------------------------------------------------------------------------------------------
Total liabilities 76,158
- ---------------------------------------------------------------------------------------------------------
Net assets (note 7) $ 12,669,808
- ---------------------------------------------------------------------------------------------------------
CLASS A SHARES (NOTE 1)
Net assets $ 11,473,211
Shares outstanding 1,168,887
Net asset value and redemption price per share $ 9.82
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 10.25
- ---------------------------------------------------------------------------------------------------------
CLASS B SHARES (NOTE 1)
Net assets $ 454,918
Shares outstanding 46,397
Net asset value, offering and redemption price per share $ 9.80
- ---------------------------------------------------------------------------------------------------------
CLASS C SHARES (NOTE 1)
Net assets $ 694,484
Shares outstanding 70,791
Net asset value, offering and redemption price per share $ 9.81
- ---------------------------------------------------------------------------------------------------------
CLASS R SHARES (NOTE 1)
Net assets $ 47,195
Shares outstanding 4,804
Net asset value, offering and redemption price per share $ 9.82
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
_____
11
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
SOUTH CAROLINA
- -----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $315,194
- -----------------------------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 30,890
12b-1 service fees -- Class A (notes 1 and 6) 10,419
12b-1 distribution and service fees -- Class B (notes 1 and 6) 1,170
12b-1 distribution and service fees -- Class C (notes 1 and 6) 1,971
Shareholders' servicing agent fees and expenses 1,607
Custodian's fees and expenses 15,399
Trustees' fees and expenses (note 6) 110
Professional fees 7,496
Shareholders' reports -- printing and mailing expenses 816
Federal and state registration fees 1,483
Organizational expenses 5,929
Other expenses 222
- -----------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 77,512
Expense reimbursement (note 6) (42,049)
- -----------------------------------------------------------------------------------------------------------
Net expenses 35,463
- -----------------------------------------------------------------------------------------------------------
Net investment income 279,731
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 122,898
Net change in unrealized appreciation or depreciation of investments 213,372
- -----------------------------------------------------------------------------------------------------------
Net gain from investments 336,270
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $616,001
===========================================================================================================
</TABLE>
See accompanying notes to financial statements.
_____
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP SOUTH CAROLINA
---------------------------------------
SIX MONTHS ENDED YEAR ENDED
11/30/97 5/31/97*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 279,731 $ 588,783
Net realized gain from investment transactions
(notes 1 and 4) 122,898 12,003
Net change in unrealized appreciation or depreciation
of investments 213,372 270,459
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 616,001 871,245
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (262,840) (583,450)
Class B (5,102) (1,592)
Class C (11,513) (1,078)
Class R (1,135) (340)
- ------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (280,590) (586,460)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 4,138,862 2,419,482
Net proceeds from shares issued to shareholders due
to reinvestment of distributions 165,233 337,619
- ------------------------------------------------------------------------------------------------------------
4,304,095 2,757,101
- ------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,204,345) (3,340,985)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 2,099,750 (583,884)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,435,161 (299,099)
Net assets at the beginning of period 10,234,647 10,533,746
- ------------------------------------------------------------------------------------------------------------
Net assets at the end of period $12,669,808 $10,234,647
============================================================================================================
Balance of undistributed net investment income at end of period $ 1,464 $ 2,323
============================================================================================================
</TABLE>
* Information represents eight months of Flagship South Carolina and four
months of Nuveen Flagship South Carolina (see note 1).
See accompanying notes to financial statements.
_____
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 South Carolina Municipal Bond Fund (the
"Fund"), among others. The Trust was organized as a Massachusetts business trust
on July 1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Fund, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, Flagship South Carolina Double
Tax Exempt Fund ("Flagship South Carolina") was reorganized into the Trust and
renamed Nuveen Flagship South Carolina Municipal Bond Fund ("Nuveen Flagship
South Carolina"). Prior to the reorganization, Flagship South Carolina was a
sub-trust of the Flagship Tax Exempt Funds Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
SECURITIES VALUATION
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
SECURITIES TRANSACTIONS
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
November 30, 1997, the Fund had no such outstanding purchase commitments.
_____
14
<PAGE>
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes. The Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and South Carolina state income taxes, to
retain such tax-exempt status when distributed to the shareholders of the Fund.
Net realized capital gain and market discount distributions are subject to
federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class 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 distribu-
_____
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
tion or service fees. Class R Shares are available for purchases of over $1
million and in other limited circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap, option contracts, and other financial instruments with
similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the six months ended November 30, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
Organizational Expenses
The organizational expenses incurred on behalf of the Fund (approximately
$35,400) will be reimbursed to the Adviser on a straight-line basis over a
period of three years. As of November 30, 1997, $17,747 has been reimbursed.
_____
16
<PAGE>
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 11/30/97 YEAR ENDED 5/31/97*
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 359,605 $ 3,491,582 192,810 $ 1,814,877
Class B 29,266 284,230 16,861 160,503
Class C 35,259 342,378 44,094 419,098
Class R 2,146 20,672 2,621 25,004
Shares issued to shareholders
due to reinvestment
of distributions:
Class A 16,078 155,066 35,809 337,619
Class B 270 2,623 --- ---
Class C 739 7,187 --- ---
Class R 37 357 --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
443,400 4,304,095 292,195 2,757,101
- -----------------------------------------------------------------------------------------------------------------------------------
Shares redeeemed:
Class A (217,526) (2,114,034) (353,491) (3,340,985)
Class B --- --- --- ---
Class C (9,301) (90,311) --- ---
Class R --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
(226,827) (2,204,345) (353,491) (3,340,985)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 216,573 $ 2,099,750 (61,296) $ (583,884)
==================================================================================================================================
</TABLE>
* Information represents eight months of Flagship South Carolina and four months
of Nuveen Flagship South Carolina (see note 1).
3. DISTRIBUTIONS TO SHAREHOLDERS
On December 9, 1997, the Fund declared dividend distributions from its tax-
exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Dividend per share:
Class A $.0415
Class B .0355
Class C .0370
Class R .0435
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_____
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities for the six months ended November 30, 1997, aggregated $5,515,459 and
$3,735,405, respectively. Purchases and sales (including maturities) of
temporary municipal investments for the six months ended November 30, 1997,
aggregated $2,200,000 and $2,200,000, respectively.
At November 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At May 31, 1997, the Fund's last fiscal year end, the Fund had an unused capital
loss carryforward of $306,863 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, the carryforward
will expire in the year 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At November 30, 1997, net unrealized appreciation aggregated $638,137, all of
which related to appreciated securities.
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $33,400 of which
approximately $29,000 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the six months ended November 30, 1997, the Distributor compensated
authorized dealers directly with approximately $26,200 in commission advances at
the time of purchase. To compensate for commissions advanced to authorized
dealers, all
_____
18
<PAGE>
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 six months ended November
30, 1997, the Distributor retained approximately $3,100 in such 12b-1 fees. The
remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained approximately $200 of CDSC on share
redemptions during the six months ended November 30, 1997.
7. COMPOSITION OF NET ASSETS
At November 30, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Capital paid-in $12,213,860
Balance of undistributed net investment income 1,464
Accumulated net realized gain (loss) from investment transactions (183,653)
Net unrealized appreciation of investments 638,137
- --------------------------------------------------------------------------------
Net assets $12,669,808
================================================================================
</TABLE>
_____
19
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- ----------------------------
NET
NUVEEN FLAGSHIP NET REALIZED AND DIVIDENDS NET TOTAL
SOUTH CAROLINA** ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME (b) INVESTMENTS INCOME GAINS PERIOD VALUE (a)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (7/93)
1998 (d) $9.53 $.24 $ .30 $(.25) $ -- $9.82 5.70%
1997 9.28 .51 .24 (.50) -- 9.53 8.28
1996 9.45 .48 (.15) (.50) -- 9.28 3.53
1995 9.20 .50 .25 (.50) -- 9.45 8.54
1994 (c) 9.58 .42 (.38) (.39) (.03) 9.20 .15*
CLASS B (2/97)
1998 (d) 9.52 .21 .28 (.21) -- 9.80 5.22
1997 (c) 9.61 .13 (.11) (.11) -- 9.52 .20
CLASS C (2/97)
1998 (d) 9.52 .22 .29 (.22) -- 9.81 5.43
1997 (c) 9.63 .13 (.13) (.11) -- 9.52 .03
CLASS R (2/97)
1998 (d) 9.54 .25 .29 (.26) -- 9.82 5.72
1997 (c) 9.60 .14 (.07) (.13) -- 9.54 .75
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31,
1997, reflects the financial highlights of Flagship South
Carolina.
(a) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its
predecessor Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
_____
20
<PAGE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENT DATA
- ---------------------------------------------------------------------------------------
RATIO RATIO
OF NET OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME TO EXPENSES INCOME TO
TO AVERAGE AVERAGE TO AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
NET ASSETS BEFORE BEFORE AFTER AFTER PORTFOLIO
END OF PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (B) MENT (B) RATE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11,473 1.34%* 4.27%* .59%* 5.02%* 34%
9,629 1.55 4.22 .41 5.36 68
10,534 1.53 4.16 .71 4.98 76
9,013 1.86 4.08 .40 5.54 87
6,284 2.12* 3.10* .40* 4.82* 88
455 2.09* 3.53* 1.34* 4.28* 34
160 2.12* 3.84* 1.09* 4.87* 68
694 1.89* 3.73* 1.14* 4.48* 34
420 1.91* 3.85* .90* 4.86* 68
47 1.14* 4.46* .39* 5.21* 34
25 1.17* 4.70* .14* 5.73* 68
- ---------------------------------------------------------------------------------------
</TABLE>
_____
21
<PAGE>
ADDITIONAL INVESTMENT OPPORTUNITIES
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your financial
goals.
GROWTH FUNDS
Nuveen Rittenhouse Growth Fund
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
NATIONAL FUNDS
Long-Term
Insured
Intermediate
Limited Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Fund, contact your financial
adviser. If you would like to add to your current investment on a regular basis,
you can sign up for Nuveen's systematic investing program, which allows you to
invest a fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you give your investment the added
growth potential of long-term compounding.
For more information on any of these service options, call your adviser, or
Nuveen at (800) 225-8530.
_____
22
<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
Boston Financial Data Service
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
_____
23
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
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 products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 225-8530
www.nuveen.com
VSA-SC-11.97
<PAGE>
NUVEEN
MunicipaL
Bond Funds
November 30, 1997
Semiannual Report
[PHOTO APPEARS HERE]
Dependable, tax-free income
to help you keep more of
what you earn.
Tennessee
<PAGE>
CONTENTS
1 Dear Shareholder
3 Answering Your Questions
6 Performance Overview
8 Portfolio of Investments
16 Statement of Net Assets
17 Statement of Operations
18 Statement of Changes in Net Assets
19 Notes to Financial Statements
25 Financial Highlights
28 Additional Investment Opportunities
29 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.
It's a pleasure to share with you the Nuveen Flagship Tennessee Municipal Bond
Fund's outstanding performance record for the 12 months ended November 30, 1997.
Over the past year, investors continued to enjoy attractive, tax-free dividends
generated by the fund's portfolio of municipal bonds. As of November 30, 1997,
Class A shareholders were receiving a current yield on net asset value of 4.28%.
To match this yield, investors in the 35% combined federal and state income tax
bracket would have had to earn at least 6.58% on taxable alternatives.
During this same period, the fund provided Class A shareholders with a
competitive total return on net asset value of 7.29% with income reinvested,
outpacing the average return of 6.72% for its peer group, the Tennessee
municipal bond fund category. You will find additional details on the fund's
performance on pages 6-7.
THE YEAR IN REVIEW
Over the past year, U.S. investors have benefited from robust economic growth
with little evidence of inflationary pressures. With unemployment rates at 20-
year lows and the current economic expansion entering its seventh year, the
presence of benign inflation has sparked debate over whether the traditional
link between growth and inflation has been broken. During 1997, expectations
that excess growth would generate inflation disrupted the markets on several
occasions, most notably following the Federal Reserve's interest rate tightening
in March and speeches by Fed Chairman Alan Greenspan. Still, falling commodity
prices kept producer prices in check, while low import prices--due
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<PAGE>
"The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation."
in part to the weakness in Asian markets--limited U.S. companies' ability to
raise consumer prices. This combination has kept inflation subdued and the
Federal Reserve "on hold" since March. The reduction in the federal deficit and
passage of the Taxpayer Relief Act of 1997 offer additional encouragement to
long-term fixed-income investors.
HELPING YOU BUILD A BETTER PORTFOLIO
The events of 1997 have focused renewed attention on the need for
diversification and appropriate asset allocation. Stock market volatility,
especially late in the year, provided a vivid illustration of the steadying
effect that fixed-income investments can provide in a well-constructed
investment portfolio. Nuveen mutual funds provide an excellent balance to other
stock and bond investments. Your financial adviser can introduce you to a
variety of other Nuveen products and services to round out your investment
portfolio, including the Nuveen Growth and Income Stock Fund and two balanced
stock and bond funds.
In addition, we recently expanded our private asset management capabilities
through the acquisition of Rittenhouse Financial Services, a well-respected
growth investment manager. We encourage you to talk with your financial adviser
about ways to complement your current Nuveen investments by taking advantage of
these additional products and services.
We at Nuveen remain committed to providing you with quality investment solutions
that withstand the test of time. We thank you for your confidence in us and our
family of investments, and we look forward to our next report to you.
Sincerely,
/s/ Timothy R. Schwertfeger
- ------------------------------
Timothy R. Schwertfeger
Chairman of the Board
January 15, 1998
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<PAGE>
ANSWERING YOUR QUESTIONS
[PHOTO OF TED NEILD APPEARS HERE]
Ted Neild, managing director of Nuveen's portfolio management team, talks about
the municipal bond market and offers insights into factors that affected the
performance of the fund over the past year.
WHAT ECONOMIC AND MARKET FACTORS INFLUENCED THE PERFORMANCE OF MUNICIPAL BONDS
OVER THE PAST YEAR?
Over the past 12 months, the performance of the municipal bond market was
influenced by three major factors: the continued strength of the U.S. economy,
minimal inflation and volatility in the equity markets. During 1997, these
factors contributed to a positive environment for fixed-income investments, as
reflected in the steady-to-declining interest rates evident during the year.
Between December 1996 and November 1997, the yield on the 30-year Treasury bond
dropped from 6.36% to 6.05%, and the municipal market followed suit, as the
yield on the Bond Buyer 40 declined from 5.63% to 5.36%. The spread between tax-
free municipal bonds and taxable Treasury bonds remained tight, making municipal
bonds very attractive. The strong total returns produced in this environment
were somewhat muted by a heavy supply of newly issued bonds that temporarily
reduced bond prices. The increased supply worked to our advantage, however, as
it expanded opportunities to find value in the marketplace.
HOW HAS THE FUND PERFORMED DURING THIS PERIOD?
As Tim mentioned in his letter to shareholders, the fund performed well during
the one-year period ended November 30, 1997. The total return on net asset value
for Class A shares of the fund was 7.29%, which compares favorably with the one-
year average return of 6.72% for
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<PAGE>
"We plan to be very selective in purchasing securities that offer strong call
protection, which helps ensure the strength of the fund's dividend."
the peer group of Tennessee municipal bond funds tracked by Lipper Analytical
Services--a 57 basis point difference. Once again, this fund was one of the
top performers in its category, ranking fifth among the 20 municipal bond funds
in the grouping.
GIVEN THE CURRENT MUNICIPAL MARKET, WHERE WERE YOU ABLE TO FIND VALUE?
One of the ways that we achieved such outstanding performance and created value
for shareholders was by structuring the fund to be well-diversified among many
sectors of the marketplace. With such broad diversification, we help ensure that
the fund is not overly susceptible to downturns in any one sector of the
municipal market. In addition, we used our strong network of institutional
investors to purchase bonds at very competitive prices.
WHAT ARE YOUR KEY STRATEGIES FOR THE COMING YEAR?
To sustain our strong performance record, we take a holistic approach to
portfolio management--assessing all of the factors that determine a fund's
performance and taking advantage of all of them to contribute to total return
and dividend stability. In the coming year, one focus will be boosting the call
protection of the fund. Tennessee issuers tend to construct bond deals with less
call protection than is available in the general marketplace. So, we plan to be
very selective in purchasing securities that offer strong call protection, which
helps ensure the strength of the fund's dividend. In addition, we will continue
to search for higher-yielding securities to support the dividend.
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<PAGE>
"Looking at the year ahead, we believe the overall market will continue to
strike a good balance between supply and demand."
As part of our value investing approach, we will also continue to look for
individual bonds that offer good long-term value with the potential for
appreciating returns. Our thorough research helps us find investment quality
bonds that offer the best values--such as bonds from specific regions and
sectors that have the best potential for performance and appreciation. We plan
to continue to search for bonds with pre-refunding potential, as well as those
that we feel are undervalued by the market as a whole.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
Looking at the year ahead, we believe the overall market will continue to strike
a good balance between supply and demand. We expect supply to increase as new
issuers continue to enter the market. A continued decline in yields could also
cause new supply to come to market through refunding of current debt. On the
demand side, volatility in the equity markets, plus the potential for a
weakening of the economy, could spark increased interest in bonds of all types.
The financial crises in Asia, coupled with the continued strength of the dollar
and low commodity prices, are all contributing to the excellent inflation
picture. This backdrop should help offset stronger labor markets and limit the
effects of any bond market corrections. In the meantime, positive underlying
fundamentals provide good support for the municipal market.
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<PAGE>
Nuveen Flagship Tennessee
Municipal Bond Fund
Performance Overview
As of November 30, 1997
<TABLE>
FUND HIGHLIGHTS
====================================================================================================
<S> <C> <C> <C> <C> <C>
SHARE CLASS A B C R
Inception Date 11/87 2/97 10/93 2/97
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) $11.37 $11.37 $11.36 $ 11.35
- ----------------------------------------------------------------------------------------------------
CUSIP 67065P758 67065P741 67065P733 67065P725
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total Net Assets ($000) $287,842
- ----------------------------------------------------------------------------------------------------
Average Weighted Maturity (Years) 18.99
- ----------------------------------------------------------------------------------------------------
Duration (Years) 7.06
- ----------------------------------------------------------------------------------------------------
ANNUALIZED TOTAL RETURN/1/
====================================================================================================
SHARE CLASS A(NAV) A(OFFER) B C R
1-Year 7.29% 2.78% 6.55% 6.69% 7.26%
- ----------------------------------------------------------------------------------------------------
5-Year 6.65% 5.75% 6.04% 6.04% 6.64%
- ----------------------------------------------------------------------------------------------------
10-Year 8.07% 7.61% 7.60% 7.47% 8.07%
- ----------------------------------------------------------------------------------------------------
TAX-FREE YIELDS
====================================================================================================
SHARE CLASS A(NAV) A(OFFER) B C R
Dist Rate 5.17% 4.95% 4.43% 4.60% 5.34%
- ----------------------------------------------------------------------------------------------------
SEC 30-Day Yld 4.28% 4.10% 3.53% 3.73% 4.48%
- ----------------------------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 6.58% 6.31% 5.43% 5.74% 6.89%
- ----------------------------------------------------------------------------------------------------
</TABLE>
/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 up-front sales charge. Class B shares
have a contingent deferred sales charge (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 B shares automatically convert to Class A shares eight years
after purchase. 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%.
Represents the yield on a taxable investment necessary to equal the yield
of the Nuveen fund on an after-tax basis.
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<PAGE>
[PIE CHART APPEARS HERE]
Credit Quality
AA 25%
A 17%
BBB/NR 9%
AAA 49%
[PIE CHART APPEARS HERE]
Diversification
U.S. Guaranteed 18%
Tax Obligation (Limited) 15%
Health Care 14%
Tax Obligation (G.O.) 8%
Utilities 8%
Housing (Single-Family) 7%
Basic Materials 6%
Transportation 6%
Forest/Paper Products 5%
Education/Civic Org. 4%
Water and Sewer 4%
Consumer Cyclical 3%
Other 2%
[BAR GRAPH APPEARS HERE]
0.04955 Dec. 1996
0.04968 Jan. 1997
0.0488 Feb. 1997
0.0488 Mar. 1997
0.0488 Apr. 1997
0.0488 May 1997
0.049 June 1997
0.049 July 1997
0.049 Aug. 1997
0.049 Sept. 1997
0.049 Oct. 1997
0.049 Nov. 1997
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<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP TENNESSEE
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC MATERIALS - 5.7%
$3,000,000 Chattanooga, Tennessee, Industrial Development 7/03 at 103 AA $ 3,243,600
Board, Pollution Control Revenue, E. I. Du Pont,
Series A, 6.350%, 7/01/22
12,000,000 Humphreys County, Tennessee, Industrial Development 5/04 at 102 AA- 13,250,640
Board, Solid Waste Disposal Revenue, E.I. Dupont
Denemours and Company Project, 6.700%, 5/01/24
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL - 2.7%
7,000,000 Maury County, Tennessee, lndustrial Development 9/04 at 102 A- 7,665,910
Board, Pollution Control Revenue, Multi-Modal,
Saturn Corporation Project, 6.500%, 9/01/24
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 0.6%
250,000 Memphis and Shelby County, Tennessee, Industrial No Opt. Call A1 287,018
Development Board, Industrial Development
Revenue, Colonial Baking Company, Memphis
Project, 9.500%, 4/01/01
1,245,000 South Fulton, Tennessee, Industrial Development Board, 10/05 at 102 A3 1,330,444
Industrial Development Revenue, Tyson Foods Inc.
Project, 6.400%, 10/01/20
- -------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 3.5%
Metropolitan Government, Nashville and Davidson
County, Tennessee, H and E Facilities Board Revenue,
Vanderbilt University, Series A:
1,000,000 7.625%, 5/01/08 5/98 at 102 AA 1,035,010
2,850,000 7.625%, 5/01/16 5/98 at 102 AA 2,949,408
3,705,000 Tennessee School Bond Authority, Higher Education 5/02 at 101 1/2 AAA 3,983,283
Facilities, Series A, 6.250%, 5/01/22
2,000,000 Tennessee School Bond Authority, Higher Educational 5/06 at 102 AA 2,075,460
Facilities, Series C, 5.700%, 5/01/20
- -------------------------------------------------------------------------------------------------------------------------
FOREST AND PAPER PRODUCTS - 5.4%
6,750,000 Loudon County, Tennessee, Industrial Development 2/03 at 102 AA 7,159,725
Board, Solid Waste Disposal Revenue, Kimberly
Clark Corporation Project, 6.200%, 2/01/23
2,500,000 McMinn County, Tennessee, Industrial Development 3/01 at 102 Baa1 2,745,850
Board, Pollution Control Revenue, Calhoun
Company Project, Bowater, Series A, 7.625%, 3/01/16
4,950,000 McMinn County, Tennessee, Industrial Development 12/02 at 102 Baa1 5,529,200
Board, Solid Waste Revenue, Recycling Facility,
Calhoun Newsprint, Bowater, 7.400%, 12/01/22
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - 13.3%
$1,930,000 Chattanooga, Tennessee, Health Education and 9/01 at 102 AAA $2,099,087
Housing Facility Board, Memorial Hospital Project,
Series A, 6.600%, 9/01/12
Clarksville, Tennessee, Hospital Revenue and
Improvement, Clarksville Memorial Project:
1,000,000 6.250%, 7/01/08 7/03 at 102 Baa1 1,054,410
1,775,000 6.250%, 7/01/13 7/03 at 102 Baa1 1,852,124
1,250,000 6.375%, 7/01/18 7/03 at 102 Baa1 1,313,888
1,550,000 Cookeville, Tennessee, Industrial Development 12/03 at 102 A 1,607,242
Board, Hospital Revenue, Cookeville General
Hospital Project, 5.750%,10/01/10
7,350,000 Jackson, Tennessee, Hospital Revenue 4/05 at 102 AAA 7,561,827
and Improvement, 5.625%, 4/01/15
Johnson City, Tennessee, Health and Educational
Facilities Board, Hospital Revenue, Johnson City
Medical Center Hospital:
3,750,000 5.000%, 7/01/13 7/04 at 102 AAA 3,717,788
2,090,000 6.750%, 7/01/16 7/01 at 102 AAA 2,277,682
1,790,000 Knox County, Tennessee, Health Educational 1/98 at 102 AAA 1,832,172
and Housing Facilities Board, Hospital Facilities
Revenue, Fort Sanders Regional Medical Center,
8.000%, 1/01/08
Knox County, Tennessee, Health Educational
and Housing Facilities Board, Hospital Facilities
Revenue, Fort Sanders Alliance:
1,000,000 6.250%, 1/01/13 No Opt. Call AAA 1,133,000
3,000,000 5.250%, 1/01/15 No Opt. Call AAA 3,066,270
1,250,000 Metropolitan Government, Nashville and 11/05 at 102 AAA 1,298,963
Davidson County, Tennessee, H and E Facilities Board,
Adventist Health System, 5.750%, 11/15/25
2,395,000 Metropolitan Government, Nashville and Davidson 11/01 at 102 AAA 2,647,505
County, Tennessee, H and E Facilities Board,
Adventist Health/Sunbelt, 7.000%, 11/15/16
4,000,000 Shelby County, Tennessee, Health Educational 8/05 at 102 AAA 4,017,240
and Housing Facility Board, Hospital Revenue,
Formerly Shelby County, Tennessee, Methodist
Health System Inc., 5.250%, 8/01/15
2,500,000 Sumner County, Tennessee, Health Educational and 11/04 at 102 A- 2,834,400
Housing Facilities Board, Sumner Regional Health
System lnc., Series 1994, 7.500%, 11/01/14
</TABLE>
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<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP TENNESSEE CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/ MULTIFAMILY - 2.4%
$1,200,000 Chattanooga, Tennessee, Health Education and 7/03 at 102 Aaa $1,235,328
Housing Facility Board, Multifamily Mortgage
Revenue, Windridge Apartments, Series A,
5.950%, 7/01/14
3,500,000 Franklin, Tennessee, Industrial Development Board, 10/06 at 102 AAA 3,618,055
Multifamily Revenue, Housing Landings Apartment
Project, Series A, 6.000%, 10/01/26
Metropolitan Government, Nashville and Davidson
County, Tennessee, H and E Facilities Board, Herman
Street:
250,000 7.000%, 6/01/17 6/02 at 103 AAA 269,205
495,000 7.250%, 6/01/32 6/02 at 103 AAA 529,888
1,250,000 Metropolitan Government, Nashville and Davidson 10/98 at 103 AAA 1,305,138
County, Tennessee, Industrial Development Board,
Multifamily Housing, St. Paul Apartment, Series A,
8.125%, 10/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSING/ SINGLE FAMILY - 7.0%
290,000 Hamilton County, Tennessee, Single Family Revenue, 9/00 at 102 AAA 306,469
Home Purchase and Rehabilitation Program,
8.000%, 9/01/23
6,000,000 Tennessee Housing Development Agency, 7/06 at 102 AA 6,298,860
Homeownership Program, Issue 4A,
6.375%, 7/01/22
1,500,000 Tennessee Housing Development Agency, 7/07 at 102 AA 1,535,430
Series 3, 5.850%, 7/01/17
700,000 Tennessee Housing Development Agency, 7/98 at 103 AA 713,384
Homeownership Program, Issue J, 7.750%, 7/01/17
2,000,000 Tennessee Housing Development Agency, 7/99 at 103 AA 2,050,140
Homeownership Program, Series O,
7.750%, 7/01/20
805,000 Tennessee Housing Development Agency, 7/00 at 103 AA 851,279
Series P, 7.700%, 7/01/16
120,000 Tennessee Housing Development Agency, 7/01 at 102 Aa2 127,048
Issue U, 7.400%, 7/01/16
3,900,000 Tennessee Housing Development Agency, 7/01 at 102 Aa2 4,125,966
Series T, 7.375%, 7/01/23
2,695,000 Tennessee Housing Development Agency, 7/02 at 102 AA 2,846,729
Homeownership Program, Issue WR,
6.800%, 7/01/17
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/SINGLE FAMILY CONTINUED
$335,000 Tennessee Housing Development Agency, 7/02 at 102 AA $ 352,601
Homeownership Program, Issue XR, 6.875%, 7/01/22
1,000,000 Tennessee Housing Development Agency, 7/04 at 102 A+ 1,067,260
Series A, 6.900%, 7/01/25
- -----------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/ GENERAL 7.5%
Hamilton County, Tennessee:
1,490,000 6.250%, 2/01/20 2/05 at 102 Aa2 1,616,263
2,025,000 6.300%, 2/01/25 2/05 at 102 Aa2 2,203,909
1,435,000 Memphis, Tennessee, Series B, 7.050%, 7/01/10 7/98 at 102 AA 1,486,143
5,950,000 Metropolitan Government, Nashville and Davidson 5/07 at 102 AA 5,825,407
County, Tennessee, 5.125%, 5/15/25
500,000 Metropolitan Government, Nashville and Davidson 11/06 at 101 AA 509,065
County, Tennessee, Series A, 5.125%, 11/15/10
8,000,000 Metropolitan Government, Nashville and Davidson 5/06 at 101 AA 8,411,920
County, Tennessee, Public Improvement,
5.875%, 5/15/21
385,000 Puerto Rico Commonwealth, 8.000%, 7/01/07 7/98 at 102 A 402,652
1,000,000 Shelby County, Tennessee, Series A, 5.625%, 4/01/14 4/05 at 101 AA+ 1,035,920
- -----------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/ LIMITED 14.8%
Metropolitan Government, Nashville and Davidson
County, Tennessee, H and E Facilities Board, Meharry
Medical College:
1,000,000 6.000%, 12/01/19 12/17 at 100 AAA 1,113,960
4,000,000 5.000%, 12/01/24 6/09 at 100 AAA 3,839,760
5,000,000 Metropolitan Government, Nashville and Davidson 7/06 at 101 AAA 5,216,950
County, Tennessee, Sports Authority Revenue, Public
Improvement Stadium Project, 5.750%, 7/01/26
6,275,000 Puerto Rico Commonwealth Highway and 7/16 at 1O0 A 6,369,878
Transportation Authority, Highway Revenue,
Series Y, 5.500%, 7/01/36
500,000 Puerto Rico Commonwealth Highway and Transportation No Opt. Call AAA 528,700
Authority, Highway Revenue, Series W,
5.500%, 7/01/15
16,100,000 Puerto Rico Public Buildings Authority, No Opt. Call A 16,751,245
Series L, 5.500%, 7/01/21
</TABLE>
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<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP TENNESSEE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/ LIMITED - CONTINUED
Tennessee Local Development Authority, State Loan
Program, Series A:
$1,325,000 7.000%, 3/01/12 3/01 at 102 AA- $1,457,553
1,175,000 7.000%, 3/01/21 3/01 at 102 AA- 1,292,547
2,660,000 Tennessee Local Development Authority, Community 10/02 at 102 A- 2,929,139
Provider, Loan Program, 7.000%, 10/01/21
Wilson County, Tennessee, Certificates of Participation,
Educational Facilities:
1,500,000 6.125%, 6/30/10 6/04 at 102 A 1,600,395
1,500,000 6.250%, 6/30/15 6/04 at 102 A 1,594,035
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.4%
Memphis and Shelby County, Tennessee, Airport
Authority, Special Facilities and Project Revenues,
Federal Express Corporation:
5,545,000 7.875%, 9/01/09 9/01 at 103 BBB 6,243,670
4,100,000 6.750%, 9/01/12 9/02 at 102 BBB 4,498,438
Metropolitan Nashville Airport Authority,
Tennessee, Airport Revenue, Series C:
145,000 6.625%, 7/01/07 7/01 at 102 AAA 158,083
4,385,000 6.600%, 7/01/15 7/01 at 102 AAA 4,764,829
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 17.9%
2,400,000 Anderson County, Tennessee, Health and Educational 7/98 at 102 A1*** 2,506,296
Facilities Board, Hospital Improvement,
Methodist Medical Center of Oak Ridge,
8.125%, 7/01/08 (Pre-refunded to 7/01/98)
250,000 Anderson County, Tennessee, Health and Educational 7/98 at 102 AAA 261,103
Facilities Board, Methodist Medical Center of Oak
Ridge, 8.125%, 7/01/08 (Pre-refunded to 7/01/98)
Chattanooga, Tennessee, Municipal Public
Improvement Sewer Facility:
300,000 8.000%, 6/01/10 (Pre-refunded to 6/01/98) 6/98 at 103 AA-*** 315,093
1,200,000 8.000%, 6/01/11 (Pre-refunded to 6/01/98) 6/98 at 103 AA-*** 1,260,372
1,000,000 Chattanooga, Tennessee, Variable Purpose, 5/00 at 102 AA-*** 1,089,480
7.250%, 5/01/12 (Pre-refunded to 5/01/00)
1,700,000 Clarksville, Tennessee, Water Sewer and Gas 2/98 at 102 AAA 1,745,254
Revenue, 7.700%, 2/01/18 (Pre-refunded to 2/01/98)
</TABLE>
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12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED - CONTINUED
$1,455,000 Gladeville, Tennessee, Utility District Waterworks 10/00 at 100 AAA $1,583,055
Revenue, 7.400%, 10/01/10
(Pre-refunded to 10/01/00)
5,000,000 Johnson City, Tennessee, School Sales 5/06 at 100 AAA 5,750,800
Tax, 6.700%, 5/01/21 (Pre-refunded to 5/01/06)
3,000,000 Knox County, Tennessee, Health Educational 9/99 at 102 AAA 3,234,900
and Housing Facilities Board, Hospital Facilities
Revenue, Mercy Health System, Series A,
7.600%, 9/01/19 (Pre-refunded to 9/01/99)
3,065,000 Knox County, Tennessee, Health Educational 1/00 at 102 AAA 3,297,266
and Housing Facilities Board, Hospital Facilities
Revenue, Fort Sanders Alliance Obligation, Series C,
7.000%, 1/01/15 (Pre-refunded to 1/01/00)
31,770,000 Metropolitan Government, Nashville and No Opt. Call Aaa 8,975,343
Davidson County, Tennessee, H and E Facilities
Board, Volunteer Healthcare, 0.000%, 6/01/21
1,200,000 Metropolitan Government, Nashville and Davidson 10/07 at 105 N/R*** 1,594,584
County, Tennessee, H and E Facilities Board,
Series A, 9.000%, 10/01/22 (Pre-refunded to 10/01/07)
2,500,000 Mt. Juliet, Tennessee, Public Building Authority, 2/04 at 110 AAA 3,140,525
Utility District Loan, Series B,
7.800%, 2/01/19 (Pre-refunded to 2/01/04)
1,500,000 Northeast Knox, Tennessee, Utility District 1/00 at 102 AAA 1,617,765
Water Revenue, 7.000%, 1/01/20
(Pre-refunded to 1/01/00)
1,365,000 Puerto Rico Commonwealth, 8.000%, 7/01/07 7/98 at 102 A*** 1,425,442
(Pre-refunded to 7/01/98)
1,000,000 Puerto Rico Commonwealth Highway 7/98 at 102 AAA 1,045,220
Authority, Highway Revenue, Series P,
8.125%, 7/01/13 (Pre-refunded to 7/01/98)
1,000,000 Puerto Rico Electric Power Authority, Power Revenue, 7/98 at 102 AAA 1,044,520
Formerly Puerto Rico Commonwealth Water Resource
Authority, Series M, 8.000%, 7/01/08
(Pre-refunded to 7/01/98)
865,000 Selmer, Tennessee, 8.200%, 7/01/13 7/98 at 102 Baa*** 903,986
(Pre-refunded to 7/01/98)
</TABLE>
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<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
NUVEEN FLAGSHIP TENNESSEE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED - CONTINUED
Shelby County, Tennessee, Health Educational and
Housing Facilities Board, Lebonheur Childrens Medical
Center, Series C:
$ 1,000,000 7.625%, 8/15/09 (Pre-refunded to 8/15/98) 8/98 at 102 AAA $1,045,790
2,000,000 7.600%, 8/15/19 (Pre-refunded to 8/15/98) 8/98 at 102 AAA 2,091,240
4,000,000 Sullivan County, Tennessee, Health Educational and 2/00 at 102 AAA 4,336,400
Housing Facilities Board, Holston Valley Health
Care, 7.250%, 2/15/20 (Pre-refunded to 2/15/00)
125,000 Tennessee School Bond Authority, Higher Educational 5/99 at 102 AA*** 132,475
Facilities, 7.000%, 5/01/20 (Pre-refunded to 5/01/99)
1,000,000 West Knox Utility District, Knox County, Tennessee, 12/98 at 102 AAA 1,057,490
Water and Sewer Revenue, 7.750%, 12/01/08
(Pre-refunded to 12/01/98)
Wilson County, Tennessee, Water and Wastewater
Authority, Waterworks Revenue:
1,000,000 7.875%, 3/01/09 (Pre-refunded to 3/01/99) 3/99 at 102 N/R*** 1,066,270
950,000 8.000%, 3/01/14 (Pre-refunded to 3/01/99) 3/99 at 102 N/R*** 1,014,401
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 8.3%
1,520,000 Clarksville, Tennessee, Water Sewer and Gas Revenue, No Opt. Call AAA 592,633
0.000%, 2/01/16
2,160,000 Dickson, Tennessee, Electric System Revenue, 9/08 at 102 AAA 2,217,672
5.500%, 9/01/16
Jackson, Tennessee, Electric System Revenue, Series E:
315,000 6.300%, 8/01/09 8/00 at 102 A1 332,741
335,000 6.300%, 8/01/10 8/00 at 102 A1 353,003
355,000 6.300%, 8/01/11 8/00 at 102 A1 373,620
380,000 6.300%, 8/01/12 8/00 at 102 A1 399,635
3,000,000 Jackson, Tennessee, Natural Gas Revenue, 4/07 at 100 AAA 2,917,620
5.000%, 4/15/18
3,500,000 Lawrenceburg, Tennessee, Electric Revenue, 7/08 at 100 AAA 3,553,795
5.500%, 7/01/26
Metropolitan Government, Nashville and Davidson
County, Tennessee, Electric Revenue, Series A:
7,800,000 0.000%, 5/15/11 No Opt. Call AAA 3,964,506
8,500,000 0.000%, 5/15/12 No Opt. Call AAA 4,079,660
2,750,000 5.625%, 5/15/14 5/06 at 102 AA 2,872,705
</TABLE>
_____
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - CONTINUED
$ 1,000,000 Middle Tennessee Utility District, Natural Gas 10/02 at 102 AAA $ 1,087,770
Revenue, 6.250%, 10/01/12
1,020,000 Mt Juliet, Tennessee, Public Building Authority, 2/99 at 102 AAA 1,077,814
Utility District Loan, Series D, Hermitage,
7.550%, 2/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 4.0%
1,125,000 Eastside Utility District, Hamilton County, Tennessee, 11/01 at 102 A 1,247,963
Waterworks Revenue, 6.750%, 11/01/11
3,000,000 Madison, Tennessee, Utility District, Waterworks 2/08 at 100 AAA 2,912,070
Revenue, 5.000%, 2/01/19
140,000 Metropolitan Government, Nashville and Davidson 1/98 at 100 AAA 140,378
County, Tennessee, Water and Sewer Revenue,
7.000%, 1/01/14
1,000,000 Milcrofton, Tennessee, Utility District, Waterworks 2/06 at 102 N/R 1,022,830
Revenue, 6.000%, 2/01/24
1,100,000 Rutherford County, Tennessee, Utility District, 2/08 at 100 Aaa 1,088,571
Waterworks Revenue, Series A, 5.250%, 2/01/27 (WI)
White House Utility District, Robertson and Sumner
Counties, Tennessee, Waterworks System Revenue,
Series B:
1,100,000 5.300%, 1/01/15 1/07 at 100 Aaa 1,109,731
2,300,000 6.375%, 1/01/22 1/02 at 102 AAA 2,517,212
1,500,000 Wilson County, Tennessee, Water and Wastewater 3/08 at 102 Baa1 1,587,370
Authority, Waterworks Revenue, 6.000%, 3/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
$300,460,000 Total Investments - (cost $262,359,338) - 98.5% 283,636,756
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 4,204,836
------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 287,841,592
------------------------------------------------------------------------------------------------------
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices
of the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
** Ratings: Using the higher of Standard and 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) Securities purchased on a when-issued basis (see note 1).
___
15 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF NET ASSETS (UNAUDITED)
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
TENNESSEE
----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $283,636,756
Cash 2,074,693
Receivables:
Interest 4,713,127
Shares sold 167,427
Other assets 4,971
- -----------------------------------------------------------------------------------------------
Total assets 290,596,974
- -----------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Investments purchased 1,078,235
Shares redeemed 256,107
Accrued expenses:
Management fees (note 6) 117,706
12b-1 distribution and service fees (notes 1 and 6) 56,087
Other 14,919
Dividends payable 1,232,328
- -----------------------------------------------------------------------------------------------
Total liabilities 2,755,382
- -----------------------------------------------------------------------------------------------
Net assets (note 7) $287,841,592
- -----------------------------------------------------------------------------------------------
CLASS A SHARES (NOTE 1)
Net assets $268,181,306
Shares outstanding 23,593,407
Net asset value and redemption price per share $11.37
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $11.87
- -----------------------------------------------------------------------------------------------
CLASS B SHARES (NOTE 1)
Net assets $ 2,066,697
Shares outstanding 181,723
Net asset value, offering and redemption price per share $11.37
- -----------------------------------------------------------------------------------------------
CLASS C SHARES (NOTE 1)
Net assets $ 17,250,659
Shares outstanding 1,518,322
Net asset value, offering and redemption price per share $ 11.36
- -----------------------------------------------------------------------------------------------
CLASS R SHARES (NOTE 1)
Net assets $ 342,930
Shares outstanding 30,213
Net asset value, offering and redemption price per share $ 11.35
- -----------------------------------------------------------------------------------------------
</TABLE>
_____ See accompanying notes to financial statements.
16
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP
TENNESSEE
- ----------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $ 8,486,610
- ----------------------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 766,011
12b-1 service fees - Class A (notes 1 and 6) 264,857
12b-1 distribution and service fees - Class B (notes 1 and 6) 6,482
12b-1 distribution and service fees - Class C (notes 1 and 6) 61,268
Shareholders' servicing agent fees and expenses 61,750
Custodian's fees and expenses 32,239
Trustees' fees and expenses (note 6) 2,613
Professional fees 11,156
Shareholders' reports - printing and mailing expenses 25,587
Federal and state registration fees 5,677
Other expenses 5,630
- ----------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 1,243,270
Expense reimbursement (note 6) (55,968)
- ----------------------------------------------------------------------------------------------------
Net expenses 1,187,302
- ----------------------------------------------------------------------------------------------------
Net investment income 7,299,308
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 272,796
Net change in unrealized appreciation or depreciation of investments 7,423,954
- ----------------------------------------------------------------------------------------------------
Net gain from investments 7,696,750
- ----------------------------------------------------------------------------------------------------
Net increase in net assets from operations $14,996,058
- ----------------------------------------------------------------------------------------------------
</TABLE>
_______ See accompanying notes to financial statements.
17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP TENNESSEE
--------------------------------
SIX MONTHS ENDED YEAR ENDED
11/30/97 5/31/97*
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 7,299,308 $ 14,402,555
Net realized gain from investment transactions
(notes 1 and 4) 272,796 1,595,041
Net change in unrealized appreciation or depreciation
of investments 7,423,954 3,989,675
- ---------------------------------------------------------------------------------------------
Net increase in net assets from operations 14,996,058 19,987,271
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (6,889,937) (13,649,276)
Class B (28,756) (3,542)
Class C (376,015) (744,238)
Class R (8,035) (2,064)
From overdistributed net investment income:
Class A (11,072) --
Class B (46) --
Class C (604) --
Class R (13) --
- ---------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (7,314,478) (14,399,120)
- ---------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 15,122,933 27,836,928
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 4,170,345 7,269,232
- ---------------------------------------------------------------------------------------------
19,293,278 35,106,160
- ---------------------------------------------------------------------------------------------
Cost of shares redeemed (12,442,636) (33,754,624)
- ---------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 6,850,642 1,351,536
- ---------------------------------------------------------------------------------------------
Net increase in net assets 14,532,222 6,939,687
Net assets at the beginning of period 273,309,370 266,369,683
- ---------------------------------------------------------------------------------------------
Net assets at the end of period $287,841,592 $273,309,370
- ---------------------------------------------------------------------------------------------
Balance of undistributed (overdistributed) net investment income
at end of period $(11,735) $3,435
=============================================================================================
</TABLE>
* Information represents eight months of Flagship Tennessee and four months of
Nuveen Flagship Tennessee (see note 1).
See accompanying notes to financial statements.
____
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 Tennessee Municipal Bond Fund (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The John Nuveen Company ("Nuveen"), parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Fund, entered into an agreement under
which Nuveen acquired Flagship Resources Inc. and after the close of business on
January 31, 1997, consolidated their respective mutual fund businesses. This
agreement was approved at a meeting by the shareholders of the Flagship Funds in
December 1996.
After the close of business on January 31, 1997, Flagship Tennessee Double Tax
Exempt Fund ("Flagship Tennessee") was reorganized into the Trust and renamed
Nuveen Flagship Tennessee Municipal Bond Fund ("Nuveen Flagship Tennessee").
Prior to the reorganization, Flagship Tennessee was a sub-trust of the Flagship
Tax Exempt Funds Trust.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
November 30, 1997, the Fund had an outstanding when-issued purchase commitment
of $1,078,235.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
______
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend
monthly and payment is made or reinvestment is credited to
shareholder accounts on the first business day after month-end.
Net realized capital gains and/or market discount from investment
transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are
distributed only to the extent they exceed available capital loss
carryforwards.
Distributions to shareholders of tax-exempt net investment
income, net realized capital gains and/or market discount are
recorded on the ex-dividend date. The amount and timing of
distributions are determined in accordance with federal income
tax regulations, which may differ from generally accepted
accounting principles. Accordingly, temporary over-distributions
as a result of these differences may occur and will be classified
as either distributions in excess of net investment income,
distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from
investment transactions, where applicable.
Income Taxes
The Fund is a separate taxpayer for federal income tax purposes.
The Fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its tax-exempt net investment income, in
addition to any significant amounts of net realized capital gains
and/or market discount from investment transactions. The Fund
currently considers significant net realized capital gains and/or
market discount as amounts in excess of $.001 per share.
Furthermore, the Fund intends to satisfy conditions which will
enable interest from municipal securities, which is exempt from
regular federal and Tennessee state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the
Fund. Net realized capital gains and market discount
distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class 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 charge or 12b-1 distribution or
service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
____
20
<PAGE>
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments
including futures, forward, swap, option contracts, and other
financial instruments with similar characteristics. Although the
Fund is authorized to invest in such financial instruments, and
may do so in the future, it did not make any such investments
during the six months ended November 30, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a
specific class of shares are prorated among the classes based on
the relative net assets of each class. Expenses directly
attributable to a class of shares, which presently only includes
12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of increases and decreases in net assets
from operations during the reporting period.
____
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED 11/30/97 YEAR ENDED 5/31/97*
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD:
Class A 997,514 $ 11,227,008 2,181,165 $ 23,957,505
Class B 136,994 1,540,482 48,526 533,276
Class C 202,203 2,275,279 282,598 3,100,098
Class R 7,170 80,164 22,306 246,049
SHARES ISSUED TO SHAREHOLDERS
DUE TO REINVESTMENT
OF DISTRIBUTIONS:
Class A 340,620 3,821,945 619,521 6,805,317
Class B 895 10,114 66 718
Class C 29,613 331,013 42,079 461,759
Class R 647 7,273 131 1,438
- --------------------------------------------------------------------------------------------------------------------
1,715,656 19,293,278 3,196,392 35,106,160
- --------------------------------------------------------------------------------------------------------------------
SHARES REDEEMED:
Class A (1,026,104) (11,544,962) (2,682,025) (29,442,527)
Class B (4,694) (52,975) (64) (699)
Class C (75,114) (844,399) (393,458) (4,311,248)
Class R (27) (300) (14) (150)
- --------------------------------------------------------------------------------------------------------------------
(1,105,939) (12,442,636) (3,075,561) (33,754,624)
- --------------------------------------------------------------------------------------------------------------------
Net increase 609,717 $ 6,850,642 120,831 $ 1,351,536
====================================================================================================================
</TABLE>
* Information represents eight months of Flagship Tennessee and four months of
Nuveen Flagship Tennessee (see note 1).
3. DISTRIBUTIONS TO SHAREHOLDERS
On December 9, 1997, the Fund declared dividend distributions from its tax-
exempt net investment income which were paid on December 31, 1997, to
shareholders of record on December 9, 1997, as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
DIVIDEND PER SHARE:
<S> <C>
Class A $.0490
Class B .0420
Class C .0435
Class R .0505
- ---------------------------------------------------------------------
</TABLE>
___
22
<PAGE>
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities for the six months ended November 30, 1997, aggregated $19,911,990
and $9,165,716, respectively. Purchases and sales (including maturities) of
temporary municipal investments for the six months ended November 30, 1997,
aggregated $2,100,000 and $6,600,000, respectively.
At November 30, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
At May 31, 1997, the Fund's last fiscal year end, the Fund had an unused capital
loss carryforward of $3,996,954 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, the carryforward
will expire in the year 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At November 30, 1997, net unrealized appreciation aggregated $21,277,418, all of
which related to appreciated securities.
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
- --------------------------------------------------------------------------------
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the six months ended November 30, 1997, the Distributor collected sales
charges on purchases of Class A Shares of approximately $296,700 of which
approximately $254,400 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
___
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
During the six months ended November 30, 1997, the Distributor compensated
authorized dealers directly with approximately $106,000 in commission advances
at the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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 six months
ended November 30, 1997, the Distributor retained approximately $22,600 in such
12b-1 fees. The remaining 12b-1 fees charged to the Fund were paid to compensate
authorized dealers for providing services to shareholders relating to their
investments. The Distributor also collected and retained approximately $3,500 of
CDSC on share redemptions during the six months ended November 30, 1997.
7. COMPOSITION OF NET ASSETS
At November 30, 1997, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
<S> <C>
Capital paid-in $270,300,067
Balance of undistributed (overdistributed) net investment income (11,735)
Accumulated net realized gain (loss) from investment transactions (3,724,158)
Net unrealized appreciation of investments 21,277,418
- --------------------------------------------------------------------------------------
Net assets $287,841,592
======================================================================================
</TABLE>
___
24
<PAGE>
FINANCIAL HIGHLIGHTS
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------- ------------------
NUVEEN FLAGSHIP NET
TENNESSEE** NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDING BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
MAY 31, OF PERIOD INCOME (B) INVESTMENTS INCOME GAINS PERIOD VALUE (A)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (11/87)
1998 (d) $11.06 $.29 $ .31 $(.29) $ -- $11.37 5.51%
1997 10.83 .59 .23 (.59) -- 11.06 7.71
1996 11.01 .59 (.18) (.59) -- 10.83 3.78
1995 10.78 .60 .23 (.60) -- 11.01 8.04
1994 11.23 .61 (.43) (.61) (.02) 10.78 1.55
1993 10.56 .62 .68 (.63) -- 11.23 12.60
1992 10.34 .65 .22 (.65) -- 10.56 8.66
1991 10.09 .67 .26 (.67) (.01) 10.34 9.73
1990 10.26 .67 (.15) (.67) (.02) 10.09 5.53
1989 9.65 .68 .60 (.67) -- 10.26 13.89
1988 (c) 9.58 .35 .09 (.37) -- 9.65 7.50*
CLASS B (2/97)
1998 (d) 11.06 .25 .31 (.25) -- 11.37 5.12
1997 (c) 11.14 .14 (.09) (.13) -- 11.06 .42
CLASS C (10/93)
1998 (d) 11.05 .26 .31 (.26) -- 11.36 5.21
1997 10.82 .53 .23 (.53) -- 11.05 7.12
1996 11.00 .53 (.18) (.53) -- 10.82 3.22
1995 10.78 .54 .22 (.54) -- 11.00 7.35
1994 (c) 11.61 .35 (.83) (.34) (.01) 10.78 (5.92)*
CLASS R (2/97)
1998 (d) 11.04 .30 .31 (.30) -- 11.35 5.60
1997 (c) 11.09 .20 (.05) (.20) -- 11.04 1.40
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31,
1997, reflects the financial highlights of Flagship Tennessee.
(a) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(b) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(c) From commencement of class operations as noted.
(d) For the six months ending November 30, 1997.
___
26
<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 NET ASSETS PORTFOLIO
END OF PERIOD BEFORE BEFORE AFTER AFTER TURNOVER
(IN THOUSANDS) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT (B) REIMBURSEMENT (B) RATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$268,181 .84%* 5.16%* .80%* 5.20%* 3%
257,475 .97 5.23 .85 5.35 23
250,886 1.01 5.17 .88 5.30 38
241,778 1.07 5.46 .89 5.64 23
236,230 1.02 5.16 .76 5.42 17
191,811 1.05 5.49 .88 5.66 15
126,833 1.04 5.98 .84 6.18 35
92,431 1.07 6.29 .76 6.60 30
73,752 1.08 6.27 .78 6.57 56
62,048 1.18 6.24 .62 6.80 50
23,725 1.29* 5.53* .47* 6.35* 23
2,067 1.60* 4.41* 1.56* 4.45* 3
537 1.60* 4.49* 1.37* 4.72* 23
17,251 1.39* 4.61* 1.35* 4.65* 3
15,049 1.53 4.67 1.40 4.80 23
15,483 1.56 4.62 1.43 4.75 38
12,494 1.62 4.90 1.44 5.08 23
10,652 1.63* 4.40* 1.23* 4.80* 17
343 .64* 5.37* .61* 5.40* 3
248 .66* 5.55* .46* 5.75* 23
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
___
27
<PAGE>
ADDITIONAL INVESTMENT OPPORTUNITIES
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your financial
goals.
GROWTH FUNDS
Nuveen Rittenhouse Growth Fund
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
NATIONAL FUNDS
Long-Term
Insured
Intermediate
Limited Term
STATE FUNDS
Alabama Michigan
Arizona Missouri
California New Jersey
Colorado New Mexico
Connecticut New York
Florida North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts Wisconsin
To purchase additional shares of your Nuveen Fund, contact your financial
adviser. If you would like to add to your current investment on a regular basis,
you can sign up for Nuveen's systematic investing program, which allows you to
invest a fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you give your investment the added
growth potential of long-term compounding.
For more information on any of these service options, call your adviser, or
Nuveen at (800) 225-8530.
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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
BOston Financial Data Service
Nuveen investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
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SERVING INVESTORS
FOR GENERATIONS
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
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 products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800)225-8530
www.nuveen.com
