<PAGE>
As filed with the Securities and Exchange Commission on September 28, 1999.
1933 Act Registration No. 333-16617
1940 Act Registration No. 811-07747
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
<S> <C>
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 4 [X]
</TABLE>
(Check appropriate box or boxes)
--------------
Nuveen Flagship Multistate Trust I
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, 60606
Illinois
(Address of Principal Executive (Zip Code)
Office)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice With a copy to:
President and Secretary Thomas S. Harman
333 West Wacker Drive Morgan Lewis & Bockius LLP
Chicago, Illinois 60606 1800 M Street, N.W.
(Name and Address of Agent for Washington, D.C. 20036
Service)
It is proposed that this filing will become effective (check appropriate box):
[X]
Immediately upon filing pursu-
ant to paragraph (b) [_]on (date) pursuant to paragraph
[_](a)(1)
75 days after filing pursuant to
[_] paragraph (a)(2)
on , pursuant to
paragraph (b) [_]on (date) pursuant to paragraph
(a)(2) of Rule 485.
If appropriate, check the following box:
[_]
60 days after filing pursuant
to paragraph (a)(1)
[_]
This post-effective amendment designates a new effective date for a previ-
ously filed post-effective amendment.
<PAGE>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MULTISTATE TRUST I
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
September 29, 1999 Prospectus
NUVEEN
Mutual Funds
Nuveen Municipal Bond Funds
[PHOTO APPEARS HERE]
Dependable, tax-free
income to help
you keep more
of what you earn.
Arizona
Colorado
New Mexico
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
[LOGO APPEARS HERE]
Investment Strategy
[LOGO APPEARS HERE]
Risks
[LOGO APPEARS HERE]
Fees, Charges and Expenses
[LOGO APPEARS HERE]
Shareholder Instructions
[LOGO APPEARS HERE]
Performance and Current Portfolio Information
Table of Contents
Section 1 The Fund
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
Introduction 1
- ------------------------------------------------------------------------
Nuveen Flagship Arizona Municipal Bond Fund 2
- ------------------------------------------------------------------------
Nuveen Flagship Colorado Municipal Bond Fund 4
- ------------------------------------------------------------------------
Nuveen Flagship New Mexico Municipal Bond Fund 6
- ------------------------------------------------------------------------
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Funds 8
- ------------------------------------------------------------------------
What Securities We Invest In 9
- ------------------------------------------------------------------------
How We Select Investments 10
- ------------------------------------------------------------------------
What the Risks Are 11
- ------------------------------------------------------------------------
How We Manage Risk 11
- ------------------------------------------------------------------------
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account.
What Share Classes We Offer 13
- ------------------------------------------------------------------------
How to Reduce Your Sales Charge 14
- ------------------------------------------------------------------------
How to Buy Shares 15
- ------------------------------------------------------------------------
Systematic Investing 15
- ------------------------------------------------------------------------
Systematic Withdrawal 16
- ------------------------------------------------------------------------
Special Services 17
- ------------------------------------------------------------------------
How to Sell Shares 18
- ------------------------------------------------------------------------
Section 4 General Information
This section summarizes the funds' distribution policies and other general
fund information.
Dividends, Distributions and Taxes 20
- ------------------------------------------------------------------------
Distribution and Service Plans 21
- ------------------------------------------------------------------------
Net Asset Value 22
- ------------------------------------------------------------------------
Fund Service Providers 22
- ------------------------------------------------------------------------
Year 2000 23
- ------------------------------------------------------------------------
Section 5 Financial Highlights
This section provides the funds' financial performance
for the past five years. 24
- ------------------------------------------------------------------------
Appendix Additional State Information 27
- ------------------------------------------------------------------------
<PAGE>
September 29, 1999
Section 1 The Funds
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Prospectus
[LOGO APPEARS HERE]
This prospectus is intended to provide important information to help you
evaluate whether one of the Nuveen Mutual Funds listed above may be right for
you. Please read it carefully before investing and keep it for future reference.
- --------------------------------------------------------------------------------
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
Section 1 The Funds 1
<PAGE>
Nuveen Flagship Arizona Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Arizona bonds. As with any mutual fund investment, loss of money
is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, and five-
and ten-year periods ending December 31, 1998. This information is
intended to help you assess the variability of fund returns over the past ten
years (and consequently, the potential rewards and risks of a fund investment).
Past performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
1989 9.9%
1990 5.5%
1991 12.3%
1992 10.2%
1993 13.0%
1994 -5.6%
1995 19.0%
1996 3.1%
1997 9.6%
1998 6.0%
During the ten years ending December 31, 1998, the highest and lowest quarterly
returns were 7.58% and -5.84%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
------------------------------------
Class 1 Year 5 Year 10 Year
- ------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.51% 5.20% 7.63%
Class B 1.19% 5.28% 7.63%
Class C 5.40% 5.53% 7.51%
Class R 6.17% 6.19% 8.14%
- ------------------------------------------------------------------
LB Market Benchmark/2/ 6.48% 6.22% 8.22%
Lipper Peer Group/3/ 5.48% 5.28% 7.74%
</TABLE>
2 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- ---------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- ---------------------------------------------------------------------
Exchange Fees None None None None
- ---------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- ---------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- ----------------------------------------------------------------------
Management Fees .55% .55% .55% .55%
- ----------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- ----------------------------------------------------------------------
Other Expenses .18% .19% .18% .18%
======================================================================
Total Annual Fund Operating
Expenses-Gross+ .93% 1.69% 1.48% .73%
+ After Expense Reimbursements
- ----------------------------------------------------------------------
Expense Reimbursements (.09%) (.11%) (.09%) (.10%)
- ----------------------------------------------------------------------
Total Operating Expense--Net .84% 1.58% 1.39% .63%
- ----------------------------------------------------------------------
Reflects a voluntary expense limitation by the fund's investment adviser
that may be modified or discontinued at any time.
- ----------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 511 $ 567 $ 151 $ 75 $ 511 $ 172 $ 151 $ 75
- ------------------------------------------------------------------------------
3 Years $ 704 $ 851 $ 468 $ 233 $ 704 $ 533 $ 468 $ 233
- ------------------------------------------------------------------------------
5 Years $ 913 $1,032 $ 808 $ 406 $ 913 $ 918 $ 808 $ 406
- ------------------------------------------------------------------------------
10 Years $1,515 $1,796 $1,768 $ 906 $1,515 $1,796 $1,768 $ 906
- ------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Average Effective Maturity 16.43 years
- ----------------------------------------------------------
Average Duration 8.36
- ----------------------------------------------------------
Weighted Average Credit Quality AA+
- ----------------------------------------------------------
Number of Issues 124
- ----------------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 67%
- ----------------------------------------------------------
AA 7%
- ----------------------------------------------------------
A 12%
- ----------------------------------------------------------
BBB/NR 14%
- ----------------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Utilities (6%)
Tax Obligation-Limited (11%)
Health Care (15%)
Other (25%)
Tax Obligation-General (24%)
U.S. Guaranteed (19%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance for
periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/99 was (2.25)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Arizona Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
Nuveen Flagship Colorado Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases
local, income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Colorado bonds. The fund is non-diversified, and may invest more of
its assets in a single issuer than a diversified fund. Greater concentration may
increase risk. As with any mutual fund investment, loss of money is a risk of
investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1998. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
<TABLE>
<CAPTION>
<S> <C>
1989 9.4%
1990 5.3%
1991 11.6%
1992 9.2%
1993 12.9%
1994 -5.8%
1995 18.4%
1996 4.3%
1997 11.9%
1998 6.1%
</TABLE>
During the ten years ended December 31, 1998, the highest and lowest quarterly
returns were 6.45% and -5.94%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table
does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
-------------------------------------
Class 1 Year 5 Year 10 Year
- --------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.69% 5.77% 7.68%
Class B 1.35% 5.90% 7.67%
Class C 5.54% 6.21% 7.73%
Class R 6.35% 6.78% 8.20%
- --------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 8.22%
Lipper
Peer Group/3/ 5.57% 5.75% 7.60%
</TABLE>
4 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that
you may pay if you buy and hold shares of the
fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- --------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- --------------------------------------------------------------------------------------------------------
Exchange Fees None None None None
- --------------------------------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- --------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
- --------------------------------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- --------------------------------------------------------------------------------------------------------
Other Expenses .28% .29% .28% .28%
- --------------------------------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross+ 1.03% 1.79% 1.58% .83%
- --------------------------------------------------------------------------------------------------------
+After Expense Reimbursements
---------------------------------------------------------------------------------------------------
Reimbursements (.07%) (.11%) (.09%) (.08%)
---------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses-Net .96% 1.68% 1.49% .75%
---------------------------------------------------------------------------------------------------
Reflects a voluntary expense limitation by the fund's investment
adviser that may be modified or discontinued at any time.
---------------------------------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 521 $ 577 $ 161 $ 85 $ 521 $ 182 $ 161 $ 85
- --------------------------------------------------------------------------------------------------------------------------------
3 Years $ 734 $ 880 $ 499 $ 265 $ 734 $ 563 $ 499 $ 265
- --------------------------------------------------------------------------------------------------------------------------------
5 Years $ 965 $1,083 $ 860 $ 460 $ 965 $ 970 $ 860 $ 460
- --------------------------------------------------------------------------------------------------------------------------------
10 Years $1,627 $1,905 $1,878 $1,025 $1,627 $1,905 $1,878 $1,025
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
Portfolio Statistics
Average Effective Maturity 20.95 years
- -----------------------------------------------------------------------
Average Duration 9.34
- -----------------------------------------------------------------------
Weighted Average Credit Quality AA
- -----------------------------------------------------------------------
Number of Issues 54
- -----------------------------------------------------------------------
Credit Quality
- -----------------------------------------------------------------------
AAA/U.S. Guaranteed 56%
- -----------------------------------------------------------------------
AA 19%
- -----------------------------------------------------------------------
A 4%
- -----------------------------------------------------------------------
BBB/NR 21%
- -----------------------------------------------------------------------
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Education and Civic Organization (7%)
U.S. Guaranteed (32%)
Health Care (13%)
Transportation (12%)
Other (12%)
Housing: Multifamily (24%)
1. Class A total returns reflect actual performance for all periods; Class B,
C and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/99 was (2.10)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Colorado Debt Category. Returns assume reinvestment of dividends
and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 5
<PAGE>
Nuveen Flagship New Mexico Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in New Mexico bonds. The fund is non-diversified, and may invest more
of its assets in a single issuer than a diversified fund. Greater concentration
may increase risk. As with any mutual fund investment, loss of money is a risk
of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
six years as well as annualized fund and index returns for the one- and five-
year and inception periods ending December 31, 1998. This information is
intended to help you assess the variability of fund returns over the past six
years (and consequently, the potential rewards and risks of a fund investment).
Past performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1993 13.9%
1994 -7.0%
1995 17.8%
1996 4.0%
1997 10.2%
1998 5.9%
From inception in September 1992 to December 31, 1998, the highest and lowest
quarterly returns were 7.65% and -6.58%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
------------------------------------
Class 1 Year 5 Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.45% 4.98% 6.56%
Class B 1.17% 5.08% 6.65%
Class C 5.30% 5.46% 6.87%
Class R 6.06% 6.01% 7.39%
================================================================================
LB Market Benchmark/2/ 6.48% 6.22% 7.22%
Lipper Peer Group/3/ 5.17% 5.18% 6.41%
</TABLE>
6 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- -------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- -------------------------------------------------------------------------------------------------
Exchange Fees None None None None
- -------------------------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- -------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
- -------------------------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- -------------------------------------------------------------------------------------------------
Other Expenses .22% .22% .22% .22%
=================================================================================================
Total Annual Fund Operating
Expenses--Gross .97% 1.72% 1.52% .77%
- -------------------------------------------------------------------------------------------------
+After Expense Reimbursements
------------------------------------------------------------------------------------------------
Reimbursements (.07%) (.05%) (.06%) (.07%)
------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses--Net .90% 1.67% 1.46% .70%
------------------------------------------------------------------------------------------------
</TABLE>
Reflects a voluntary expense limitation by the fund's investment adviser that
may be modified or discontinued at any time.
------------------------------------------------------------------------------
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1 Year $ 515 $ 570 $ 155 $ 79 $ 515 $ 175 $ 155 $ 79
- --------------------------------------------------------------------------------
3 Years $ 716 $ 860 $ 480 $246 $ 716 $ 542 $ 480 $246
- --------------------------------------------------------------------------------
5 Years $ 934 $1,047 $ 829 $428 $ 934 $ 933 $ 829 $428
- --------------------------------------------------------------------------------
10 Years $1,560 $1,831 $1,813 $954 $1,560 $1,831 $1,813 $954
- --------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
Portfolio Statistics
Average Effective Maturity 21.23 years
- ---------------------------------------------
Average Duration 8.19
- ---------------------------------------------
Weighted Average Credit Quality AA+
- ---------------------------------------------
Number of Issues 63
- ---------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 62%
- ---------------------------------------------
AA 13%
- ---------------------------------------------
A 15%
- ---------------------------------------------
BBB/NR 10%
- ---------------------------------------------
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
U.S. Guaranteed (8%)
Housing-Multifamily (8%)
Housing-Single-Family (17%)
Education and Civic Organizations (15%)
Tax Obligation-Limited (25%)
Other (27%)
1. Class A total returns reflect actual performance for all periods; Class B,
C and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The
year-to-date return as of 6/30/99 was (1.46%).
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Other States Municipal Debt Category. Returns assume reinvestment
of dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 7
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the funds' assets are managed, this section includes
a detailed discussion of the adviser's investment and risk management
strategies. For a more complete discussion of these matters, please consult the
Statement of Additional Information.
Who Manages the Funds
[LOGO APPEARS HERE]
Nuveen Advisory Corp. ("Nuveen Advisory"), the fund's investment adviser,
together with its advisory affiliate, Nuveen Institutional Advisory Corp., offer
premier advisory and investment management services to a broad range of mutual
fund clients. In the Nuveen family, these advisers are commonly referred to as
Nuveen Investment Advisory Services or NIAS. Nuveen Advisory is responsible for
the selection and on-going monitoring of the municipal bonds in the fund's
investment portfolio, managing the fund's business affairs and providing certain
clerical, bookkeeping and other administrative services. The NIAS advisers are
located at 333 West Wacker Drive, Chicago, IL 60606.
The NIAS advisers are wholly owned subsidiaries of John Nuveen & Co.
Incorporated ("Nuveen"). Founded in 1898, Nuveen has been synonymous with
investments that withstand the test of time. Today we offer a broad range of
investments designed for individuals seeking to build and sustain wealth. Nuveen
is the sponsor and principal underwriter of the fund's shares and has sponsored
or underwritten more than $60 billion of investment company securities. Nuveen
and its affiliates have more than $55 billion in assets under management.
Nuveen Advisory is responsible for execution of specific investment strategies
and day-to-day investment operations. Nuveen Advisory manages each fund using a
team of analysts and portfolio managers that focus on a specific group of funds.
Day-to-day operation of each fund and the execution of its specific investment
strategies is the responsibility of the designated portfolio manager described
below.
Michael S. Davern is the portfolio manager for the Arizona, Colorado, and New
Mexico Funds. Mr. Davern became a Vice President of Flagship Financial Inc. in
1991, and subsequently became a Vice President of Nuveen Advisory upon the
acquisition of Flagship Resources Inc. by The John Nuveen Company in January
1997. Mr. Davern currently manages investments for sixteen Nuveen-sponsored
investment companies, including the Kansas, Louisiana, Michigan, Missouri and
Wisconsin Funds.
8 Section 2 How We Manage Your Money
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
<TABLE>
<CAPTION>
<S> <C>
Average Daily Net Assets Management Fee
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
What Securities We Invest In
Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal, state and, in some cases, local income tax. Income from
these bonds may be subject to the federal alternative minimum tax.
States, local governments and municipalities issue municipal bonds to raise
money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses.
These bonds include general obligation bonds, which are backed by the full faith
and credit of the issuer and may be repaid from any revenue source, and revenue
bonds, which may be repaid only from the revenue of a specific facility or
source.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase these bonds where the issuer has a
strong incentive to continue making appropriations until maturity.
In evaluating municipal bonds of different credit qualities or maturities,
Nuveen Advisory takes into account the size of yield spreads. Yield spread is
the additional return the funds may earn by taking on additional credit risk or
interest rate risk. For example, yields on low quality bonds are higher than
yields on high quality bonds because investors must be compensated for incurring
the higher credit risk associated with low quality bonds. If yield spreads do
not provide adequate compensation for the additional risk associated with low
quality bonds, the funds will buy bonds of relatively higher quality. Similarly,
in evaluating bonds of different maturities, Nuveen Advisory evaluates the
comparative yield available on these bonds. If yield spreads on long-term bonds
do not compensate the funds adequately for the additional interest rate risk the
funds must assume, the funds will buy bonds of relatively shorter maturity. In
addition, municipal bonds in a particular industry may provide higher yields
relative
Section 2 How We Manage Your Money 9
<PAGE>
to their risk compared to bonds in other industries. If that occurs, a fund may
buy relatively more bonds from issuers in that industry. In that case, the
fund's portfolio composition would change from time to time.
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal bonds
of U.S. territories (such as Puerto Rico and Guam) which are exempt from regular
federal, state and local income taxes.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Short-term Investments
Under normal market conditions, each fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk--Hedging and
Other Defensive Investment Strategies." The funds may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the funds invest in taxable
securities, they may not achieve their investment objective. For more
information on eligible short-term investments, see the Statement of Additional
Information.
Delayed-Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. These transactions involve an element of risk
because the value of the security to be purchased may decline before the
settlement date.
How We Select Investments
Nuveen Advisory selects municipal bonds for the funds based upon its assessment
of a bond's relative value in terms of current yield, price, credit quality and
future prospects. Nuveen Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities available for
purchase, monitor the continued creditworthiness of each fund's municipal
investments, and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to identify municipal bonds
with favorable characteristics we believe are not yet recognized by the market.
We then select those higher-yielding and undervalued municipal bonds that we
believe represent the most attractive values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that
10 Section 2 How We Manage Your Money
<PAGE>
is sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund--even the most
conservative--involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment.
Interest rate risk: Because the funds invest in fixed-income securities, the
funds are subject to interest rate risk. Interest rate risk is the risk that the
value of a fund's portfolio will decline because of rising interest rates.
Interest rate risk is generally lower for shorter-term investments and higher
for longer-term investments.
Income risk: The risk that the income from a fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate.
Credit risk: Each fund is subject to credit risk. Credit risk is the risk that
an issuer of a municipal bond will be unable to meet its obligation to make
interest and principal payments due to changing financial or market conditions,
or possibly due to Year 2000 issues.
State Concentration risk: Because the funds primarily purchase municipal bonds
from a specific state, each fund also bears investment risk from the economic,
political or regulatory changes that could adversely affect municipal bond
issuers in that state and therefore the value of the fund's investment
portfolio. See "Appendix--Additional State Information." These risks may be
greater for the Colorado and New Mexico Funds, which as "non-diversified" funds
may concentrate their investments in municipal bonds of certain issuers to a
greater extent than the Arizona Fund, which is a diversified fund.
Inflation risk: The risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the fund's assets can decline as can the value
of the fund's distributions.
How We Manage Risk
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The funds limit this
investment risk generally by restricting the type and maturities of municipal
bonds they purchase, and by diversifying their investment portfolios
geographically within a state, as well as across different industry
sectors.
Section 2 How We Manage Your Money 11
<PAGE>
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Arizona Fund also may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the funds' investments. The funds, however, have no present intent to use
these strategies.
12 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different combination of sales
charges, fees, eligibility requirements and other features. Your financial
adviser can help you determine which class is best for you. We offer a number of
features for your convenience. Please see the Statement of Additional
Information for further details.
What Share Classes We Offer
Class A Shares
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described in "How to Reduce Your
Sales Charge." Class A shares are also subject to an annual service fee of .20%
which compensates your financial adviser for providing on-going service to you.
Nuveen retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The up-front Class A sales charge for all funds
described in the prospectus is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
- ---------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
- ---------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
- ---------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
- ---------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
- ---------------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
- ---------------------------------------------------------------------------------------------------------
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus .50%
of the next $2.5 million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have to pay a CDSC of
1% of either your purchase price or your redemption proceeds, whichever is
lower. You do not have to pay this CDSC if your financial adviser has made
arrangements with Nuveen and agrees to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .95% of average daily assets. The annual .20% service fee
compensates your financial adviser for providing on-going service to you. Nuveen
retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The annual .75% distribution fee compensates Nuveen
for paying your financial adviser a 4% up-front sales commission, which includes
an advance of the first year's service fee. If you sell your shares within six
years of purchase, you will normally have to pay a CDSC based on either your
purchase price or what you sell your shares for, whichever amount is lower,
according to the
Section 3 How You Can Buy and Sell Shares 13
<PAGE>
following schedule. You do not pay a CDSC on any Class B shares you purchase by
reinvesting dividends.
Class B shares automatically convert to Class A shares eight years after you buy
them so that the distribution fees you pay over the life of your investment are
limited. You will continue to pay an annual service fee on any converted Class B
shares.
<TABLE>
<CAPTION>
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
<S> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1%
- --------------------------------------------------------------------------------
</TABLE>
Class C Shares
You can buy Class C shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .75%. The annual .20% service fee compensates your financial
adviser for providing on-going service to you. The annual .55% distribution fee
reimburses Nuveen for paying your financial adviser an on-going sales
commission. Nuveen advances the first year's service and distribution fees. If
you sell your shares within 12 months of purchase, you will normally have to pay
a 1% CDSC based on your purchase or sale price, whichever is lower. You do not
pay a CDSC on any Class C shares you purchase by reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at the net
asset value on the day of purchase. In order to qualify, you must be eligible
under one of the programs described in "How to Reduce Your Sales Charge" (below)
or meet certain other purchase size criteria. Class R shares are not subject to
sales charges or on-going service or distribution fees. Class R shares have
lower on-going expenses than the other classes.
How to Reduce Your Sales Charge
We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.
Class A Sales Charge Reductions
. Rights of accumulation
. Letter of intent
. Group purchase
Class A Sales Charge Waivers
. Nuveen Defined Portfolio or Exchange-Traded Fund reinvestment
. Certain employees and directors of Nuveen or employees of authorized dealers
. Bank trust departments
Class R Eligibility
. Certain employees and directors of Nuveen or employees of authorized dealers
. Bank trust departments
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisers, certified financial planners
and registered broker-dealers who charge asset-based or
14 Section 3 How You Can Buy and Sell Shares
<PAGE>
comprehensive "wrap" fees for their services. Please refer to the Statement of
Additional Information for detailed program descriptions and eligibility
requirements. Additional information is available from your financial adviser or
by calling (800) 257-8787. Your financial adviser can also help you prepare any
necessary application forms. You or your financial adviser must notify Nuveen at
the time of each purchase if you are eligible for any of these programs. The
funds may modify or discontinue these programs at any time.
How to Buy Shares
Fund shares may be purchased on any business day, which is any day the New York
Stock Exchange is open for business and normally ends at 4 p.m. New York time.
Generally, the Exchange is closed on weekends and national holidays. The share
price you pay will depend on when Nuveen receives your order. Orders received
before the close of trading on a business day will receive that day's closing
share price, otherwise you will receive the next business day's price.
Through a Financial Adviser
You may buy shares through your financial adviser, who can handle all the
details for you, including opening a new account. Financial advisers can also
help you review your financial needs and formulate long-term investment goals
and objectives. In addition, financial advisers generally can help you develop a
customized financial plan, select investments and monitor and review your
portfolio on an on-going basis to help assure your investments continue to meet
your needs as circumstances change. Financial advisers are paid for on-going
investment advice and services either from fund sales charges and fees or by
charging you a separate fee in lieu of a sales charge. If you do not have a
financial adviser, call (800) 257-8787 and Nuveen can refer you to one in your
area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. No third party
checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($50 if you establish a systematic
investment plan). Subsequent investments must be in amounts of $50 or more. The
funds reserve the right to reject purchase orders and to waive or increase the
minimum investment requirements.
Systematic Investing
Systematic investing allows you to make regular investments through automatic
deductions from your bank account (simply complete the appropriate section of
the account application form) or directly from your paycheck. To invest directly
from your paycheck, contact your financial adviser or call Nuveen at
(800) 257-8787. Systematic investing may also make you eligible for reduced
sales charges.
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.
Systematic Investment Plan
You can make regular investments of $50 or more per month by authorizing us to
draw preauthorized checks on your bank account. You can stop the withdrawals at
any time. There is no charge for this plan.
Payroll Direct Deposit Plan
You can, with your employer's consent, make regular investments of $25 or more
per pay period (meeting the monthly minimum of $50) by authorizing your employer
to deduct this amount automatically from your paycheck. You can stop the
deductions at any time. There is no charge for this plan.
Systematic Withdrawal
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Special Services--Fund Direct" below), paid to a third party or sent
payable to you at an address other than your
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
address of record. You must complete the appropriate section of the account
application or Account Update Form to participate in the fund's systematic
withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any time
for the same class of another Nuveen mutual fund available in your state. Your
exchange must meet the minimum purchase requirements of the fund into which you
are exchanging. You may have to pay a sales charge when exchanging shares that
you purchased without a sales charge for shares that are sold with a sales
charge. Please consult the Statement of Additional Information for details.
The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time upon 60 days'
notice. Because an exchange is treated for tax purposes as a purchase and sale,
and any gain may be subject to tax, you should consult your tax adviser about
the tax consequences of exchanging your shares.
Fund Direct(SM)
The Fund Direct Program allows you to link your fund account to your bank
account, transfer money electronically between these accounts, and perform a
variety of account transactions, including purchasing shares by telephone and
investing through a systematic investment plan. You also may have dividends,
distributions, redemption payments or systematic withdrawal plan payments sent
directly to your bank account. Your financial adviser can help you complete the
forms for these services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and procedures to
confirm the indentity of callers, it will not be liable for losses resulting
from following telephone instructions it reasonably believes to be genuine. Also
you should verify your trade confirmations immediately upon receipt.
How to Sell Shares
You may sell (redeem) your shares on any business day. You will receive the
share price next determined after Nuveen has received your properly completed
redemption request. Your redemption request must be received before the close of
trading for you to receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption proceeds until your
check has cleared. This may take up to ten business days from your purchase
date. While the funds do not charge a redemption fee, you may be assessed a
CDSC, if applicable. When you redeem Class A, Class B, or Class C shares subject
to a CDSC, the fund will first redeem any shares that are not subject to a CDSC
or that represent an increase in the value of your fund account due to capital
appreciation, and then redeem the shares you have owned for the longest period
of time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins on
the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price or
redemption proceeds, deducted from your redemption proceeds, and paid to Nuveen.
The CDSC may be waived under certain special circumstances as described in the
Statement of Additional Information.
Through Your Financial Adviser
You may sell your shares through your financial adviser who can prepare the
necessary documentation. Your financial adviser may charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by calling (800) 257-8787. Telephone redemptions are not available if you
own shares in certificate form and may not exceed $50,000. Checks will only be
issued to you as the shareholder of record and mailed to your address of record.
If you have established Fund Direct privileges, you may have redemption proceeds
transferred electronically to your bank account. We will normally mail your
check the next business day.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. Your request must include the following
information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other than the
address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
18 Section 3 How You Can Buy and Sell Shares
<PAGE>
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days' written
notice if the value of your account falls below an established minimum. The
funds have set a minimum balance of $100 unless you have an active Nuveen
Defined Portfolio reinvestment account. You will not be assessed a CDSC on an
involuntary redemption.
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of record has been
changed within the last 60 days). Signature guarantees must be obtained from a
bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by a fund. A
notary public cannot provide a signature guarantee.
Redemptions In-Kind
The funds generally pay redemption proceeds in cash. Under unusual conditions
that make cash payment unwise and for the protection of existing shareholders,
the funds may pay all or a portion of your redemption proceeds in securities or
other fund assets. Although it is unlikely that your shares would be redeemed
in-kind, you would probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that sale.
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the
funds, this section includes important details about how the funds
make distributions to shareholders. We discuss some other fund
policies, as well.
Dividends, Distributions and Taxes
The funds pay tax-free dividends monthly and any taxable capital
gains or other taxable distributions once a year in December. The
funds declare dividends monthly to shareholders of record as of the
ninth of each month, payable the first business day of the following
month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund
shares unless you request otherwise. You may request to have your
dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your
address of record or reinvested in shares of another Nuveen mutual
fund. For further information, contact your financial adviser or call
Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest primarily in municipal bonds from a
particular state, the regular monthly dividends you receive will be
exempt from regular federal income tax and that state's personal
income tax. All or a portion of these dividends, however, may be
subject to the federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital
gains, the funds may realize and distribute taxable income or capital
gains from time to time as a result of each fund's normal investment
activities. Each fund will distribute in December any taxable income
or capital gains realized over the preceding year. Net short-term
gains are taxable as ordinary income. Net long-term capital gains are
taxable as long-term capital gains regardless of how long you have
owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Early in each year, you will receive a statement detailing the amount
and nature of all dividends and capital gains that you were paid
during the prior year. If you hold your investment at the firm where
you purchased your fund shares, you will receive the statement from
that firm. If you hold your shares directly at the fund, Nuveen will
send you the statement. The tax status of your dividends is not
affected by whether you reinvest your dividends or elect to receive
them in cash. If you receive social security or railroad retirement
benefits, you should consult your tax adviser about how an investment
in a fund may affect the federal taxation of your benefits.
20 Section 4 General Information
<PAGE>
Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires the fund to
withhold federal income tax from your distributions and redemption proceeds,
currently at a rate of 31%.
Please consult the Statement of Additional Information and your tax adviser for
more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents a return of
your purchase price. Similarly, if you sell or exchange fund shares shortly
before the record date for a tax-exempt dividend, a portion of the price you
receive may be treated as a taxable capital gain even though it reflects tax-
free income earned but not yet distributed by the fund.
Taxable Equivalent Yields
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated federal tax-free yield on a
municipal investment. To assist you to more easily compare municipal investments
like the funds with taxable alternative investments, the table below presents
the taxable equivalent yields for a range of hypothetical federal tax-free
yields and tax rates:
<TABLE>
<CAPTION>
Taxable Equivalent Of Tax-Free Yields
To Equal a Tax-Free Yield of:
If Your Federal 4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket is: A Taxable Investment Would Need to Yield:
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
- --------------------------------------------------------------------------------
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
- --------------------------------------------------------------------------------
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
- --------------------------------------------------------------------------------
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
- --------------------------------------------------------------------------------
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
Statement of Additional Information or consult your tax adviser.
Distribution and Service Plans
Nuveen serves as the selling agent and distributor of the funds' shares. In this
capacity, Nuveen manages the offering of the funds' shares and is responsible
for all sales and promotional activities. In order to reimburse Nuveen for its
costs in connection with these activities, including compensation paid to
authorized dealers, each fund has adopted a distribution and service plan under
Rule 12b-1 under the Investment Company Act of 1940. (See "How to Choose a Share
Class" for a description of the distribution and service fees paid under this
plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to authorized dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the
Section 4 General Information 21
<PAGE>
service fee for Class A, Class B, and Class C shares to compensate authorized
dealers, including Nuveen, for providing on-going account services to
shareholders. These services may include establishing and maintaining
shareholder accounts, answering shareholder inquiries, and providing other
personal services to shareholders. These fees also compensate Nuveen for other
expenses, including printing and distributing prospectuses to persons other than
shareholders, and preparing, printing, and distributing advertising and sales
literature and reports to shareholders used in connection with the sale of
shares. Because these fees are paid out of the funds' assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other events
at which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of
advertising that features the products and services of both parties. The
Statement of Additional Information contains further information about these
programs.
Net Asset Value
The price you pay for your shares is based on the fund's net asset value per
share which is determined as of the close of trading (normally 4:00 p.m. New
York time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated for each class by taking the market value of the
class' total assets, including interest or dividends accrued but not yet
collected, less all liabilities, and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of Trustees or
its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. The prices of municipal bonds are provided by a pricing service
and based on the mean between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal securities), the
pricing service establishes fair market value based on prices of comparable
municipal bonds.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the funds. The funds' transfer, shareholder services and dividend paying
agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY 10274-
5186, performs bookkeeping, data processing and administrative services for the
maintenance of shareholder accounts.
22 Section 4 General Information
<PAGE>
Year 2000
The funds' service providers rely on computer systems to manage the fund's
investments, process shareholder transactions and provide shareholder account
maintenance. Because of the way computers historically have stored dates, some
of these systems currently may not be able to correctly process activity
occurring in the year 2000. Nuveen is working with the funds' service providers
to adapt their systems to address this issue. Nuveen and the funds expect that
the necessary work will be completed on a timely basis, although there can be no
assurance of this.
Year 2000 issues may affect the ability of issuers to meet their interest and
principal payment obligations to their bond holders, and may adversely affect
the bonds' credit ratings and values. Generally, higher rated fixed-income
securities carry less credit risk than lower rated fixed-income securities.
Municipal issuers may have greater Year 2000 risks than other issuers. Nuveen
Advisory is requesting information from municipal issuers so that Nuveen
Advisory can take the issuers' Year 2000 readiness, if made available, into
account in making investment decisions. There can be no assurance that issuers
will provide this information to Nuveen Advisory, or that issuers will begin or
complete the work necessary to address any Year 2000 issues on a timely basis.
Section 4 General Information 23
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in a Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Arthur Andersen LLP, whose report, along with the Funds'
financial statements, are included in the SAI and annual report, which is
available upon request.
Arizona Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------------------- --------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Class A (10/86)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $11.40 $.53 $(.09) $ .44 $(.54) $(.05) $(.59) $11.25 3.87%
1998 10.94 .55 .48 1.03 (.55) (.02) (.57) 11.40 9.56
1997 10.73 .56 .27 .83 (.56) (.06) (.62) 10.94 7.85
1996 10.85 .57 (.12) .45 (.57) -- (.57) 10.73 4.21
1995 10.43 .58 .42 1.00 (.58) -- (.58) 10.85 10.03
Class B (2/97)
1999 11.39 .45 (.10) .35 (.45) (.05) (.50) 11.24 3.12
1998 10.94 .47 .47 .94 (.47) (.02) (.49) 11.39 8.67
1997(c) 10.92 .16 .02 .18 (.16) -- (.16) 10.94 1.64
Class C (2/94)
1999 11.39 .47 (.09) .38 (.48) (.05) (.53) 11.24 3.33
1998 10.94 .49 .47 .96 (.49) (.02) (.51) 11.39 8.89
1997 10.73 .50 .27 .77 (.50) (.06) (.56) 10.94 7.28
1996 10.84 .51 (.11) .40 (.51) -- (.51) 10.73 3.75
1995 10.43 .52 .41 .93 (.52) -- (.52) 10.84 9.32
Class R (2/97)
1999 11.40 .56 (.10) .46 (.56) (.05) (.61) 11.25 4.09
1998 10.94 .57 .48 1.05 (.57) (.02) (.59) 11.40 9.79
1997(c) 10.92 .19 .02 .21 (.19) -- (.19) 10.94 1.96
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets(a) Assets(a) Rate
- -------------------------------------------------------------------------
Class A (10/86)
<S> <C> <C> <C> <C>
1999 $86,452 .84% 4.67% 16%
1998 85,922 .83 4.87 16
1997 82,567 .83 5.13 25
1996 80,094 .69 5.20 38
1995 80,406 .82 5.59 27
Class B (2/97)
1999 4.180 1.58 3.95 16
1998 1,620 1.51 4.15 16
1997(c) 347 1.62* 4.43* 25
Class C (2/94)
1999 6,426 1.39 4.12 16
1998 6,328 1.35 4.33 16
1997 3,189 1.38 4.58 25
1996 1,970 1.23 4.64 38
1995 1,621 1.36 5.01 27
Class R (2/97)
1999 21,534 .63 4.87 16
1998 20,504 .63 5.07 16
1997(c) 19,031 .67 5.38* 25
- -------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Arizona.
(a) After custodian fee credit and expense reimbursement, where
applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
24 Section 5 Financial Highlights
<PAGE>
Colorado Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------------ -------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gains Total Value Return (b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (5/87)
1999 $10.81 $.50 $(.10) $ .40 $(.50) $(.03) $(.53) $10.68 3.76%
1998 10.15 .52 .66 1.18 (.52) -- (.52) 10.81 11.85
1997 9.79 .53 .35 .88 (.52) -- (.52) 10.15 9.22
1996 9.93 .54 (.13) .41 (.55) -- (.55) 9.79 4.14
1995 9.62 .57 .30 .87 (.56) -- (.56) 9.93 9.54
Class B (2/97)
1999 10.82 .42 (.08) .34 (.43) (.03) (.46) 10.70 3.11
1998 10.16 .43 .68 1.11 (.45) -- (.45) 10.82 11.03
1997(c) 10.21 .12 (.06) .06 (.11) -- (.11) 10.16 .61
Class C (2/97)
1999 10.80 .44 (.10) .34 (.44) (.03) (.47) 10.67 3.19
1998 10.15 .46 .66 1.12 (.47) - (.47) 10.80 11.17
1997(c) 10.13 .16 .02 .18 (.16) -- (.16) 10.15 1.75
Class R (2/97)
1999 10.81 .52 (.08) .44 (.53) (.03) (.56) 10.69 4.08
1998 10.16 .54 .66 1.20 (.55) -- (.55) 10.81 11.98
1997(c) 10.21 .15 (.06) .09 (.14) -- (.14) 10.16 .85
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets (a) Assets (a) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (5/87)
1999 $39,189 .96% 4.62% 23%
1998 37,285 1.00 4.84 19
1997 31,229 .74 5.31 27
1996 33,637 .55 5.41 70
1995 34,982 .50 5.99 38
Class B (2/97)
1999 4,424 1.68 3.91 23
1998 1,661 1.75 4.06 19
1997(c) 444 1.53* 4.60* 27
Class C (2/97)
1999 2,464 1.49 4.10 23
1998 875 1.55 4.25 19
1997(c) 103 1.31* 4.94* 27
Class R (2/97)
1999 864 .75 4.82 23
1998 750 .80 5.03 19
1997(c) 413 .58* 5.60* 27
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Colorado.
(a) After custodian fee credit and expense reimbursement, where applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 25
<PAGE>
New Mexico Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
--------------------------------- -----------------------------
Class
(Inception Date)
Net
Realized
and
Year Beginning Net Unrealized Net
Ending Net Asset Investment Investment Investment Capital
May 31, Value Income (a) Gain (Loss) Total Income Gains Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/92)
1999 $10.67 $.49 $(.09) $ .40 $(.49) $ -- $(.49)
1998 10.16 .50 .51 1.01 (.50) -- (.50)
1997 9.81 .51 .35 .86 (.51) -- (.51)
1996 10.01 .51 (.19) .32 (.52) -- (.52)
1995 9.68 .52 .33 .85 (.52) -- (.52)
Class B (2/97)
1999 10.67 .41 (.10) .31 (.41) -- (.41)
1998 10.15 .43 .52 .95 (.43) -- (.43)
1997(c) 10.24 .12 (.10) .02 (.11) -- (.11)
Class C (2/97)
1999 10.67 .43 (.09) .34 (.43) -- (.43)
1998 10.16 .45 .51 .96 (.45) -- (.45)
1997(c) 10.23 .12 (.08) .04 (.11) -- (.11)
Class R (2/97)
1999 10.70 .51 (.10) .41 (.51) -- (.51)
1998 10.17 .53 .53 1.06 (.53) -- (.53)
1997(c) 10.23 .14 (.07) .07 (.13) -- (.13)
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------
Class
(Inception Date)
Ratio of Net
Ratio of Investment
Ending Ending Expenses Income
Year Net Net to Average to Average Portfolio
Ending Asset Total Assets Net Net Turnover
May 31, Value Return (b) (000) Assets (a) Assets (a) Rate
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (9/92)
1999 $10.58 3.74% $56,315 .90% 4.58% 14%
1998 10.67 10.17 54,959 .79 4.79 13
1997 10.16 8.90 50,807 .77 5.07 43
1996 9.81 3.18 51,173 .68 5.10 57
1995 10.01 9.25 52,150 .67 5.48 38
Class B (2/97)
1999 10.57 2.89 2,721 1.67 3.83 14
1998 10.67 9.46 1,408 1.53 4.03 13
1997(c) 10.15 .18 657 1.54* 4.19* 43
Class C (2/97)
1999 10.58 3.22 2,393 1.46 4.03 14
1998 10.67 9.60 1,487 1.31 4.23 13
1997(c) 10.16 .43 155 1.34* 4.40* 43
Class R (2/97)
1999 10.60 3.86 479 .70 4.78 14
1998 10.70 10.59 466 .58 5.01 13
1997(c) 10.17 .71 362 .59* 5.18* 43
- -------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship New Mexico.
(a) After custodian fee credit and expense reimbursement, where applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
26 Section 5 Financial Highlights
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from a specific state, each
fund also bears investment risks from economic, political or regulatory changes
that could adversely affect municipal bond issuers in that state and therefore
the value of the fund's investment portfolio. The following discussion of
special state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The
discussion includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should consult
your tax adviser about the state tax consequences of a specific fund investment.
See the Statement of Additional Information for further information.
Arizona
Arizona's economy is primarily based on services, tourism and high technology
manufacturing. However, the military, agriculture, and mining of primary metals
still play a role. The State has experienced phenomenal economic and population
growth recently due to an influx of businesses attracted by the State's high
quality of life, educated workforce, and friendly business environment. Major
employers include Intel Corp., Microchip Technology and Charles Schwab. Over the
past year, the State ranked first in the nation in job growth with a 4.7%
percent increase which created over 100,000 private sector jobs. The State's
leading economic indicators suggest that the State's economic growth may
continue in the near term. However, the magnitude and duration of the economic
turmoil in East Asia may dampen economic growth within the state. According to
1998 estimates, approximately 36% of the State's $11.4 billion of exports were
to Asian countries.
The statewide unemployment rate was 4.1 percent in 1998, below the U.S. rate of
4.6 percent. Statewide personal income grew at a rate of 5.2 percent in 1998 to
approximately $23,152. July 1999 unemployment was 4.4%, up slightly from the
July 1998 rate of 4.1%. Retail sales in Arizona through March 1999 were up 6.3
percent from the preceding year.
The Arizona Constitution restricts the legislature's power to raise revenue by
increasing property taxes. The State has also enacted limits on annual spending.
The State does not issue general obligation bonds but relies on capital outlays,
revenue bonds and other methods to finance projects. Each project is
individually rated for its creditworthiness.
Appendix 27
<PAGE>
Tax Treatment
The Arizona Fund's regular monthly dividends will not be subject to the Arizona
individual income tax to the extent they are paid out of income earned on
Arizona municipal bonds or U.S. government securities. You will be subject to
Arizona personal income tax, however, to the extent the Arizona Fund distributes
any taxable income or realized capital gains, or if you sell or exchange Arizona
Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Arizona Fund is similar to that
described above.
Colorado
Colorado's trade and service sectors represent over half of non-agricultural
employment in the State's economy and have expanded in the past years.
Manufacturing employment is comparatively small and continues to shrink due to
the concentration in defense production. The trade and services sectors, led by
a healthy tourist industry, helped pull the State out of a recession in the late
1980's which had been caused by contraction in the energy, high-technology and
construction industries. The State's economic activity has outpaced national
growth levels. However, recent economic releases indicate a reduced growth rate
but still in excess of national growth rates.
Colorado's unemployment rate was a very low 3.8% in 1998, below the national
average of 4.6%. July 1999 unemployment was 3.0%, down from 4.0% in July 1998.
Per capita income grew 6.7% to 28,821 in 1998. Colorado has no outstanding
general obligation debt, but outstanding lease obligations are rated A1 by
Moody's and A+ by Standard and Poor's. These ratings reflect the State's credit
quality only, and do not indicate the creditworthiness of other tax-exempt
securities in which the fund may invest.
Tax Treatment
The Colorado Fund's regular monthly dividends will not be subject to Colorado
personal income taxes to the extent they are paid out of income earned on
Colorado municipal bonds issued on or after May 1, 1980 or U.S. government
securities. You will be subject to Colorado personal income taxes, however, to
the extent the Colorado fund distributes any taxable income, or if you sell or
exchange Colorado Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Colorado Fund is similar to that
described above.
New Mexico
New Mexico's major industries include energy, tourism, services, crafts,
agribusiness, manufacturing and mining. Gas and oil sales were approximately
$3.9 billion in 1998. The economy also benefits from the employment and
technology base supplied by federal government scientific research facilities in
Los Alamos, Albuquerque and White Sands. Finally, crop and livestock production
remains diverse given the State's variety of climatic conditions and will also
remain a major part of the economy.
28 Appendix
<PAGE>
New Mexico's economy continues to expand and diversify away from its historic
reliance on federal employment and oil and gas production by increasing growth
in the services and manufacturing sectors. However, this transition has caused
the State's job growth to fall below national growth levels for the past three
years.
New Mexico's unemployment rate was 6.2% in 1998, surpassing the national average
of 4.6%. The July 1999 rate was 6.0%, down slightly from the July 1998 rate of
6.2%. At the same time, per capita income rose 3.7% in 1998 to reach $20,008.
As of August 1999, Moody's rates the state's general obligation debt Aa1, while
Standard and Poor's rates it AA+. These ratings reflect the State's credit
quality only, and do not indicate the creditworthiness of other tax-exempt
securities in which the fund may invest.
Tax Treatment
The New Mexico Fund's regular monthly dividends will not be subject to the New
Mexico personal income tax to the extent they are paid out of income earned on
New Mexico municipal obligations or U.S. government securities. You will be
subject to New Mexico personal income tax, however, to the extent the New Mexico
Fund distributes any taxable income or realized capital gains, or if you sell or
exchange New Mexico Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the New Mexico Fund is similar to
that described above.
Appendix 29
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Dividend and Growth Fund
Income
Income Fund
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
<TABLE>
<CAPTION>
<S> <C> <C>
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky New York/1/
</TABLE>
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Additional
information about the Funds' investments is available in the Funds' annual and
semi-annual report to shareholders. In the Funds' annual reports, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during their last fiscal year.
Call Nuveen at (800) 257-8787 to request a free copy of any of these materials
or other fund information; or ask your financial adviser for copies.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549.
The Funds' Investment Company file number is 811-07747.
1. Long-term and insured long-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
VPR-MS2-NA 9-99
<PAGE>
September 29, 1999 Prospectus
NUVEEN
Mutual Funds
Nuveen Municipal Bond Funds
[PHOTO APPEARS HERE]
Dependable, tax-free
income to help
you keep more
of what you earn.
Florida
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
* Investment Strategy
* Risks
* Fees, Charges
and Expenses
* Shareholder
Instructions
* Performance and
Current Portfolio
Information
Table of Contents
Section 1 The Fund
This section provides you with an overview of the fund including investment
objectives, portfolio holdings and historical performance information.
Introduction 1
- ------------------------------------------------------------------------
Nuveen Flagship Florida Municipal Bond Fund 2
- ------------------------------------------------------------------------
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Fund 4
- ------------------------------------------------------------------------
What Securities We Invest In 5
- ------------------------------------------------------------------------
How We Select Investments 6
- ------------------------------------------------------------------------
What the Risks Are 7
- ------------------------------------------------------------------------
How We Manage Risk 7
- ------------------------------------------------------------------------
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account.
What Share Classes We Offer 9
- ------------------------------------------------------------------------
How to Reduce Your Sales Charge 10
- ------------------------------------------------------------------------
How to Buy Shares 11
- ------------------------------------------------------------------------
Systematic Investing 11
- ------------------------------------------------------------------------
Systematic Withdrawal 12
- ------------------------------------------------------------------------
Special Services 13
- ------------------------------------------------------------------------
How to Sell Shares 14
- ------------------------------------------------------------------------
Section 4 General Information
This section summarizes the fund's distribution policies and other general
fund information.
Dividends, Distributions and Taxes 16
- ------------------------------------------------------------------------
Distribution and Service Plans 17
- ------------------------------------------------------------------------
Net Asset Value 18
- ------------------------------------------------------------------------
Fund Service Providers 18
- ------------------------------------------------------------------------
Year 2000 19
- ------------------------------------------------------------------------
Section 5 Financial Highlights
This section provides the fund's financial performance
for the past five years. 20
- ------------------------------------------------------------------------
Appendix Additional State Information 21
- ------------------------------------------------------------------------
<PAGE>
September 29, 1999
Section 1 The Fund
Nuveen Flagship Florida Municipal Bond Fund
Prospectus
This prospectus is intended to provide important information to help you
evaluate whether the Nuveen Mutual Fund listed above may be right for you.
Please read it carefully before investing and keep it for future reference.
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
Section 1 The Funds 1
<PAGE>
Nuveen Flagship Florida Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Florida bonds. As with any mutual fund investment, loss of money is
a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
eight years as well as annualized fund and index returns for the one- and five-
year and inception periods ending December 31, 1998. This information is
intended to help you assess the variability of fund returns over the past eight
years (and consequently, the potential rewards and risks of a fund investment).
Past performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1991 13.3%
1992 8.7%
1993 13.3%
1994 -5.6%
1995 16.4%
1996 2.6%
1997 8.5%
1998 5.5%
From inception in June 1990 to December 31, 1998, the highest and lowest
quarterly returns were 6.10% and -5.82%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
------------------------------------
Class 1 Year 5 Year Inception
- ------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.10% 4.32% 7.13%
Class B 0.79% 4.43% 7.09%
Class C 5.05% 4.67% 7.10%
Class R 5.86% 5.31% 7.72%
LB Market Benchmark/2/ 6.48% 6.22% 8.07%
Lipper Peer Group/3/ 5.53% 5.28% 7.69%
</TABLE>
2 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- ---------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- ---------------------------------------------------------------------
Exchange Fees None None None None
- ---------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- ---------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- ----------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
- ----------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- ----------------------------------------------------------------------
Other Expenses .10% .10% .10% .10%
======================================================================
Total Annual Fund Operating
Expenses-Gross+ .84% 1.59% 1.39% .64%
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 502 $ 557 $ 142 $ 65 $ 502 $ 162 $ 142 $ 65
- ------------------------------------------------------------------------------
3 Years $ 677 $ 821 $ 440 $ 205 $ 677 $ 502 $ 440 $ 205
- ------------------------------------------------------------------------------
5 Years $ 866 $ 980 $ 761 $ 357 $ 866 $ 866 $ 761 $ 357
- ------------------------------------------------------------------------------
10 Years $1,414 $1,688 $1,669 $ 798 $1,414 $1,688 $1,669 $ 798
- ------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Average Effective Maturity 19.76 years
- ----------------------------------------------------------
Average Duration 7.08
- ----------------------------------------------------------
Weighted Average Credit Quality AA+
- ----------------------------------------------------------
Number of Issues 191
- ----------------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 65%
- ----------------------------------------------------------
AA 11%
- ----------------------------------------------------------
A 11%
- ----------------------------------------------------------
BBB/NR 13%
- ----------------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation--General (12%)
Housing--Multifamily (12%)
U.S. Guaranteed (14%)
Health Care (11%)
Other (40%)
Utilities (11%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/99 was (.92)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Florida Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the fund's assets are managed, this section includes
a detailed discussion of the adviser's investment and risk management
strategies. For a more complete discussion of these matters, please consult the
Statement of Additional Information.
Who Manages the Fund
Nuveen Advisory Corp. ("Nuveen Advisory"), the fund's investment adviser,
together with its advisory affiliate, Nuveen Institutional Advisory Corp., offer
premier advisory and investment management services to a broad range of mutual
fund clients. In the Nuveen family, these advisers are commonly referred to as
Nuveen Investment Advisory Services or NIAS. Nuveen Advisory is responsible for
the selection and on-going monitoring of the municipal bonds in the fund's
investment portfolio, managing the fund's business affairs and providing certain
clerical, bookkeeping and other administrative services. The NIAS advisers are
located at 333 West Wacker Drive, Chicago, IL 60606.
The NIAS advisers are wholly owned subsidiaries of John Nuveen & Co.
Incorporated ("Nuveen"). Founded in 1898, Nuveen has been synonymous with
investments that withstand the test of time. Today we offer a broad range of
investments designed for individuals seeking to build and sustain wealth. Nuveen
is the sponsor and principal underwriter of the fund's shares and has sponsored
or underwritten more than $60 billion of investment company securities. Nuveen
and its affiliates have more than $55 billion in assets under management.
Nuveen Advisory is responsible for execution of specific investment strategies
and day-to-day investment operations. Nuveen Advisory manages each fund using a
team of analysts and portfolio managers that focus on a specific group of funds.
Day-to-day operation of the fund and the execution of its specific investment
strategies is the responsibility of the designated portfolio manager described
below.
Thomas J. O'Shaughnessy has been the portfolio manager for the Florida Fund
since July 1998. Mr. O'Shaughnessy has been a portfolio manager for Nuveen
Advisory since 1983 and an Assistant Vice President since 1998. He currently
manages investments for twelve Nuveen-sponsored investment companies, including
the Georgia, Kentucky, North Carolina, Pennsylvania, and Tennessee Funds.
4 Section 2 How We Manage Your Money
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
<S> <C>
For the first $125 million 0.5500%
- ---------------------------------------------------------------------------
For the next $125 million 0.5375%
- ---------------------------------------------------------------------------
For the next $250 million 0.5250%
- ---------------------------------------------------------------------------
For the next $500 million 0.5125%
- ---------------------------------------------------------------------------
For the next $1 billion 0.5000%
- ---------------------------------------------------------------------------
For assets over $2 billion 0.4750%
- ---------------------------------------------------------------------------
</TABLE>
What Securities We Invest In
The fund's investment objective may not be changed without shareholder approval.
The following investment policies may be changed by the Board of Trustees
without shareholder approval unless otherwise noted in this prospectus or the
Statement of Additional Information.
Municipal Obligations
The fund invests primarily in municipal bonds that pay interest that is exempt
from regular federal, state and, in some cases, local income tax. Income from
these bonds may be subject to the federal alternative minimum tax.
States, local governments and municipalities issue municipal bonds to raise
money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses.
These bonds include general obligation bonds, which are backed by the full faith
and credit of the issuer and may be repaid from any revenue source, and revenue
bonds, which may be repaid only from the revenue of a specific facility or
source.
The fund may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the fund will only purchase these bonds where the issuer has a strong
incentive to continue making appropriations until maturity.
In evaluating municipal bonds of different credit qualities or maturities,
Nuveen Advisory takes into account the size of yield spreads. Yield spread is
the additional return the fund may earn by taking on additional credit risk or
interest rate risk. For example, yields on low quality bonds are higher than
yields on high quality bonds because investors must be compensated for incurring
the higher credit risk associated with low quality bonds. If yield spreads do
not provide adequate compensation for the additional risk associated with low
quality bonds, the fund will buy bonds of relatively higher quality. Similarly,
in evaluating bonds of different maturities, Nuveen Advisory evaluates the
comparative yield available on these bonds. If yield spreads on long-term bonds
do not compensate the fund adequately for the additional interest rate risk the
fund must assume, the fund will buy bonds of relatively shorter maturity. In
addition, municipal bonds in a particular industry may provide higher yields
relative
Section 2 How We Manage Your Money 5
<PAGE>
to their risk compared to bonds in other industries. If that occurs,
the fund may buy relatively more bonds from issuers in that industry. In that
case, the fund's portfolio composition would change from time to time.
Quality Municipal Bonds
The fund purchases only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade by the fund's
investment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, the fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state and local income taxes.
Portfolio Maturity
The fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Short-term Investments
Under normal market conditions, the fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk--Hedging and
Other Defensive Investment Strategies." The fund may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the fund invests in taxable
securities, it may not achieve its investment objective. For more information on
eligible short-term investments, see the Statement of Additional Information.
Delayed-Delivery Transactions
The fund may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. These transactions involve an element of risk
because the value of the security to be purchased may decline before the
settlement date.
How We Select Investments
Nuveen Advisory selects municipal bonds for the fund based upon its assessment
of a bond's relative value in terms of current yield, price, credit quality and
future prospects. Nuveen Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities available for
purchase, monitor the continued creditworthiness of the fund's municipal
investments, and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to identify municipal bonds
with favorable characteristics we believe are not yet recognized by the market.
We then select those higher-yielding and undervalued municipal bonds that we
believe represent the most attractive values.
Portfolio Turnover
The fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that
6 Section 2 How We Manage Your Money
<PAGE>
is sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The fund intends to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. The fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund -- even the most
conservative -- involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in the fund. Because of these
and other risks, you should consider an investment in the fund to be a long-term
investment.
Interest rate risk: Because the fund invests in fixed-income securities, the
fund is subject to interest rate risk. Interest rate risk is the risk that the
value of a fund's portfolio will decline because of rising interest rates.
Interest rate risk is generally lower for shorter-term investments and higher
for longer-term investments.
Income risk: The risk that the income from the fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate.
Credit risk: The fund is subject to credit risk. Credit risk is the risk that an
issuer of a municipal bond will be unable to meet its obligation to make
interest and principal payments due to changing financial or market conditions,
or possibly due to Year 2000 issues.
State Concentration risk: Because the fund primarily purchases municipal bonds
from Florida, the fund also bears investment risk from the economic, political
or regulatory changes that could adversely affect municipal bond issuers in
Florida and therefore the value of the fund's investment portfolio. See
"Appendix--Additional State Information."
Inflation risk: The risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the fund's assets can decline as can the value
of the fund's distributions.
How We Manage Risk
In pursuit of its investment objective, the fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The fund limits this
investment risk generally by restricting the type and maturities of municipal
bonds it purchases, and by diversifying its investment portfolio geographically
within Florida, as well as across different industry sectors.
Section 2 How We Manage Your Money 7
<PAGE>
Investment Limitations
The fund has adopted certain investment limitations (based on total assets) that
cannot be changed without shareholder approval and are designed to limit your
investment risk and maintain portfolio diversification. As a diversified fund,
the fund may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of the fund's assets).
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
Hedging and Other Defensive Investment Strategies
The fund may invest up to 100% in cash equivalents and short-term investments as
a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of the fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
The fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the fund's investments. The fund, however, has no present intent to use these
strategies.
8 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different combination of sales
charges, fees, eligibility requirements and other features. Your financial
adviser can help you determine which class is best for you. We offer a number of
features for your convenience. Please see the Statement of Additional
Information for further details.
What Share Classes We Offer
Class A Shares
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described in "How to Reduce Your
Sales Charge." Class A shares are also subject to an annual service fee of .20%
which compensates your financial adviser for providing on-going service to you.
Nuveen retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The up-front Class A sales charge for the fund is
as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
- ------------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
- ------------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
- ------------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
- ------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus .50%
of the next $2.5 million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have to pay a CDSC of
1% of either your purchase price or your redemption proceeds, whichever is
lower. You do not have to pay this CDSC if your financial adviser has made
arrangements with Nuveen and agrees to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .95% of average daily assets. The annual .20% service fee
compensates your financial adviser for providing on-going service to you. Nuveen
retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The annual .75% distribution fee compensates Nuveen
for paying your financial adviser a 4% up-front sales commission, which includes
an advance of the first year's service fee. If you sell your shares within six
years of purchase, you will normally have to pay a CDSC based on either your
purchase price or what you sell your shares for, whichever amount is lower,
according to the
Section 3 How You Can Buy and Sell Shares 9
<PAGE>
following schedule. You do not pay a CDSC on any Class B shares you purchase by
reinvesting dividends.
Class B shares automatically convert to Class A shares eight years after
you buy them so that the distribution fees you pay over the life of your
investment are limited. You will continue to pay an annual service fee on any
converted Class B shares.
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
CDSC 5% 4% 4% 3% 2% 1%
- -----------------------------------------------------------
Class C Shares
You can buy Class C shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .75%. The annual .20% service fee compensates your financial
adviser for providing on-going service to you. Nuveen retains the up-front sales
charge and the service fee on accounts with no authorized dealer of record. The
annual .55% distribution fee reimburses Nuveen for paying your financial adviser
an on-going sales commission. Nuveen advances the first year's service and
distribution fees. If you sell your shares within 12 months of purchase, you
will normally have to pay a 1% CDSC based on your purchase or sale price,
whichever is lower. You do not pay a CDSC on any Class C shares you purchase by
reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at the net
asset value on the day of purchase. In order to qualify, you must be eligible
under one of the programs described in "How to Reduce Your Sales Charge" (below)
or meet certain other purchase size criteria. Class R shares are not subject to
sales charges or on-going service or distribution fees. Class R shares have
lower on-going expenses than the other classes.
How to Reduce Your Sales Charge
We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.
<TABLE>
<CAPTION>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
<S> <C> <C>
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and
or Exchange-Traded Fund directors of Nuveen
. Letter of intent reinvestment or employees of
authorized dealers
. Group purchase . Certain employees and
directors of Nuveen or . Bank trust departments
employees of authorized
dealers
. Bank trust departments
</TABLE>
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisers, certified financial planners
and registered broker-dealers who charge asset-based or
10 Section 3 How You Can Buy and Sell Shares
<PAGE>
comprehensive "wrap" fees for their services. Please refer to the Statement of
Additional Information for detailed program descriptions and eligibility
requirements. Additional information is available from your financial adviser or
by calling (800) 257-8787. Your financial adviser can also help you prepare any
necessary application forms. You or your financial adviser must notify Nuveen at
the time of each purchase if you are eligible for any of these programs. The
fund may modify or discontinue these programs at any time.
How to Buy Shares
Fund shares may be purchased on any business day, which is any day the New York
Stock Exchange is open for business and normally ends at 4 p.m. New York time.
Generally, the Exchange is closed on weekends and national holidays. The share
price you pay will depend on when Nuveen receives your order. Orders received
before the close of trading on a business day will receive that day's closing
share price, otherwise you will receive the next business day's price.
Through a Financial Adviser
You may buy shares through your financial adviser, who can handle all
the details for you, including opening a new account. Financial advisers can
also help you review your financial needs and formulate long-term investment
goals and objectives. In addition, financial advisers generally can help you
develop a customized financial plan, select investments and monitor and review
your portfolio on an ongoing basis to help assure your investments continue to
meet your needs as circumstances change. Financial advisers are paid for on-
going investment advice and services either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge. If you do not have a
financial adviser, call (800) 257-8787 and Nuveen can refer you to one in your
area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. No third party
checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($50 if you establish a systematic
investment plan). Subsequent investments must be in amounts of $50 or more. The
fund reserves the right to reject purchase orders and to waive or increase the
minimum investment requirements.
Systematic Investing
Systematic investing allows you to make regular investments through automatic
deductions from your bank account (simply complete the appropriate section of
the account application form) or directly from your paycheck. To invest directly
from your paycheck, contact your financial adviser or call Nuveen at (800)
257-8787. Systematic investing may also make you eligible for reduced sales
charges.
Section 3 How You Can Buy and Sell Shares 11
<PAGE>
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.
Systematic Investment Plan
You can make regular investments of $50 or more per month by authorizing us to
draw preauthorized checks on your bank account. You can stop the withdrawals at
any time. There is no charge for this plan.
Payroll Direct Deposit Plan
You can, with your employer's consent, make regular investments of
$25 or more per pay period (meeting the monthly minimum of $50) by authorizing
your employer to deduct this amount automatically from your paycheck. You can
stop the deductions at any time. There is no charge for this plan.
Systematic Withdrawal
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Special Services--Fund Direct" below), paid to a third party or sent
payable to you at an address other than your
12 Section 3 How You Can Buy and Sell Shares
<PAGE>
address of record. You must complete the appropriate section of the account
application or Account Update Form to participate in the fund's systematic
withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any time
for the same class of another Nuveen mutual fund available in your state. Your
exchange must meet the minimum purchase requirements of the fund into which you
are exchanging. You may have to pay a sales charge when exchanging shares that
you purchased without a sales charge for shares that are sold with a sales
charge. Please consult the Statement of Additional Information for details.
The exchange privilege is not intended to allow you to use the fund for short-
term trading. Because excessive exchanges may interfere with portfolio
management, raise fund operating expenses or otherwise have an adverse effect on
other shareholders, the fund reserves the right to revise or suspend the
exchange privilege, limit the amount or number of exchanges, or reject any
exchange.
The fund may change or cancel its exchange policy at any time upon 60 days'
notice. Because an exchange is treated for tax purposes as a purchase and sale,
and any gain may be subject to tax, you should consult your tax adviser about
the tax consequences of exchanging your shares.
Fund Direct/SM/
The Fund Direct Program allows you to link your fund account to your bank
account, transfer money electronically between these accounts, and perform a
variety of account transactions, including purchasing shares by telephone and
investing through a systematic investment plan. You also may have dividends,
distributions, redemption payments or systematic withdrawal plan payments sent
directly to your bank account. Your financial adviser can help you complete the
forms for these services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
Section 3 How You Can Buy and Sell Shares 13
<PAGE>
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and procedures to
confirm the identity of callers, it will not be liable for losses resulting from
following telephone instructions it reasonably believes to be genuine. Also you
should verify your trade confirmations immediately upon receipt.
How to Sell Shares
You may sell (redeem) your shares on any business day. You will receive the
share price next determined after Nuveen has received your properly completed
redemption request. Your redemption request must be received before the close of
trading for you to receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption proceeds until your
check has cleared. This may take up to ten business days from your purchase
date. While the fund does not charge a redemption fee, you may be assessed a
CDSC, if applicable. When you redeem Class A, Class B, or Class C shares subject
to a CDSC, the fund will first redeem any shares that are not subject to a CDSC
or that represent an increase in the value of your fund account due to capital
appreciation, and then redeem the shares you have owned for the longest period
of time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins on
the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price or
redemption proceeds, deducted from your redemption proceeds, and paid to Nuveen.
The CDSC may be waived under certain special circumstances as described in the
Statement of Additional Information.
Through Your Financial Adviser
You may sell your shares through your financial adviser who can prepare the
necessary documentation. Your financial adviser may charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by calling (800) 257-8787. Telephone redemptions are not available if you
own shares in certificate form and may not exceed $50,000. Checks will only be
issued to you as the shareholder of record and mailed to your address of record.
If you have established Fund Direct privileges, you may have redemption proceeds
transferred electronically to your bank account. We will normally mail your
check the next business day.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. Your request must include the following
information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other than the
address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
14 Section 3 How You Can Buy and Sell Shares
<PAGE>
An Important Note About Involuntary Redemption
From time to time, the fund may establish minimum account size requirements. The
fund reserves the right to liquidate your account upon 30 days' written notice
if the value of your account falls below an established minimum. The fund has
set a minimum balance of $100 unless you have an active Nuveen Defined Portfolio
reinvestment account. You will not be assessed a CDSC on an involuntary
redemption.
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of record has been
changed within the last 60 days). Signature guarantees must be obtained from a
bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by a fund. A
notary public cannot provide a signature guarantee.
Redemptions In-Kind
The fund generally pays redemption proceeds in cash. Under unusual conditions
that make cash payment unwise and for the protection of existing shareholders,
the fund may pay all or a portion of your redemption proceeds in securities or
other fund assets. Although it is unlikely that your shares would be redeemed
in-kind, you would probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that sale.
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the fund, this
section includes important details about how the fund makes distributions to
shareholders. We discuss some other fund policies, as well.
Dividends, Distributions and Taxes
The fund pays tax-free dividends monthly and any taxable capital gains or other
taxable distributions once a year in December. The fund declares dividends
monthly to shareholders of record as of the ninth of each month, payable the
first business day of the following month.
Payment and Reinvestment Options
The fund automatically reinvests your dividends in additional fund shares unless
you request otherwise. You may request to have your dividends paid to you by
check, deposited directly into your bank account, paid to a third party, sent to
an address other than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your financial adviser or
call Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the fund invests primarily in municipal bonds from Florida, the regular
monthly dividends you receive will be exempt from regular federal income tax and
the Florida intangible personal property tax. All or a portion of these
dividends, however, may be subject to the federal alternative minimum tax (AMT).
Although the fund does not seek to realize taxable income or capital gains, the
fund may realize and distribute taxable income or capital gains from time to
time as a result of the fund's normal investment activities. The fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how long
you have owned your investment. Taxable dividends do not qualify for a dividends
received deduction if you are a corporate shareholder.
Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains, that you were paid during the prior year. If
you hold your investment at the firm where you purchased your fund shares, you
will receive the statement from that firm. If you hold your shares directly at
the fund, Nuveen will send you the statement. The tax status of your dividends
is not affected by whether you reinvest your dividends or elect to receive them
in cash. If you receive social security or
16 Section 4 General Information
<PAGE>
railroad retirement benefits, you should consult your tax adviser about how an
investment in the fund may affect the federal taxation of your benefits.
Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires the fund to
withhold federal income tax from your distributions and redemption proceeds,
currently at a rate of 31%.
Please consult the Statement of Additional Information and your tax adviser for
more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents a return of
your purchase price. Similarly, if you sell or exchange fund shares shortly
before the record date for a tax-exempt dividend, a portion of the price you
receive may be treated as a taxable capital gain even though it reflects tax-
free income earned but not yet distributed by the fund.
Taxable Equivalent Yields
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated federal tax-free yield on a
municipal investment. To assist you to more easily compare municipal investments
like the fund with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical federal tax-free yields
and tax rates:
Taxable Equivalent Of Tax-Free Yields
<TABLE>
<CAPTION>
To Equal a Tax-Free Yield of:
If Your Federal 4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket is: A Taxable Investment Would Need to Yield:
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
- --------------------------------------------------------------------------------
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
- --------------------------------------------------------------------------------
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
- --------------------------------------------------------------------------------
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
- --------------------------------------------------------------------------------
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
Statement of Additional Information or consult your tax adviser.
Distribution and Service Plans
Nuveen serves as the selling agent and distributor of the fund's shares. In this
capacity, Nuveen manages the offering of the fund's shares and is responsible
for all sales and promotional activities. In order to reimburse Nuveen for its
costs in connection with these activities, including compensation paid to
authorized dealers, the fund has adopted a distribution and service plan under
Rule 12b-1 under the Investment Company Act of 1940. (See "How to Choose a Share
Class" for a description of the distribution and service fees paid under this
plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to authorized dealers, including
Section 4 General Information 17
<PAGE>
Nuveen, in connection with the distribution of shares. Nuveen uses the service
fee for Class A, Class B, and Class C shares to compensate authorized dealers,
including Nuveen, for providing on-going account services to shareholders. These
services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries, and providing other personal services to
shareholders. These fees also compensate Nuveen for other expenses, including
printing and distributing prospectuses to persons other than shareholders, and
preparing, printing, and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of shares. Because
these fees are paid out of the fund's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other events
at which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of
advertising that features the products and services of both parties. The
Statement of Additional Information contains further information about these
programs.
Net Asset Value
The price you pay for your shares is based on the fund's net asset value per
share which is determined as of the close of trading (normally 4:00 p.m. New
York time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated for each class by taking the market value of the
class' total assets, including interest or dividends accrued but not yet
collected, less all liabilities, and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of Trustees or
its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. The prices of municipal bonds are provided by a pricing service
and based on the mean between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal securities), the
pricing service establishes fair market value based on prices of comparable
municipal bonds.
Fund Service Providers
The custodian of the assets of the fund is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the fund. The fund's transfer, shareholder services and dividend paying
agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY 10274-
5186, performs bookkeeping, data processing and administrative services for the
maintenance of shareholder accounts.
18 Section 4 General Information
<PAGE>
Year 2000
The fund's service providers rely on computer systems to manage the fund's
investments, process shareholder transactions and provide shareholder account
maintenance. Because of the way computers historically have stored dates, some
of these systems currently may not be able to correctly process activity
occurring in the year 2000. Nuveen is working with the fund's service providers
to adapt their systems to address this issue. Nuveen and the fund expect that
the necessary work will be completed on a timely basis, although there can be no
assurance of this.
Year 2000 issues may affect the ability of issuers to meet their interest and
principal payment obligations to their bond holders, and may adversely affect
the bonds' credit ratings and values. Generally, higher rated fixed-income
securities carry less credit risk than lower rated fixed-income securities.
Municipal issuers may have greater Year 2000 risks than other issuers. Nuveen
Advisory is requesting information from municipal issuers so that Nuveen
Advisory can take the issuers' Year 2000 readiness, if made available, into
account in making investment decisions. There can be no assurance that issuers
will provide this information to Nuveen Advisory, or that issuers will begin or
complete the work necessary to address any Year 2000 issues on a timely basis.
Section 4 General Information 19
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along with
the Funds' financial statements, are included in the SAI and annual report,
which is available upon request.
Florida Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
---------------------------------------- -------------------------------------
Class
(Inception
Date)
Net
Realized
and
Year Beginning Net Unrealized Net
Ending Net Asset Investment Investment Investment Capital
May 31, Value Income(a) Gain (Loss) Total Income Gains Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (6/90)
1999 $10.94 $.55 $(.14) $.41 $(.55) $(.04) $(.59)
1998 10.60 .56 .34 .90 (.55) (.01) (.56)
1997 10.39 .56 .21 .77 (.56) -- (.56)
1996 10.63 .57 (.24) .33 (.57) -- (.57)
1995 10.38 .58 .26 .84 (.59) -- (.59)
Class B (2/97)
1999 10.95 .47 (.14) .33 (.47) (.04) (.51)
1998 10.61 .48 .35 .83 (.48) (.01) (.49)
1997(c) 10.59 .16 .02 .18 (.16) -- (.16)
Class C (9/95)
1999 10.95 .49 (.14) .35 (.49) (.04) (.53)
1998 10.60 .50 .36 .86 (.50) (.01) (.51)
1997 10.39 .50 .21 .71 (.50) -- (.50)
1996(c) 10.65 .35 (.26) .09 (.35) -- (.35)
Class R (2/97)
1999 10.94 .57 (.14) .43 (.57) (.04) (.61)
1998 10.60 .58 .35 .93 (.58) (.01) (.59)
1997(c) 10.59 .19 .01 .20 (.19) -- (.19)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Ending Ending Expenses Income
Year Net Net to Average to Average Portfolio
Ending Asset Total Assets Net Net Turnover
May 31, Value Return(b) (000) Assets(a) Assets(a) Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (6/90)
1999 $10.76 3.78% $297,505 .84% 5.00% 19%
1998 10.94 8.67 292,399 .84 5.13 14
1997 10.60 7.59 296,970 .82 5.34 54
1996 10.39 3.14 318,456 .83 5.36 94
1995 10.63 8.43 341,374 .73 5.71 53
Class B (2/97)
1999 10.77 3.05 15,768 1.59 4.25 19
1998 10.95 7.89 5,266 1.59 4.35 14
1997(c) 10.61 1.70 785 1.58* 4.52* 54
Class C (9/95)
1999 10.77 3.22 16,034 1.39 4.45 19
1998 10.95 8.20 7,646 1.39 4.58 14
1997 10.60 7.00 5,130 1.35 4.75 54
1996(c) 10.39 1.30* 1,175 1.38* 4.59* 94
Class R (2/97)
1999 10.76 4.01 61,496 .64 5.20 19
1998 10.94 8.91 56,428 .64 5.33 14
1997(c) 10.60 1.93 54,247 .64* 5.55* 54
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997,
reflects the financial highlights of Flagship Florida.
(a) After custodian fee credit and expense reimbursement, where applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
20 Section 5 Financial Highlights
<PAGE>
Appendix Additional State Information
Because the fund primarily purchases municipal bonds from Florida, the fund also
bears investment risks from economic, political or regulatory changes that could
adversely affect municipal bond issuers in that state and therefore the value of
the fund's investment portfolio. The following discussion of special state
considerations was obtained from official offering statements of these issuers
and has not been independently verified by the fund. The discussion includes
general state tax information related to an investment in fund shares. Because
tax laws are complex and often change, you should consult your tax adviser about
the state tax consequences of a specific fund investment. See the Statement of
Additional Information for further information.
Florida
Florida is one of the nation's fastest growing states. Employment and personal
income growth have outpaced the nation since 1991 and recent economic reports
indicate that the State continues to experience job growth, albeit at a more
moderate pace. Florida has a diverse economy with recent growth in the
insurance, banking, healthcare, construction and trade, which has helped lessen
the State's dependence on the agricultural and tourism industries.
Florida's unemployment rate of 3.8% in July 1999 was lower than the national
average of 4.3% in July 1999 and lower than the State's 4.2% rate in July 1998.
Florida's 1998 per capital income of $25,922 is on a par with national averages
and slightly above regional levels. Because the State's significant senior
population relies more on fixed income than on wages, income levels in the State
are generally more stable over different phases of economic cycles.
As of August 31, 1999, Florida's general obligation debt carried ratings of AA+
by Standard & Poor's, Aa2 by Moody's, and AA by Fitch. These ratings reflect the
State's credit quality only, and do not indicate the creditworthiness of other
tax-exempt securities in which the fund may invest.
Tax Treatment
Shares of the Florida fund will not be subject to the Florida intangible
personal property tax. The Florida fund holds only Florida municipal bonds and
U.S. Government securities. If the Florida fund holds other taxable securities,
then your shares in the Florida fund will be subject to the Florida intangible
personal property tax, except that the portion of your shares attributable to
the Florida fund's investments in U.S. Government securities will not be subject
to the tax.
Corporate shareholders of the Florida fund also may be subject to the Florida
corporate income tax. Corporate shareholders should refer to the Statement of
Additional Information for more detailed information.
Appendix 21
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Dividend and Growth Fund
Income
Income Fund
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona
California/1/
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts/1/
Michigan
Missouri
New Jersey
New Mexico
New York/1/
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Additional
information about the Fund's investments is available in the Fund's annual and
semi-annual report to shareholders. In the Fund's annual reports, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during their last fiscal year.
Call Nuveen at (800) 257-8787 to request a free copy of any of these materials
or other fund information; or ask your financial adviser for copies.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549.
The Fund's Investment Company file number is 811-07747.
1. Long-term and insured long-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
VPR-FL-NA 9-99
<PAGE>
September 29, 1999 Prospectus
NUVEEN
Mutual Funds
Nuveen Municipal Bond Funds
Dependable, tax-free
income to help
you keep more
of what you earn.
[PHOTO APPEARS HERE]
Maryland
Pennsylvania
Virginia
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
* Investment Strategy
* Risks
* Fees, Charges
and Expenses
* Shareholder
Instructions
* Performance and
Current Portfolio
Information
Table of Contents
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
Introduction 1
- ------------------------------------------------------------------------
Nuveen Maryland Municipal Bond Fund 2
- ------------------------------------------------------------------------
Nuveen Flagship Pennsylvania Municipal Bond Fund 4
- ------------------------------------------------------------------------
Nuveen Flagship Virginia Municipal Bond Fund 6
- ------------------------------------------------------------------------
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Funds 8
- ------------------------------------------------------------------------
What Securities We Invest In 9
- ------------------------------------------------------------------------
How We Select Investments 10
- ------------------------------------------------------------------------
What the Risks Are 11
- ------------------------------------------------------------------------
How We Manage Risk 11
- ------------------------------------------------------------------------
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account.
What Share Classes We Offer 13
- ------------------------------------------------------------------------
How to Reduce Your Sales Charge 14
- ------------------------------------------------------------------------
How to Buy Shares 15
- ------------------------------------------------------------------------
Systematic Investing 15
- ------------------------------------------------------------------------
Systematic Withdrawal 16
- ------------------------------------------------------------------------
Special Services 17
- ------------------------------------------------------------------------
How to Sell Shares 18
- ------------------------------------------------------------------------
Section 4 General Information
This section summarizes the funds' distribution policies and other general
fund information.
Dividends, Distributions and Taxes 20
- ------------------------------------------------------------------------
Distribution and Service Plans 21
- ------------------------------------------------------------------------
Net Asset Value 22
- ------------------------------------------------------------------------
Fund Service Providers 22
- ------------------------------------------------------------------------
Year 2000 23
- ------------------------------------------------------------------------
Section 5 Financial Highlights
This section provides the funds' financial performance
for the past five years. 24
- ------------------------------------------------------------------------
Appendix Additional State Information 27
- ------------------------------------------------------------------------
<PAGE>
September 29, 1999
Section 1 The Funds
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
Prospectus
This prospectus is intended to provide important information to help you
evaluate whether one of the Nuveen Mutual Funds listed above may be right for
you. Please read it carefully before investing and keep it for future reference.
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
Section 1 The Funds 1
<PAGE>
Nuveen Maryland Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Maryland bonds. The fund is non-diversified, and may invest more of
its assets in a single issuer than a diversified fund. Greater concentration may
increase risk. As with any mutual fund investment, loss of money is a risk of
investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
six years as well as annualized fund and index returns for the one- and five-
year and since inception periods ending December 31, 1998. This information is
intended to help you assess the variability of fund returns over the past six
years (and consequently, the potential rewards and risks of a fund investment).
Past performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class R Annual Returns
1993 12.4%
1994 -6.1%
1995 17.2%
1996 3.8%
1997 7.7%
1998 5.9%
From inception in December 1991 to December 31, 1998, the highest and lowest
quarterly returns were 7.40% and -5.70%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
-------------------------------------------
Class 1 Year 5 Year Inception
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.20% 4.27% 5.96%
Class B 1.02% 4.30% 5.91%
Class C 5.12% 4.51% 5.93%
Class R 5.88% 5.43% 6.90%
- ---------------------------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 7.58%
Lipper
Peer Group/3/ 5.34% 5.04% 6.76%
- ---------------------------------------------------------------------------
</TABLE>
2 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- ---------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- ---------------------------------------------------------------------
Exchange Fees None None None None
- ---------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- ---------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- ----------------------------------------------------------------------
Management Fees .55% .55% .55% .55%
- ----------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- ----------------------------------------------------------------------
Other Expenses .29% .30% .29% .28%
======================================================================
Total Annual Fund Operating
Expenses-Gross+ 1.04% 1.80% 1.59% .83%
+ After Expense Reimbursements
- ----------------------------------------------------------------------
Expense Reimbursements (.09%) (.09%) (.09%) (.08%)
- ----------------------------------------------------------------------
Total Operating Expense--Net .95% 1.71% 1.50% .75%
======================================================================
Reflects a voluntary expense limitation by the fund's investment
adviser that may be modified or discontinued at any time.
- ----------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 522 $ 578 $ 162 $ 85 $ 522 $ 183 $ 162 $ 85
- ------------------------------------------------------------------------------
3 Years $ 737 $ 883 $ 502 $ 265 $ 737 $ 566 $ 502 $ 265
- ------------------------------------------------------------------------------
5 Years $ 970 $1,088 $ 866 $ 460 $ 970 $ 975 $ 866 $ 460
- ------------------------------------------------------------------------------
10 Years $1,638 $1,916 $1,889 $1,025 $1,638 $1,916 $1,889 $1,025
- ------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Average Effective Maturity 20.64 years
- ----------------------------------------------------------
Average Duration 7.86
- ----------------------------------------------------------
Weighted Average Credit Quality AA+
- ----------------------------------------------------------
Number of Issues 51
- ----------------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 65%
- ----------------------------------------------------------
AA 16%
- ----------------------------------------------------------
A 6%
- ----------------------------------------------------------
BBB/NR 13%
- ----------------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation-Limited (9%)
Housing-Multifamily (23%)
U.S. Guaranteed (9%)
Health Care (20%)
Other (28%)
Housing-Single-Family (11%)
1. Class R total returns reflect actual performance for all periods; Class A, B
and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance for
periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/99 was (1.23)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Maryland Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
Nuveen Flagship Pennsylvania Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases
local, income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Pennsylvania bonds. The fund is non-diversified, and may invest
more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
10-year periods ending December 31, 1998. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[Bar Chart Appears Here]
Class A Annual Returns
1989 9.5%
1990 5.1%
1991 11.8%
1992 9.8%
1993 11.1%
1994 -4.2%
1995 15.3%
1996 3.8%
1997 10.0%
1998 5.5%
During the ten years ended December 31, 1998, the highest and lowest quarterly
returns were 5.63% and -4.45%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
-----------------------------------------
Class 1 Year 5 Year 10 Year
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 0.99% 4.95% 7.18%
Class B 0.69% 5.08% 7.17%
Class C 4.92% 5.27% 7.05%
Class R 5.58% 5.93% 7.67%
- ----------------------------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 8.22%
Lipper
Peer Group/3/ 4.90% 5.55% 7.73%
</TABLE>
4 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- -----------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- -----------------------------------------------------------------------
Exchange Fees None None None None
- -----------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- -----------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
- -----------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- -----------------------------------------------------------------------
Other Expenses .19% .20% .19% .19%
- -----------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross+ .94% 1.70% 1.49% .74%
+ After Expense Reimbursements
- -----------------------------------------------------------------------
Expense Reimbursements (.25%) (.25%) (.25%) (.25%)
- -----------------------------------------------------------------------
Total Operating Expense--Net .69% 1.45% 1.24% .49%
- -----------------------------------------------------------------------
Reflects a voluntary expense limitation by the fund's investment
adviser that may be modified or discontinued at any time.
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 512 $ 568 $ 152 $ 76 $ 512 $ 173 $ 152 $ 76
- ---------------------------------------------------------------------------
3 Year $ 707 $ 854 $ 471 $237 $ 707 $ 536 $ 471 $237
- ---------------------------------------------------------------------------
5 Years $ 918 $1,037 $ 813 $411 $ 918 $ 923 $ 813 $411
- ---------------------------------------------------------------------------
10 Years $1,526 $1,807 $1,779 $918 $1,526 $1,807 $1,779 $918
- ---------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Average Effective Maturity 21.29 years
- ------------------------------------------------------------------
Average Duration 8.35
- ------------------------------------------------------------------
Weighted Average Credit Quality AA-
- ------------------------------------------------------------------
Number of Issues 94
Credit Quality
AAA/U.S. Guaranteed 49%
- ------------------------------------------------------------------
AA 9%
- ------------------------------------------------------------------
A 10%
- ------------------------------------------------------------------
BBB/NR 32%
- ------------------------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Education and Civic Organizations (17%)
Housing-Single-Family (13%)
Tax Obligation-General (12%)
Health Care (13%)
Other (34%)
Utilities (11%)
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/99 was (1.09)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper Pennsylvania
Municipal Debt Index, a managed index that represents the average annualized
returns of the 30 largest funds in the Lipper Pennsylvania Municipal Debt
category. Returns assume reinvestment of dividends and do not reflect any
applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 5
<PAGE>
Nuveen Flagship Virginia Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Virginia bonds. The fund is non-diversified, and may invest more of
its assets in a single issuer than a diversified fund. Greater concentration may
increase risk. As with any mutual fund investment, loss of money is a risk of
investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth
. Invest through an IRA or 401(k) plan;
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1998. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1989 9.3%
1990 6.5%
1991 11.8%
1992 9.3%
1993 12.4%
1994 -5.5%
1995 16.3%
1996 4.0%
1997 9.4%
1998 6.1%
During the ten years ending December 31, 1998, the highest and lowest quarterly
returns were 6.58% and -5.14%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
-------------------------------------------
Class 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.65% 4.91% 7.34%
Class B 1.23% 4.98% 7.33%
Class C 5.41% 5.21% 7.20%
Class R 6.21% 5.88% 7.84%
- -----------------------------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 8.22%
Lipper
Peer Group/3/ 5.56% 5.20% 7.18%
</TABLE>
6 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- ----------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- ----------------------------------------------------------------
Exchange Fees None None None None
- ----------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- ----------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .54% .54% .54% .54%
- --------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- --------------------------------------------------------------------
Other Expenses .15% .15% .15% .15%
- --------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Gross+ .89% 1.64% 1.44% .69%
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
+After Expense Reimbursements
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Expense Reimbursements (.03%) (.03%) (.03%) (.03%)
-----------------------------------------------------------------
Total Operating Expense--Net .86% 1.61% 1.41% .66%
-----------------------------------------------------------------
Reflects a voluntary expense limitation by the fund's investment
adviser that may be modified or discontinued at any time.
-----------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's operating
expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 507 $ 562 $ 147 $ 70 $ 507 $ 167 $ 147 $ 70
- --------------------------------------------------------------------------
3 Years $ 692 $ 836 $ 456 $221 $ 692 $ 517 $ 456 $221
- --------------------------------------------------------------------------
5 Years $ 892 $1,006 $ 787 $384 $ 892 $ 892 $ 787 $384
- --------------------------------------------------------------------------
10 Years $1,470 $1,743 $1,724 $859 $1,470 $1,743 $1,724 $859
- --------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
Portfolio Statistics
<TABLE>
<CAPTION>
<S> <C>
Average Effective Maturity 20.17 years
- ---------------------------------------------------------------------
Average Duration 6.96
- ---------------------------------------------------------------------
Weighted Average Credit Quality AA
- ---------------------------------------------------------------------
Number of Issues 128
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Credit Quality
AAA/U.S. Guaranteed 37%
- ---------------------------------------------------------------------
<S> <C>
AA 31%
- ---------------------------------------------------------------------
A 20%
- ---------------------------------------------------------------------
BBB/NR 12%
- ---------------------------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Tax Obligation-Limited (11%)
Water/Sewer (11%)
Other (42%)
U.S. Guaranteed (11%)
Health Care (14%)
Education and Civic Organization (11%)
</TABLE>
1. Class A total returns reflect actual performance for all periods; Class B,
C and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The year-to-
date return as of 6/30/99 was (1.01%).
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Virginia Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the funds' assets are managed, this section includes
a detailed discussion of the adviser's investment and risk management
strategies. For a more complete discussion of these matters, please consult the
Statement of Additional Information.
Who Manages the Funds
Nuveen Advisory Corp. ("Nuveen Advisory"), the fund's investment adviser,
together with its advisory affiliate, Nuveen Institutional Advisory Corp., offer
premier advisory and investment management services to a broad range of mutual
fund clients. In the Nuveen family, these advisers are commonly referred to as
Nuveen Investment Advisory Services or NIAS. Nuveen Advisory is responsible for
the selection and on-going monitoring of the municipal bonds in the fund's
investment portfolio, managing the fund's business affairs and providing certain
clerical, bookkeeping and other administrative services. The NIAS advisers are
located at 333 West Wacker Drive, Chicago, IL 60606.
The NIAS advisers are wholly owned subsidiaries of John Nuveen & Co.
Incorporated ("Nuveen"). Founded in 1898, Nuveen has been synonymous with
investments that withstand the test of time. Today we offer a broad range of
investments designed for individuals seeking to build and sustain wealth. Nuveen
is the sponsor and principal underwriter of the fund's shares and has sponsored
or underwritten more than $60 billion of investment company securities. Nuveen
and its affiliates have more than $55 billion in assets under management.
Nuveen Advisory is responsible for execution of specific investment strategies
and day-to-day investment operations. Nuveen Advisory manages each fund using a
team of analysts and portfolio managers that focus on a specific group of funds.
Day-to-day operation of each fund and the execution of its specific investment
strategies is the responsibility of the designated portfolio manager described
below.
Paul Brennan has been the portfolio manager for the Maryland and Virginia Funds
since August 1999 and previously was a portfolio manager for Flagship Financial
(since 1991). Mr. Brennan has been a portfolio manager for Nuveen Advisory since
1997. Mr. Brennan is currently an Assistant Vice President of Nuveen Advisory,
and he manages investments for fifteen Nuveen-sponsored investment companies,
including the Connecticut, New York, and New York Insured Funds.
Thomas J. O'Shaughnessy has been the portfolio manager for the Pennsylvania Fund
since July 1998. Mr. O'Shaughnessy has been a portfolio manager for Nuveen
Advisory since 1983 and an Assistant Vice President since 1998. He currently
manages investments for twelve Nuveen-sponsored investment companies, including
the Florida, Georgia, Kentucky, North Carolina, and Tennessee Funds.
8 Section 2 How We Manage Your Money
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
- --------------------------------------------------------------------------
<S> <C>
For the first $125 million 0.5500%
- --------------------------------------------------------------------------
For the next $125 million 0.5375%
- --------------------------------------------------------------------------
For the next $250 million 0.5250%
- --------------------------------------------------------------------------
For the next $500 million 0.5125%
- --------------------------------------------------------------------------
For the next $1 billion 0.5000%
- --------------------------------------------------------------------------
For assets over $2 billion 0.4750%
- --------------------------------------------------------------------------
</TABLE>
What Securities We Invest In
Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal, state and, in some cases, local income tax. Income from
these bonds may be subject to the federal alternative minimum tax.
States, local governments and municipalities issue municipal bonds to
raise money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses.
These bonds include general obligation bonds, which are backed by the full faith
and credit of the issuer and may be repaid from any revenue source, and revenue
bonds, which may be repaid only from the revenue of a specific facility or
source.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase these bonds where the issuer has a
strong incentive to continue making appropriations until maturity.
In evaluating municipal bonds of different credit qualities or maturities,
Nuveen Advisory takes into account the size of yield spreads. Yield spread is
the additional return the funds may earn by taking on additional credit risk or
interest rate risk. For example, yields on low quality bonds are higher than
yields on high quality bonds because investors must be compensated for incurring
the higher credit risk associated with low quality bonds. If yield spreads do
not provide adequate compensation for the additional risk associated with low
quality bonds, the funds will buy bonds of relatively higher quality. Similarly,
in evaluating bonds of different maturities, Nuveen Advisory evaluates the
comparative yield available on these bonds. If yield spreads on long-term bonds
do not compensate the funds adequately for the additional interest rate risk the
funds must assume, the funds will buy bonds of relatively shorter maturity. In
addition, municipal bonds in a particular industry may provide higher yields
relative
Section 2 How We Manage Your Money 9
<PAGE>
to their risk compared to bonds in other industries. If that occurs, a
fund may buy relatively more bonds from issuers in that industry. In that case,
the fund's portfolio composition would change from time to time.
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal bonds
of U.S. territories (such as Puerto Rico and Guam) which are exempt from regular
federal, state and local income taxes.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Short-term Investments
Under normal market conditions, each fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk--Hedging and
Other Defensive Investment Strategies." The funds may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the funds invest in taxable
securities, they may not achieve their investment objective. For more
information on eligible short-term investments, see the Statement of Additional
Information.
Delayed-Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. These transactions involve an element of risk
because the value of the security to be purchased may decline before the
settlement date.
How We Select Investments
Nuveen Advisory selects municipal bonds for the funds based upon its assessment
of a bond's relative value in terms of current yield, price, credit quality and
future prospects. Nuveen Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities available for
purchase, monitor the continued creditworthiness of each fund's municipal
investments, and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to identify municipal bonds
with favorable characteristics we believe are not yet recognized by the market.
We then select those higher-yielding and undervalued municipal bonds that we
believe represent the most attractive values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that
10 Section 2 How We Manage Your Money
<PAGE>
is sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund -- even the most
conservative -- involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment.
Interest rate risk: Because the funds invest in fixed-income securities, the
funds are subject to interest rate risk. Interest rate risk is the risk that the
value of a fund's portfolio will decline because of rising interest rates.
Interest rate risk is generally lower for shorter-term investments and higher
for longer-term investments.
Income risk: The risk that the income from a fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate.
Credit risk: Each fund is subject to credit risk. Credit risk is the risk that
an issuer of a municipal bond will be unable to meet its obligation to make
interest and principal payments due to changing financial or market conditions,
or possibly due to Year 2000 issues.
State Concentration risk: Because the funds primarily purchase municipal bonds
from a specific state, each fund also bears investment risk from the economic,
political or regulatory changes that could adversely affect municipal bond
issuers in that state and therefore the value of the fund's investment
portfolio. See "Appendix--Additional State Information." These risks may be
greater for the funds, because they are "non-diversified" funds which authorizes
them to concentrate their investments in municipal bonds of certain issuers to a
greater extent than diversified funds.
Inflation risk: The risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the fund's assets can decline as can the value
of the fund's distributions.
How We Manage Risk
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The funds limit this
investment risk generally by restricting the type and maturities of municipal
bonds they purchase, and by diversifying their investment portfolios
geographically within a state, as well as across different industry
sectors.
Section 2 How We Manage Your Money 11
<PAGE>
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the funds' investments. The funds, however, have no present intent to use
these strategies.
12 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different combination of sales
charges, fees, eligibility requirements and other features. Your financial
adviser can help you determine which class is best for you. We offer a number of
features for your convenience. Please see the Statement of Additional
Information for further details.
What Share Classes We Offer
Class A Shares
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described in "How to Reduce Your
Sales Charge." Class A shares are also subject to an annual service fee of .20%
which compensates your financial adviser for providing on-going service to you.
Nuveen retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The up-front Class A sales charge for all funds
described in the prospectus is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
- ---------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
- ---------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
- ---------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
- ---------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
- ---------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
- ---------------------------------------------------------------------------------------------------
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus .50%
of the next $2.5 million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have to pay a CDSC of
1% of either your purchase price or your redemption proceeds, whichever is
lower. You do not have to pay this CDSC if your financial adviser has made
arrangements with Nuveen and agrees to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .95% of average daily assets. The annual .20% service fee
compensates your financial adviser for providing on-going service to you. Nuveen
retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The annual .75% distribution fee compensates Nuveen
for paying your financial adviser a 4% up-front sales commission, which includes
an advance of the first year's service fee. If you sell your shares within six
years of purchase, you will normally have to pay a CDSC based on either your
purchase price or what you sell your shares for, whichever amount is lower,
according to the
Section 3 How You Can Buy and Sell Shares 13
<PAGE>
following schedule. You do not pay a CDSC on any Class B shares you purchase by
reinvesting dividends.
Class B shares automatically convert to Class A shares eight years after you buy
them so that the distribution fees you pay over the life of your investment are
limited. You will continue to pay an annual service fee on any converted Class B
shares.
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6
CDSC 5% 4% 4% 3% 2% 1%
- -------------------------------------------------------------
Class C Shares
You can buy Class C shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .75%. The annual .20% service fee compensates your financial
adviser for providing on-going service to you. Nuveen retains the up-front sales
charge and the service fee on accounts with no authorized dealer of record. The
annual .55% distribution fee reimburses Nuveen for paying your financial adviser
an on-going sales commission. Nuveen advances the first year's service and
distribution fees. If you sell your shares within 12 months of purchase, you
will normally have to pay a 1% CDSC based on your purchase or sale price,
whichever is lower. You do not pay a CDSC on any Class C shares you purchase by
reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at the net
asset value on the day of purchase. In order to qualify, you must be eligible
under one of the programs described in "How to Reduce Your Sales Charge" (below)
or meet certain other purchase size criteria. Class R shares are not subject to
sales charges or on-going service or distribution fees. Class R shares have
lower on-going expenses than the other classes.
How to Reduce Your Sales Charge
We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.
<TABLE>
<CAPTION>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
<S> <C> <C>
. Rights of accumulation . Nuveen Devined Portfolio . Certain Employees
. Letter of intent . or Exchange-Traded Fund and directors of
. Group purchase reinvestment Nuveen or employees
of authorized
dealers
. Certain employees and . Bank trust
directors of Nuveen or departments
employees of authorized
dealers
. Bank trust departments
</TABLE>
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisers, certified financial planners
and registered broker-dealers who charge asset-based or
14 Section 3 How You Can Buy and Sell Shares
<PAGE>
comprehensive "wrap" fees for their services. Please refer to the Statement of
Additional Information for detailed program descriptions and eligibility
requirements. Additional information is available from your financial adviser or
by calling (800) 257-8787. Your financial adviser can also help you prepare any
necessary application forms. You or your financial adviser must notify Nuveen at
the time of each purchase if you are eligible for any of these programs. The
funds may modify or discontinue these programs at any time.
How to Buy Shares
Fund shares may be purchased on any business day, which is any day the New York
Stock Exchange is open for business and normally ends at 4 p.m. New York time.
Generally, the Exchange is closed on weekends and national holidays. The share
price you pay will depend on when Nuveen receives your order. Orders received
before the close of trading on a business day will receive that day's closing
share price, otherwise you will receive the next business day's price.
Through a Financial Adviser
You may buy shares through your financial adviser, who can handle all the
details for you, including opening a new account. Financial advisers can also
help you review your financial needs and formulate long-term investment goals
and objectives. In addition, financial advisers generally can help you develop a
customized financial plan, select investments and monitor and review your
portfolio on an ongoing basis to help assure your investments continue to meet
your needs as circumstances change. Financial advisers are paid for on-going
investment advice and services either from fund sales charges and fees or by
charging you a separate fee in lieu of a sales charge. If you do not have a
financial adviser, call (800) 257-8787 and Nuveen can refer you to one in your
area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. No third party
checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($50 if you establish a systematic
investment plan). Subsequent investments must be in amounts of $50 or more. The
funds reserve the right to reject purchase orders and to waive or increase the
minimum investment requirements.
Systematic Investing
Systematic investing allows you to make regular investments through automatic
deductions from your bank account (simply complete the appropriate section of
the account application form) or directly from your paycheck. To invest directly
from your paycheck, contact your financial adviser or call Nuveen at (800)
257-8787. Systematic investing may also make you eligible for reduced sales
charges.
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.
Systematic Investment Plan
You can make regular investments of $50 or more per month by authorizing us to
draw preauthorized checks on your bank account. You can stop the withdrawals at
any time. There is no charge for this plan.
Payroll Direct Deposit Plan
You can, with your employer's consent, make regular investments of $25 or more
per pay period (meeting the monthly minimum of $50) by authorizing your employer
to deduct this amount automatically from your paycheck. You can stop the
deductions at any time. There is no charge for this plan.
Systematic Withdrawal
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Special Services--Fund Direct" below), paid to a third party or sent
payable to you at an address other than your
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
address of record. You must complete the appropriate section of the account
application or Account Update Form to participate in the fund's systematic
withdrawal plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any time
for the same class of another Nuveen mutual fund available in your state. Your
exchange must meet the minimum purchase requirements of the fund into which you
are exchanging. You may have to pay a sales charge when exchanging shares that
you purchased without a sales charge for shares that are sold with a sales
charge. Please consult the Statement of Additional Information for details.
The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time upon 60 days'
notice. Because an exchange is treated for tax purposes as a purchase and sale,
and any gain may be subject to tax, you should consult your tax adviser about
the tax consequences of exchanging your shares.
Fund Direct/SM/
The Fund Direct Program allows you to link your fund account to your bank
account, transfer money electronically between these accounts, and perform a
variety of account transactions, including purchasing shares by telephone and
investing through a systematic investment plan. You also may have dividends,
distributions, redemption payments or systematic withdrawal plan payments sent
directly to your bank account. Your financial adviser can help you complete the
forms for these services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and procedures to
confirm the identity of callers it will not be liable for losses resulting from
following telephone instructions it reasonably believes to be genuine. Also you
should verify your trade confirmation immediately upon receipt.
How to Sell Shares
You may sell (redeem) your shares on any business day. You will receive the
share price next determined after Nuveen has received your properly completed
redemption request. Your redemption request must be received before the close of
trading for you to receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption proceeds until your
check has cleared. This may take up to ten business days from your purchase
date. While the funds do not charge a redemption fee, you may be assessed a
CDSC, if applicable. When you redeem Class A, Class B, or Class C shares subject
to a CDSC, the fund will first redeem any shares that are not subject to a CDSC
or that represent an increase in the value of your fund account due to capital
appreciation, and then redeem the shares you have owned for the longest period
of time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins on
the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price or
redemption proceeds, deducted from your redemption proceeds, and paid to Nuveen.
The CDSC may be waived under certain special circumstances as described in the
Statement of Additional Information.
Through Your Financial Adviser
You may sell your shares through your financial adviser who can prepare the
necessary documentation. Your financial adviser may charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by calling (800) 257-8787. Telephone redemptions are not available if you
own shares in certificate form and may not exceed $50,000. Checks will only be
issued to you as the shareholder of record and mailed to your address of record.
If you have established Fund Direct privileges, you may have redemption proceeds
transferred electronically to your bank account. We will normally mail your
check the next business day.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. Your request must include the following
information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other than the
address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
18 Section 3 How You Can Buy and Sell Shares
<PAGE>
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days' written
notice if the value of your account falls below an established minimum. The
funds have set a minimum balance of $100 unless you have an active Nuveen
Defined Portfolio reinvestment account. You will not be assessed a CDSC on an
involuntary redemption.
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of record has been
changed within the last 60 days). Signature guarantees must be obtained from a
bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that is otherwise approved by a fund. A
notary public cannot provide a signature guarantee.
Redemptions In-Kind
The funds generally pay redemption proceeds in cash. Under unusual conditions
that make cash payment unwise and for the protection of existing shareholders,
the fund may pay all or a portion of your redemption proceeds in securities or
other fund assets. Although it is unlikely that your shares would be redeemed
in-kind, you would probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that sale.
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions to
shareholders. We discuss some other fund policies, as well.
Dividends, Distributions and Taxes
The funds pay tax-free dividends monthly and any taxable capital gains or other
taxable distributions once a year in December. The funds declare dividends
monthly to shareholders of record as of the ninth of each month, payable the
first business day of the following month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund shares unless
you request otherwise. You may request to have your dividends paid to you by
check, deposited directly into your bank account, paid to a third party, sent to
an address other than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your financial adviser or
call Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest primarily in municipal bonds from a particular state,
the regular monthly dividends you receive will be exempt from regular federal
income tax and that state's personal income tax. All or a portion of these
dividends, however, may be subject to the federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how long
you have owned your investment. Taxable dividends do not qualify for a dividends
received deduction if you are a corporate shareholder.
Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains, that you were paid during the prior year. If
you hold your investment at the firm where you purchased your fund shares, you
will receive the statement from that firm. If you hold your shares directly at
the fund, Nuveen will send you the statement. The tax status of your dividends
is not affected by whether you reinvest your dividends or elect to receive them
in cash.
If you receive social security or railroad retirement benefits, you should
consult your tax adviser about how an investment in a fund may affect the
federal taxation of your benefits.
20 Section 4 General Information
<PAGE>
Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires the fund to
withhold federal income tax from your distributions and redemption proceeds,
currently at a rate of 31%.
Please consult the Statement of Additional Information and your tax adviser for
more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents a return of
your purchase price. Similarly, if you sell or exchange fund shares shortly
before the record date for a tax-exempt dividend, a portion of the price you
receive may be treated as a taxable capital gain even though it reflects tax-
free income earned but not yet distributed by the fund.
Taxable Equivalent Yields
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated federal tax-free yield on a
municipal investment. To assist you to more easily compare municipal investments
like the funds with taxable alternative investments, the table below presents
the taxable equivalent yields for a range of hypothetical federal tax-free
yields and tax rates:
Taxable Equivalent Of Tax-Free Yields
<TABLE>
<CAPTION>
To Equal a Tax-Free Yield of:
If Your Federal 4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket is: A Taxable Investment Would Need to Yield:
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
- ---------------------------------------------------------------------------------------
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
- ---------------------------------------------------------------------------------------
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
- ---------------------------------------------------------------------------------------
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
- ---------------------------------------------------------------------------------------
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
Statement of Additional Information or consult your tax adviser.
Distribution and Service Plans
Nuveen serves as the selling agent and distributor of the funds' shares. In this
capacity, Nuveen manages the offering of the funds' shares and is responsible
for all sales and promotional activities. In order to reimburse Nuveen for its
costs in connection with these activities, including compensation paid to
authorized dealers, each fund has adopted a distribution and service plan under
Rule 12b-1 under the Investment Company Act of 1940. (See "How to Choose a Share
Class" for a description of the distribution and service fees paid under this
plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to authorized dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the
Section 4 General Information 21
<PAGE>
service fee for Class A, Class B, and Class C shares to compensate authorized
dealers, including Nuveen, for providing on-going account services to
shareholders. These services may include establishing and maintaining
shareholder accounts, answering shareholder inquiries, and providing other
personal services to shareholders. These fees also compensate Nuveen for other
expenses, including printing and distributing prospectuses to persons other than
shareholders, and preparing, printing, and distributing advertising and sales
literature and reports to shareholders used in connection with the sale of
shares. Because these fees are paid out of the funds' assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other events
at which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of
advertising that features the products and services of both parties. The
Statement of Additional Information contains further information about these
programs.
Net Asset Value
The price you pay for your shares is based on the fund's net asset value per
share which is determined as of the close of trading (normally 4:00 p.m. New
York time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated for each class by taking the market value of the
class' total assets, including interest or dividends accrued but not yet
collected, less all liabilities, and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of Trustees or
its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. The prices of municipal bonds are provided by a pricing service
and based on the mean between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal securities), the
pricing service establishes fair market value based on prices of comparable
municipal bonds.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the funds. The funds' transfer, shareholder services and dividend paying
agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY 10274-
5186, performs bookkeeping, data processing and administrative services for the
maintenance of shareholder accounts.
22 Section 4 General Information
<PAGE>
Year 2000
The funds' service providers rely on computer systems to manage the fund's
investments, process shareholder transactions and provide shareholder account
maintenance. Because of the way computers historically have stored dates, some
of these systems currently may not be able to correctly process activity
occurring in the year 2000. Nuveen is working with the funds' service providers
to adapt their systems to address this issue. Nuveen and the funds expect that
the necessary work will be completed on a timely basis, although there can be no
assurance of this.
Year 2000 issues may affect the ability of issuers to meet their interest and
principal payment obligations to their bond holders, and may adversely affect
the bonds' credit ratings and values. Generally, higher rated fixed-income
securities carry less credit risk than lower rated fixed-income securities.
Municipal issuers may have greater Year 2000 risks than other issuers. Nuveen
Advisory is requesting information from municipal issuers so that Nuveen
Advisory can take the issuers' Year 2000 readiness, if made available, into
account in making investment decisions. There can be no assurance that issuers
will provide this information to Nuveen Advisory, or that issuers will begin or
complete the work necessary to address any Year 2000 issues on a timely basis.
Section 4 General Information 23
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in a Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Arthur Andersen LLP, whose report, along with the Funds'
financial statements, are included in the SAI and annual report, which is
available upon request.
Maryland Municipal Bond Fund
<TABLE>
<CAPTION>
Class
(Inception
Date)
Investment Operations Less Distributions
---------------------------------- -----------------------------
Net
Realized
and
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
May 31, Value Income(a) (Loss) Total Income Gains Total Value Return(b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1999 $10.56 $.49 $ (.11) $ .38 $(.48) $ -- $(.48) $10.46 3.65%
1998 10.25 .48 .32 .80 (.49) -- (.49) 10.56 7.95
1997(c) 10.25 .16 .01 .17 (.17) -- (.17) 10.25 1.63
1997(d) 10.43 .46 (.15) .31 (.49) -- (.49) 10.25 3.06
1996(d) 9.60 .48 .85 1.33 (.50) -- (.50) 10.43 14.07
1995(e) 9.84 .20 (.23) (.03) (.21) -- (.21) 9.60 (.26)
Class B (3/97)
1999 10.56 .41 (.10) .31 (.40) -- (.40) 10.47 2.95
1998 10.25 .41 .31 .72 (.41) -- (.41) 10.56 7.16
1997(f) 10.29 .10 (.04) .06 (.10) -- (.10) 10.25 .83
Class C (9/94)
1999 10.56 .43 (.11) .32 (.42) -- (.42) 10.46 3.07
1998 10.24 .43 .32 .75 (.43) -- (.43) 10.56 7.44
1997(c) 10.24 .15 -- .15 (.15) -- (.15) 10.24 1.43
1997(d) 10.42 .39 (.16) .23 (.41) -- (.41) 10.24 2.28
1996(d) 9.59 .41 .84 1.25 (.42) -- (.42) 10.42 13.24
1995(e) 9.75 .16 (.15) .01 (.17) -- (.17) 9.59 .12
Class R (12/91)
1999 10.58 .51 (.11) .40 (.50) -- (.50) 10.48 3.82
1998 10.26 .51 .32 .83 (.51) -- (.51) 10.58 8.23
1997(c) 10.26 .17 -- .17 (.17) -- (.17) 10.26 1.68
1997(d) 10.44 .47 (.14) .33 (.51) -- (.51) 10.26 3.29
1996(d) 9.61 .51 .84 1.35 (.52) -- (.52) 10.44 14.33
1995(d) 10.62 .51 (1.01) (.50) (.51) -- (.51) 9.61 (4.58)
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------
Class
(Inception
Date) Ratio of Net
Ending Ratio of Investment
Year Net Expenses Income Portfolio
Ending Assets to Average to Average Turnover
May 31, (000) Net Assets(a) Net Assets(a) Rate
----------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/94)
1999 $22,093 .95% 4.64% 29%
1998 17,427 .94 4.62 7
1997(c) 12,977 .95* 4.90* 3
1997(d) 11,788 1.00 4.79 4
1996(d) 6,860 1.00 4.74 17
1995(e) 1,605 1.00* 5.26* 35
Class B (3/97)
1999 4,732 1.71 3.90 29
1998 2,332 1.69 3.85 7
1997(f) 150 1.70* 4.00* 3
Class C (9/94)
1999 4,089 1.50 4.10 29
1998 2,606 1.49 4.07 7
1997(c) 2,103 1.50* 4.35* 3
1997(d) 1,985 1.75 4.05 4
1996(d) 1,438 1.75 4.04 17
1995(e) 860 1.75* 4.55* 35
Class R (12/91)
1999 44,411 .75 4.83 29
1998 44,599 .74 4.82 7
1997(c) 43,306 .75* 5.10* 3
1997(d) 43,738 .75 5.06 4
1996(d) 47,389 .75 5.07 17
1995(d) 42,741 .75 5.28 35
===========================================================================================================================
</TABLE>
* Annualized.
(a) After custodian fee credit and expense reimbursement, where applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) For the four months ended May 31.
(d) For year ended January 31.
(e) From commencement of class operations as noted through January 31.
(f) From commencement of class operations as noted.
24 Section 5 Financial Highlights
<PAGE>
Pennsylvania Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------------- -------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (10/86)
1999 $10.68 $.53 $(.17) $ .36 $(.53) $(.06) $(.59) $10.45 3.42%
1998 10.25 .56 .45 1.01 (.56) (.02) (.58) 10.68 10.05
1997 10.00 .57 .25 .82 (.57) -- (.57) 10.25 8.37
1996 10.21 .59 (.20) .39 (.60) -- (.60) 10.00 3.83
1995 10.06 .60 .16 .76 (.61) -- (.61) 10.21 7.90
Class B (2/97)
1999 10.70 .45 (.17) .28 (.45) (.06) (.51) 10.47 2.66
1998 10.27 .48 .45 .93 (.48) (.02) (.50) 10.70 9.23
1997(c) 10.21 .16 .06 .22 (.16) -- (.16) 10.27 2.18
Class C (2/94)
1999 10.68 .47 (.17) .30 (.48) (.06) (.54) 10.44 2.80
1998 10.25 .50 .45 .95 (.50) (.02) (.52) 10.68 9.50
1997 9.99 .51 .26 .77 (.51) -- (.51) 10.25 7.88
1996 10.21 .53 (.21) .32 (.54) -- (.54) 9.99 3.16
1995 10.06 .54 .16 .70 (.55) -- (.55) 10.21 7.31
Class R (2/97)
1999 10.68 .55 (.17) .38 (.56) (.06) (.62) 10.44 3.55
1998 10.25 .58 .45 1.03 (.58) (.02) (.60) 10.68 10.30
1997(c) 10.21 .20 .03 .23 (.19) -- (.19) 10.25 2.31
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
--------------------------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets(a) Assets(a) Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (10/86) $70,865 .69% 5.00% 18%
1999 65,826 .61 5.28 20
1998 55,667 .70 5.61 46
1997 44,392 .79 5.76 65
1996 42,600 .89 6.08 50
1995
Class B (2/97) 7,966 1.45 4.26 18
1999 2,640 1.34 4.50 20
1998 229 1.35* 4.84* 46
1997(c)
Class C (2/94) 13,167 1.24 4.46 18
1999 8,912 1.16 4.73 20
1998 6,320 1.25 5.06 46
1997 4,442 1.68 4.85 65
1996 3,118 1.84 5.05 50
1995
Class R (2/97) 61,044 .49 5.20 18
1999 61,180 .41 5.48 20
1998 57,383 .39* 5.83* 46
1997(c)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Pennsylvania.
(a) After custodian fee credit and expense reimbursement, where applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 25
<PAGE>
Virginia Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------------- --------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b)
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1999 $11.06 $.53 $(.10) $ .43 $(.53) $(.03) $(.56) $10.93 3.95%
1998 10.66 .56 .41 .97 (.56) (.01) (.57) 11.06 9.30
1997 10.40 .58 .25 .83 (.57) -- (.57) 10.66 8.20
1996 10.56 .57 (.15) .42 (.58) -- (.58) 10.40 4.03
1995 10.36 .59 .20 .79 (.59) -- (.59) 10.56 7.99
Class B (2/97)
1999 11.06 .45 (.10) .35 (.45) (.03) (.48) 10.93 3.20
1998 10.66 .48 .41 .89 (.48) (.01) (.49) 11.06 8.53
1997(c) 10.62 .16 .04 .20 (.16) -- (.16) 10.66 1.94
Class C (10/93)
1999 11.06 .47 (.11) .36 (.47) (.03) (.50) 10.92 3.30
1998 10.65 .50 .42 .92 (.50) (.01) (.51) 11.06 8.81
1997 10.39 .52 .26 .78 (.52) -- (.52) 10.65 7.61
1996 10.56 .51 (.16) .35 (.52) -- (.52) 10.39 3.37
1995 10.36 .53 .20 .73 (.53) -- (.53) 10.56 7.40
Class R (2/97)
1999 11.06 56 (.10) .46 (.56) (.03) (.59) 10.93 4.18
1998 10.66 .59 .41 1.00 (.59) (.01) (.60) 11.06 9.54
1997(c) 10.62 .20 .04 .24 (.20) -- (.20) 10.66 2.26
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets(a) Assets(a) Rate
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (3/86)
1999 $138,941 .86% 4.81% 15%
1998 133,966 .74 5.15 3
1997 122,252 .74 5.45 23
1996 117,677 .83 5.41 17
1995 112,643 .79 5.81 50
Class B (2/97)
1999 10,419 1.61 4.06 15
1998 3,894 1.51 4.33 3
1997(c) 381 1.47* 4.68* 23
Class C (10/93)
1999 17,679 1.41 4.26 15
1998 15,660 1.29 4.59 3
1997 11,700 1.29 4.89 23
1996 10,978 1.38 4.84 17
1995 6,537 1.34 5.24 50
Class R (2/97)
1999 56,728 .66 5.02 15
1998 58,734 .54 5.35 3
1997(c) 57,002 .52* 5.69* 23
- -----------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Virginia.
(a) After custodian fee credit and expense reimbursement, where applicable.
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
26 Section 5 Financial Highlights
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from a specific state, each
fund also bears investment risks from economic, political or regulatory changes
that could adversely affect municipal bond issuers in that state and therefore
the value of the fund's investment portfolio. The following discussion of
special state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The
discussion includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should consult
your tax adviser about the state tax consequences of a specific fund investment.
See the Statement of Additional Information for further information.
Maryland
Maryland has benefited from the expansion in the national economy. The state's
once sluggish economy has shown improvement. Services, wholesale and retail
trade, and government account for most of the State's employment. Unlike in most
states, government employment surpasses manufacturing employment in
Maryland.
The State's unemployment rate, which fell to 3.9% in July 1999 from 4.7% in July
1998, remains below the national average. Per capita income, which was $30,023
in 1998, is 113% of the national average.
During its spring 1998 term, the Maryland legislature voted to accelerate the
income tax reduction it passed in 1997; as a result, income taxes were reduced
by 5% in 1998, more than the 2% reduction originally planned for 1998. The 1998
reduction is part of the total 10% reduction to the State's income tax, which is
being phased in through 2002.
Maryland's general obligation debt, which is constitutionally limited to a
maximum term of 15 years, carried triple-A ratings from Moody's, Standard and
Poor's, and Fitch as of August 31, 1999. These ratings reflect the State's
credit quality only, and do not indicate the creditworthiness of other tax-
exempt securities in which the fund may invest.
Tax Treatment
The Maryland Fund's regular monthly dividends will not be subject to Maryland
personal income taxes to the extent they are paid out of income earned on
Maryland municipal bonds or U.S. government securities. You will be subject to
Maryland personal income tax, however, to the extent the Maryland Fund
distributes any taxable income, or if you sell or exchange Maryland Fund shares
and realize a capital gain on the transaction.
Appendix 27
<PAGE>
The treatment of corporate shareholders of the Maryland Fund is similar to that
described above.
Pennsylvania
Pennsylvania's economy has improved, but growth rates remain below national
averages. Continued losses in the manufacturing and healthcare sectors and
sluggish population and labor force growth have contributed to the below average
indicators. Although growth has been slow, the Commonwealth's economy remains
diverse.
The Commonwealth's healthcare environment continues to be difficult,
particularly in the Philadelphia and Pittsburgh metro areas. A well-publicized
example of the pressures in these markets occurred in July 1998 with the
bankruptcy filing by AHERF (Alleghany Health, Research, and Education
Foundation) on behalf of its eight Philadelphia-area hospitals and in February
1999 with the bankruptcy filing by Delaware Medical Center.
Pennsylvania's unemployment rate was 4.3% in July 1999, compared with the July
1999 national rate of 4.3% and the Commonwealth's 4.6% rate in July 1998.
Pennsylvania's 1998 per capita income was $26,889, approximately 101% of the
national average.
As of August 31, 1999, Pennsylvania's general obligation debt carried ratings of
AA by Standard & Poor's, Aa3 by Moody's, and AA by Fitch. These ratings reflect
the Commonwealth's credit quality only, and do not indicate the creditworthiness
of other tax-exempt securities in which the fund may invest.
Tax Treatment
The Pennsylvania Fund's regular monthly dividends will not be subject to the
Pennsylvania personal income tax (and, for Philadelphia residents, the
Philadelphia School District income tax) to the extent they are paid out of
income earned on Pennsylvania municipal bonds or U.S. government securities. You
could be subject to Pennsylvania personal income tax (and, for Philadelphia
residents, the Philadelphia School District income tax), however, to the extent
the Pennsylvania Fund distributes any taxable income or realized capital gains,
or if you sell or exchange Pennsylvania Fund shares and realize a capital gain
on the transaction.
The treatment of corporate shareholders of the Pennsylvania Fund is similar to
that described above.
Virginia
Like the U.S. economy, the Virginia economy is broad-based and composed of
several distinct regions. The Commonwealth's economy nearly mirrors the U.S.
economy with the services, trade, government, and manufacturing sectors
supplying a significant portion of employment. Recent employment losses in the
federal government, manufacturing, and mining sectors have been offset by
employment growth in other sectors, including high technology. The federal
government remains an important employer and has a greater impact on the
Commonwealth than it has on most other states.
Virginia's unemployment rate was a low 2.7% in July 1999, below the national
average of 4.3% in July 1999 and down slightly from the Commonwealth's July 1998
rate of 2.8%. At $27,489 in 1998, per capita income remains above the U.S.
average.
28 Appendix
<PAGE>
As of August 31, 1999, Moody's, Standard & Poor's, and Fitch each rated the
Commonwealth AAA. These ratings reflect the Commonwealth's credit quality only,
and do not indicate the creditworthiness of other tax-exempt securities in which
the fund may invest.
Tax Treatment
The Virginia Fund's regular monthly dividends will not be subject to Virginia
personal income taxes to the extent they are paid out of income earned on
Virginia municipal bonds or U.S. government securities. You will be subject to
Virginia personal income tax, however, to the extent the Virginia Fund
distributes any taxable income, or if you sell or exchange Virginia Fund shares
and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Virginia Fund is similar to that
described above.
Appendix 29
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Dividend and Growth Fund
Income
Income Fund
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
<TABLE>
<CAPTION>
<S> <C> <C>
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky New York/1/
</TABLE>
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Additional
information about the Funds' investments is available in the Funds' annual and
semi-annual report to shareholders. In the Funds' annual reports, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during their last fiscal year.
Call Nuveen at (800) 257-8787 to request a free copy of any of these materials
or other fund information; or ask your financial adviser for copies.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549.
The Funds' Investment Company file number is 811-07747.
1. Long-term and insured long-term portfolios.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
VPR-MS1-NA 9-99
<PAGE>
September 28, 1999
NUVEEN FLAGSHIP MULTISTATE TRUST I
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectuses
of the Nuveen Flagship Multistate Trust I dated September 28, 1999. The
Prospectuses may be obtained without charge from certain securities
representatives, banks, and other financial institutions that have entered into
sales agreements with John Nuveen & Co. Incorporated, or from the Funds, by
mailing a written request to the Funds, c/o John Nuveen & Co. Incorporated, 333
West Wacker Drive, Chicago, Illinois 60606 or by calling (800) 257-8787.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-13
Investment Adviser and Investment Management Agreement..................... S-24
Portfolio Transactions..................................................... S-25
Net Asset Value............................................................ S-26
Tax Matters................................................................ S-27
Performance Information.................................................... S-36
Additional Information on the Purchase and Redemption of Fund Shares....... S-45
Distribution and Service Plan.............................................. S-52
Independent Public Accountants and Custodian............................... S-54
Financial Statements....................................................... S-54
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports; each is included herein by reference.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
Investment Policies
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of that Fund:
(1) Invest in securities other than Municipal Obligations and short-term
securities, as described in the Prospectus. Municipal Obligations are
municipal bonds that pay interest that is exempt from regular federal,
state and, in some cases, local income taxes.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the Arizona Municipal Bond Fund and the
Florida Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
S-2
<PAGE>
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental entity or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end
management series investment company organized as a Massachusetts business
trust on July 1, 1996. Each of the Funds is an open-end management investment
company organized as a series of the Nuveen Flagship Multistate Trust I. The
Trust is
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an open-end management series company under SEC Rule 18f-2. Each Fund is a
separate series issuing its own shares. The Trust currently has seven series:
the Nuveen Flagship Arizona Municipal Bond Fund (formerly the Flagship Arizona
Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the
Nuveen Flagship Colorado Municipal Bond Fund (formerly the Flagship Colorado
Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the
Nuveen Flagship Florida Municipal Bond Fund (formerly the Flagship Florida
Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the
Nuveen Maryland Municipal Bond Fund (formerly the Nuveen Maryland Tax-Free
Value Fund, a series of the Nuveen Multistate Tax-Free Trust); the Nuveen
Flagship New Mexico Municipal Bond Fund (formerly the Flagship New Mexico
Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust); the
Nuveen Flagship Pennsylvania Municipal Bond Fund (formerly the Flagship
Pennsylvania Triple Tax Exempt Fund, a series of the Flagship Tax Exempt Funds
Trust); and the Nuveen Flagship Virginia Municipal Bond Fund (formerly the
Flagship Virginia Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust). Certain matters under the Investment Company Act of 1940 which
must be submitted to a vote of the holders of the outstanding voting securities
of a series company shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding voting
securities of each Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
Portfolio Securities
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local income tax in each Fund's
respective state, which generally will be Municipal Obligations issued within
the Fund's respective state. In general, Municipal Obligations include debt
obligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public
facilities such as airports, bridges, highways, hospitals, housing, mass
transportation, schools, streets and water and sewer works. Industrial
development bonds and pollution control bonds that are issued by or on behalf
of public authorities to finance various privately-rated facilities are
included within the term Municipal Obligations if the interest paid thereon is
exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have
credit characteristics equivalent to bonds rated within the four highest grades
by Moody's, S&P or Fitch, and (3) temporary investments as described below, the
income from which may be subject to state income tax or to both federal and
state income taxes. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
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As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
nonappropriation leases where Nuveen Advisory has determined that the issuer
has a strong incentive to continue making appropriations and timely payment
until the security's maturity. Some lease obligations may be illiquid under
certain circumstances. Lease obligations normally provide a premium interest
rate which along with regular amortization of the principal may make them
attractive for a portion of the assets of the Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
Year 2000 Issues
The "Year 2000" problem refers to the fact that many computer programs use
only the last two digits of a year, and do not recognize a year that begins
with "20" instead of "19." If this problem is not corrected, computers could
function improperly or not at all, which could affect the global economy. The
SEC has urged securities issuers to disclose the steps they are taking to
correct any Year 2000 problems.
The Funds invest primarily in municipal securities. If municipal issuers do
not correct any Year 2000 problems in a timely manner, they could experience
problems in conducting their operations or in making payments on their
securities, which could cause the value of these securities to decline.
Municipal issuers could experience three types of Year 2000 problems. First, if
an issuer's internal computer systems experience Year 2000 problems, this could
disrupt an issuer's operations (such as its ability to collect local taxes or
fees). Second, an issuer may rely on other parties for the payments that
support its debt service, such as servicers that collect mortgage or student
loan payments, and those third parties may have Year 2000 problems that
interfere with their ability to forward payments to the issuer. Third, an
issuer may have mechanical problems in sending payments to its securities
holders.
Nuveen Advisory is obtaining information about the Year 2000 readiness of the
issuers of its portfolio securities as part of its ongoing surveillance of the
creditworthiness of those issuers.
Portfolio Trading and Turnover
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with their investment objective. Securities may
be sold in anticipation of market decline or purchased in anticipation of
market rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage
of what Nuveen Advisory believes to be a temporary disparity in the normal
yield relationship between the two
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securities. Each Fund may make changes in its investment portfolio in order to
limit its exposure to changing market conditions. Changes in a Fund's
investments are known as "portfolio turnover." While it is impossible to
predict future portfolio turnover rates, the annual portfolio turnover rate for
each of the Funds is generally not expected to exceed 75%. However, each Fund
reserves the right to make changes in its investments whenever it deems such
action advisable and, therefore, a Fund's annual portfolio turnover rate may
exceed 75% in particular years depending upon market conditions.
The portfolio turnover rates for the 1998 and 1999 fiscal years were:
<TABLE>
<CAPTION>
Fiscal
Year
1998 1999
---- ----
<S> <C> <C>
Arizona Municipal Bond Fund .................................... 16% 16%
Colorado Municipal Bond Fund ................................... 19% 23%
Florida Municipal Bond Fund .................................... 14% 19%
Maryland Municipal Bond Fund ................................... 7% 29%
New Mexico Municipal Bond Fund ................................. 13% 14%
Pennsylvania Municipal Bond Fund ............................... 20% 18%
Virginia Municipal Bond Fund ................................... 3% 15%
</TABLE>
When-issued Securities or Delayed-Delivery Securities
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed-delivery basis. When-issued and delayed-delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed-delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed-delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed-delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a delayed-delivery commitment are ignored
in calculating net asset value so long as the commitment remains in effect. The
Funds will maintain designated readily marketable assets at least equal in
value to commitments to purchase when-issued or delayed-delivery securities,
such assets to be segregated by the Custodian specifically for the settlement
of such commitments. The Funds will only make commitments to purchase Municipal
Obligations on a when-issued or delayed-delivery basis with the intention of
actually acquiring the securities, but the Funds reserve the right to sell
these securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be tax-
exempt. The Funds commonly engage in when-issued transactions in order to
purchase or sell newly-issued Municipal Obligations, and may engage in delayed-
delivery transactions in order to manage its operations more effectively.
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Special Considerations Relating to Municipal Obligations of Designated States
As described in the Prospectus, except for investments in temporary
investments, each of the Funds will invest substantially all of its assets (at
least 80%) in municipal bonds that are exempt from federal and state tax in
that state ("Municipal Obligations"), generally Municipal Obligations issued in
its respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public authorities in the
states of currently offered Funds. This information was obtained from official
statements of issuers located in the respective states as well as from other
publicly available official documents and statements. The Funds have not
independently verified any of the information contained in such statements and
documents. The information below is intended only as a general summary, and is
not intended as a discussion of any specific factor that may affect any
particular obligation or issuer.
Factors Pertaining to Arizona
Arizona's economy is primarily based on services, tourism and high technology
manufacturing. However, the military, agriculture, and mining of primary metals
still play a role. The State has experienced phenomenal economic and population
growth recently due to an influx of businesses attracted by the State's high
quality of life, educated workforce, and friendly business environment. Major
employers include Intel Corp., Microchip Technology and Charles Schwab. Over
the past year, the State ranked first in the nation in job growth with a 4.7%
increase which created over 100,000 private sector jobs. The State's leading
economic indicators suggest that the State's economic growth may continue in
the near term. However, the magnitude and duration of the economic turmoil in
East Asia may dampen economic growth within the state. According to 1997
estimates, approximately 44% of the State's $13.8 billion of exports were to
Asian countries.
The statewide unemployment rate was 4.7 percent, at the end of June 1999,
slightly above the U.S. rate of 4.3 percent. Additionally, unemployment rates
in the State's two largest metropolitan areas, Phoenix-Mesa and Tucson, were a
very low 3.2 percent and 2.8 percent, respectively. Statewide personal income
grew at a rate of 5.2 percent in 1998 to approximately $23,152. Retail sales in
Arizona through March 1999 were up 6.3 percent from the preceeding year.
The Arizona Constitution restricts the legislature's power to raise revenues
by increasing property taxes. The State has also enacted limits on annual
spending.
The State does not issue general obligation bonds but relies on capital
outlays, revenue bonds and other methods to finance projects. Each project is
individually rated for its creditworthiness.
Factors Pertaining to Colorado
Colorado's trade and service sectors represent over half of non-agricultural
employment in the State's economy and have expanded in the past years.
Manufacturing employment is comparatively small and continues to shrink due to
the concentration in defense production. The trade and services sectors, led by
a healthy tourist industry, helped pull the State out of a recession in the
late 1980's which had been caused by contraction in the energy, high technology
and construction industries. The State's economic activity has outpaced
national growth levels. However, recent economic releases indicate a reduced
growth rate but still in excess of national growth rates.
Colorado's unemployment rate was a very low 3.8% in June 1999, below the
national average of 4.3%. Per capita income grew 6.7% to $28,821 in 1998.
Colorado has no outstanding general obligation debt, but outstanding lease
obligations are rated A1 by Moody's and A+ by Standard and Poor's.
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Factors Pertaining to Florida
Florida is one of the nation's fastest growing states. Employment and
personal income growth have outpaced the nation since 1991 and recent economic
reports indicate that the State continues to experience job growth, albeit at a
more moderate pace. Population growth, which reached 30% from 1980 to 1990, has
slowed but remains relatively high. Florida has a diverse economy with recent
growth in the insurance, banking, healthcare, construction and trade sectors
helping to lessen the State's dependence on the agriculture and tourism
industries.
Florida's unemployment rate of 3.8% in July 1999 was lower than the national
average of 4.3% in July 1999 and lower than the State's 4.2% rate in July 1998.
Florida's 1998 per capita income of $25,922 is on a par with national averages
and slightly above regional levels. Because the State's significant senior
population relies more on fixed incomes than on wages, income levels in the
State are generally more stable over different phases of economic cycles.
As of August 31, 1999, Florida's general obligation debt carries ratings of
AA+ by S&P, Aa2 by Moody's, and AA by Fitch. These ratings reflect the State's
credit quality only, and do not indicate the creditworthiness of other tax-
exempt securities in which the fund may invest.
Factors Pertaining to Maryland
Maryland has benefited from the expansion in the national economy. The
State's once sluggish economy has shown improvement, Services, wholesale and
retail trade, and government account for most of the State's employment. Unlike
in most states, government employment surpasses manufacturing employment in
Maryland.
The State's unemployment rate, which fell to 3.8% in July 1999 from 4.7% in
July 1998, remains below the national average. Per capita income, which was
$30,023 in 1998, is 113% of the national average.
During its spring 1998 term, the Maryland legislature voted to accelerate the
income tax reduction it passed in 1997; as a result, income taxes were reduced
by 5% in 1998, more than the 2% reduction originally planned for 1998. The 1998
reduction is part of the total 10% reduction to the State's income tax, which
is being phased in through 2002.
Maryland's general obligation debt, which is constitutionally limited to a
maximum term of 15 years, carried triple-A ratings from Moody's, Standard &
Poors, and Fitch as of August 31, 1999. These ratings reflect the State's
credit quality only, and do not indicate the creditworthiness of other tax-
exempt securities in which the fund may invest.
Factors Pertaining to New Mexico
New Mexico's major industries include energy, tourism, services, crafts,
agribusiness, manufacturing and mining. Energy resource production, including
gas and oil sales, was approximately $5.2 billion in 1997. The economy also
benefits from the employment and technology base supplied by federal government
scientific research facilities at Los Alamos, Albuquerque and White Sands.
Finally, crop and livestock production remains diverse given the State's
variety of climatic conditions and will also remain a major part of the
economy.
New Mexico's economy continues to expand and diversify away from its historic
reliance on federal employment and oil and gas production by increasing growth
in the services and manufacturing sectors. However, this transition has caused
the State's job growth to fall below national growth levels for the past three
years.
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New Mexico's unemployment rate was 7.3% in June 1999, surpassing the national
average of 4.3%. At the same time, per capita income rose 3.7% in 1998 to reach
$20,008.
As of August 1999, Moody's rates the state's general obligation debt Aa1,
while Standard and Poor's rates it AA+.
Factors Pertaining to Pennsylvania
Pennsylvania's economy has improved, but growth rates remain below national
average. Continued losses in the manufacturing and healthcare sectors and
sluggish population and labor force growth have contributed to the below
average indicators. Although growth has been slow, the Commonwealth's economy
remains diverse. Employment losses in the manufacturing sector have helped
reduce the Commonwealth's reliance on that economically-sensitive sector. A
portion of the jobs lost have been replaced by new industries such as
biotechnology, software and business services.
The State's healthcare environment continues to be difficult, particularly in
the Philadelphia and Pittsburgh metro areas. A well-publicized example of the
pressures in these markets occurred in July 1998 with the bankruptcy filing by
AHERF (Allegheny Health, Research, and Education Foundation) on behalf of its
eight Philadelphia-area hospitals and in February 1999 with the bankruptcy
filing by Delaware Medical Center. Severe pressure on managed care
reimbursement and reductions in Medicare payment rates have contributed to the
difficulties encountered by these and other Pennsylvania healthcare providers.
The challenges have resulted in several downgrades to healthcare issuers,
including the March 1999 downgrade by Moody's of the University of Pennsylvania
Heath Services to A2 with a negative outlook from A1. Some related issuers have
also suffered downgrades; the problems at UPHS contributed to Moody's March
1999 downgrade of the University of Pennsylvania to Aa3 from Aa2. Although the
University's academic program has a strong student and financial base, UPHS
makes up approximately 50% of the University's overall revenue base.
Pennsylvania's unemployment rate was 4.3% in June 1999, compared with the
June 1999 national rate of 4.3% and the Commonwealth's 4.6% rate in July 1998.
Pennsylvania's 1998 per capita income was $26,889, approximately 102% of the
national average.
As of August 31, 1999, Pennsylvania's general obligation debt carried ratings
of AA by Standard & Poor's, Aa3 by Moody's, and AA by Fitch. These rating
reflect the Commonwealth's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the fund may invest.
Factors Pertaining to Virginia
Like the U.S. economy, the Virginia economy is broad-based and composed of
several distinct regions. The Commonwealth's economy nearly mirrors the U.S.
economy with the services, trade, government, and manufacturing sectors
supplying a significant portion of employment. Recent employment losses in the
federal government, manufacturing, and mining sectors have been offset by
employment growth in other sectors, including high technology. The federal
government remains an important employer and has a greater impact on the
Commonwealth than it has on most other states.
Virginia's unemployment rate was a low 2.7% in July 1999, below the national
average of 4.3% in July 1999 and down slightly from the Commonwealth's July
1998 rate of 2.8%. At $27,489 in 1998, per capita income remains above the U.S.
average.
As of August 31, 1999, Moody's, Standard & Poor's, and Fitch each rated the
Commonwealth AAA. These ratings reflect the State's credit quality only, and do
not indicate the creditworthiness of other tax-exempt Securities in which the
fund may invest.
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Hedging and Other Defensive Actions
Each Fund may periodically engage in hedging transactions. Hedging is a term
used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to hedging transactions will reduce yield. Net gains, if
any, from hedging and other portfolio transactions will be distributed as
taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
Short-Term Securities
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable short-term securities
("temporary investments"). Temporary investments will not exceed 20% of a
Fund's assets except when made for defensive purposes. The Funds will invest
only in taxable temporary investments that are either U.S. Government
securities or are rated within the highest grade by Moody's, S&P, or Fitch and
mature within one year from the date of purchase or carry a variable or
floating rate of interest. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is
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primarily dependent on the issuer's access to the long-term municipal bond
market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
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U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-12
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has seven
trustees, one of whom is an "interested person" (as the term "interested
person" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
<CAPTION>
Positions
Date of and Offices Principal Occupations
Name and Address Birth with Trust During Past Five Years
---------------- ------- ----------- ----------------------
<C> <C> <C> <S>
Timothy R. Schwertfeger* 3/28/49 Chairman of the Chairman since July 1, 1996 of The John
333 West Wacker Drive Board and Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 President and Incorporated, Nuveen Advisory Corp.
Trustee and Nuveen Institutional Advisory
Corp.; prior thereto Executive Vice
President and Director of The John
Nuveen Company, John Nuveen & Co.
Incorporated, Director of Nuveen
Advisory Corp. (since 1992) and Nuveen
Institutional Advisory Corp.; Chairman
and Director (since January 1997) of
Nuveen Asset Management, Inc.;
Director (since 1996) of Institutional
Capital Corporation; Chairman and
Director of Rittenhouse Financial
Services Inc. (since 1999).
Robert P. Bremner 8/22/40 Trustee Private Investor and Management
3725 Huntington Consultant.
Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 7/29/34 Trustee Retired (August 1989) as Senior Vice
201 Michigan Avenue President of The Northern Trust
Highwood, IL 60040 Company.
Anne E. Impellizzeri 1/26/33 Trustee President and Chief Executive Officer
5 Peter Cooper Rd. of Blanton-Peale Institutes of
New York, NY 10010 Religion and Health (since December
1990).
Peter R. Sawers 4/3/33 Trustee Adjunct Professor of Business and
22 The Landmark Economics, University of Dubuque,
Northfield, IL 60093 Iowa; Adjunct Professor, Lake Forest
Graduate School of Management, Lake
Forest, Illinois.
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
Positions
Date of and Offices Principal Occupations
Name and Address Birth with Trust During Past Five Years
---------------- ------- ----------- ----------------------
<C> <C> <C> <S>
William J. Schneider 9/24/44 Trustee Senior Partner and Chief Operating
4000 Miller-Valentine Ct. Officer, Miller-Valentine Partners;
P.O. Box 744 Vice President, Miller-Valentine
Dayton, OH 45401 Group, a development and contract
company; Member Community Advisory
Board, National City Bank, Dayton,
Ohio.
Judith M. Stockdale 12/29/47 Trustee Executive Director, Gaylord and Dorothy
35 East Wacker Dr. Donnelley Foundation (since 1994);
Suite 2600 prior thereto, Executive Director,
Chicago, IL 60601 Great Lakes Protection Fund (from 1990
to 1994).
Alan G. Berkshire 12/28/60 Vice President Vice President and General Counsel
333 West Wacker Drive and Assistant (since September 1997) and Secretary
Chicago IL 60606 Secretary (since May 1998) of The John Nuveen
Company, John Nuveen & Co.
Incorporated; Vice President (since
September 1997) and Assistant
Secretary (since July 1999) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp., prior
thereto, Partner in the law firm of
Kirkland & Ellis.
Peter H. D'Arrigo 11/28/67 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive and Treasurer Incorporated (since January 1999),
Chicago, IL 60606 prior thereto, Assistant Vice
President (from January 1997);
formerly, Associate of John Nuveen &
Co. Incorporated; Chartered Financial
Analyst.
Michael S. Davern 6/26/57 Vice President Vice President of Nuveen Advisory Corp.
333 W. Wacker (since January 1997); prior thereto,
Chicago IL 60606 Vice President and Portfolio Manager
(since September 1991) of Flagship
Financial.
Lorna C. Ferguson 10/24/45 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated; Vice President (since
Chicago, IL 60606 January 1998) of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.
William M. Fitzgerald 3/2/64 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive (since December 1995); Assistant Vice
Chicago, IL 60606 President of Nuveen Advisory Corp.
(from September 1992 to December
1995), prior thereto Assistant
Portfolio Manager of Nuveen Advisory
Corp. (from June 1988 to September
1992).
Stephen D. Foy 5/31/54 Vice President and Vice President of John Nuveen & Co.
333 West Wacker Drive Controller Incorporated and (since May 1998) The
Chicago, IL 60606 John Nuveen Company; Certified Public
Accountant.
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
Positions
Date of and Offices Principal Occupations
Name and Address Birth with Trust During Past Five Years
---------------- ------- ----------- ----------------------
<C> <C> <C> <S>
J. Thomas Futrell 7/5/55 Vice President Vice President of Nuveen Advisory
333 West Wacker Drive Corp.; Chartered Financial Analyst.
Chicago, IL 60606
Richard A. Huber 3/26/63 Vice President Vice President of Nuveen Institutional
333 West Wacker Drive Advisory Corp. (since March 1998) and
Chicago, IL 60606 Nuveen Advisory Corp. (since January
1997); prior thereto, Vice President
and Portfolio Manager of Flagship
Financial.
Steven J. Krupa 8/21/57 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin 7/27/51 Vice President Vice President, Assistant Secretary and
333 West Wacker Drive and Assistant Assistant General Counsel of John
Chicago, IL 60606 Secretary Nuveen & Co. Incorporated; Vice
President and Assistant Secretary of
Nuveen Advisory Corp.; Vice President
and Assistant Secretary of Nuveen
Institutional Advisory Corp.;
Assistant Secretary of The John Nuveen
Company and (since January 1997)
Nuveen Asset Management Inc.
Edward F. Neild, IV 7/7/65 Vice President Vice President (since September 1996),
333 West Wacker Drive previously Assistant Vice President of
Chicago, IL 60606 Nuveen Advisory Corp., Portfolio
Manager prior thereto; Vice President
(since September 1996), previously
Assistant Vice President (since May
1995) of Nuveen Institutional Advisory
Corp., Portfolio Manager prior
thereto; Chartered Financial Analyst.
Stephen S. Peterson 9/20/57 Vice President Vice President (since September 1997),
333 West Wacker Drive previously Assistant Vice President
Chicago, IL 60606 (since September 1996) of Nuveen
Advisory Corp., Portfolio Manager
prior thereto.
Stuart W. Rogers 5/1/56 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated.
Chicago, IL 60606
Thomas C. Spalding, Jr. 7/31/51 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive and Nuveen Institutional Advisory
Chicago, IL 60606 Corp.; Chartered Financial Analyst.
Gifford R. Zimmerman 9/9/56 Vice President Vice President, Secretary and Associate
333 West Wacker Drive and Secretary General Counsel, formerly Assistant
Chicago, IL 60606 General Counsel, of John Nuveen & Co.
Incorporated; Vice President and
Secretary (since July 1999) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp.;
Assistant Secretary of The John Nuveen
Company.
</TABLE>
S-15
<PAGE>
Peter Sawers and Timothy Schwertfeger serve as members of the Executive
Committee of the Board of Trustees. The Executive Committee, which meets
between regular meetings of the Board of Trustees, is authorized to exercise
all of the powers of the Board of Trustees.
The trustees of the Trust are also directors or trustees, as the case may be,
of 37 Nuveen open-end funds and 54 Nuveen closed-end funds advised by Nuveen
Advisory Corp. None of the independent trustees has ever been a director,
officer, or employee of, or a consultant to, Nuveen Advisory, Nuveen or their
affiliates.
The following table sets forth compensation paid by the Trust to each of the
trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended May 31, 1999 The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust.
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Trust and
from the Series Fund Complex
Name of Trustee of this Trust Paid to Trustees
--------------- --------------- ----------------
<S> <C> <C>
Robert P. Bremner (1).................... $3,404 $73,000
Lawrence H. Brown........................ $3,673 $80,000
Anne E. Impellizzeri (2)................. $3,404 $73,000
Peter R. Sawers (3)...................... $3,416 $73,750
William J. Schneider (4)................. $3,404 $73,000
Judith M. Stockdale (5).................. $3,404 $73,500
</TABLE>
- --------
(1) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. Total deferred fees
(including the return from the assumed investment in the eligible Nuveen
Funds) payable from the Trust is $43.
(2) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. Total deferred fees
(including the return from the assumed investment in the eligible Nuveen
Funds) payable from the Trust is $286.
(3) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. Total deferred fees
(including the return from the assumed investment in the eligible Nuveen
Funds) payable from the Trust is $290.
(4) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. Total deferred fees
(including the return from the assumed investment in the eligible Nuveen
Funds) payable from the Trust is $286.
(5) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. Total deferred fees
(including the return from the assumed investment in the eligible Nuveen
Funds) payable from the Trust is $72.
Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a
fee. The Trust requires no employees other than its officers, all of whom are
compensated by Nuveen.
The officers and directors of each Fund, in the aggregate, own less than 1%
of the shares of the Fund.
S-16
<PAGE>
The following table sets forth the percentage ownership of each person, who,
as of September 8, 1999, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Arizona
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 21.35%
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97E76
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Arizona
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 36.30
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97ND2
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Arizona
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 31.10
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97GX6
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Banc of America 7.54
747-04209-15
Attn: Mutual Funds 4th Floor
600 Montgomery Street
San Francisco, CA 9411
Nuveen Flagship Arizona
Municipal Bond Fund Horace M. Wade 6.02
Class R Shares............ and Christine M. Wade Trust
Wade Liv Trust U-A DTD 04-13-98
4980 N. Calle Bujia
Tucson, AZ 85718-6155
Nuveen Flagship Colorado
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 24.40
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97IX9
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Colorado
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 15.70
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97NC0
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
U S Bancorp Investments 5.95%
FBO 180124921
100 South Fifth Street Suite 1400
Minneapolis, MN 55402-1217
Chester Shellhammer 5.74
8554 Hwy. 550
Durango, CO 81301-7833
B.H.C Securities Inc. 5.10
FAO 86805003
One Commerce Square
2005 Market Street Suite 1200
Philadelphia, PA 19103
PaineWebber for the benefit of 5.02
Angelo M. Franco
1167 Pintail Ct.
Boulder, CO 80303-1466
Nuveen Flagship Colorado
Municipal Bond Fund Class C Merrill Lynch, Pierce, Fenner & Smith 42.52
Shares..................... for the sole benefit of its customers
Attn: Fund Admin. / 97ND9
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
PaineWebber for the benefit of 7.54
Robert D. Bliss Elnora D.
Irrev Trust No 1 DTD 6-29-99
P.O. Box 816
Greeley, CO 80632-0816
Edmond J. Mueller 7.50
Neoma A. Mueller
Mueller Family Trust
5035 McIntyre St.
Golden, CO 80403-1739
Salomon Smith Barney Inc. 5.97
00163410967
333 West 37th St.--3rd Floor
New York, NY 10001
Nuveen Flagship Colorado
Municipal Bond Fund Class R Raymond Munyon 34.23
Shares..................... Lisa Ann Munyon & Renee L. Miller TRS
Munyon Family Irrevocable Trust
7650 Kline Dr.
Arvada, CO 80005-3776
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Homer U. VanHooser 20.30%
250 Bennington Dr.
Colorado Springs, CO 80906-3355
Joseph N. Emmons 12.91
2428 Virgo Dr.
Colorado Spgs, CO 80906-1048
Harold M. Gott 11.70
P.O. Box. 1929
Montrose, CO 81402-1929
James E. Maly 5.96
Carole P. Maly CO-TTEES
3370 W. Woodmen Road
Colorado Spgs, CO 80919-4507
Nuveen Flagship Florida
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 40.30
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97E80
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Florida
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 44.31
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97ND3
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Florida
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 66.80
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97GX3
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Maryland
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 9.12
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin. / 97E83
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Maryland
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 28.98
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admn. / 97NB4
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Maryland
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 17.73%
Class C Shares............. for the benefit of its customers
Attn: Fund Admn. / 97GX7
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Jessie L. & John L. Daniels 11.18
& Diane D. Cole & Lynne D. Mella TRS
Jessie L. Daniels Trust
U/A 12/21/92
9039 Rouen Ln.
Potomac, MD 20854-3135
Loyd B. Hopkins 5.08
23 E. Patrick St.
Frederick, MD 21701
Nuveen Flagship Maryland
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 7.35
Class R Shares............. for the sole benefit of its customers
Attn: Fund Admn. / 979D5
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship New Mexico
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 31.70
Class A Shares............. for the sole benefit of its customers
Attn: Fund Admin. / 97AF5
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship New Mexico
Municipal Bond Fund Class B Merrill Lynch, Pierce, Fenner & Smith 13.31
Shares..................... for the sole benefit of its customers
Attn: Fund Admin. / 97NC7
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
NFSC Febo 0C8-827983 7.55
Dorothy Tiramani
6100 Cortaderia NE Apt. 4013
Albuquerque, NM 87111-8012
PaineWebber for the benefit of 5.05
Catherine W. MacDonald TTEE
Catherine W. MacDonald
2600 Barracks Rd. #480
Charlottesville, VA 22901-2197
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship New Mexico
Municipal Bond Fund Class C Raymond James & Assoc. Inc. 19.30%
Shares..................... for Elite Acct. 50094911 FAO
Ann M. Gebhart TTEE
UA DTD 9-27-88 AM
1421 Pinnacle View Dr. NE
Albuquerque, NM 87112-6558
Anthony G. Hillerman 15.65
Marie E. Hillerman CO-TTEES
UA DTD 02-22-90
Anthony G. Marie E. Hillerman
Rev TR Hillerman, RV TR
1632 Francisca Rd.
Albuquerque, NM 87107-7118
Raymond James & Assoc. Inc. 7.25
for Elite Acct. 50152500
Sole Separate Property
11108 Double Eagle NE
Albuquerque, NM 87111-6561
Nuveen Flagship New Mexico
Municipal Bond Fund Class R Mary Swickard 62.50
Shares..................... 84 Barcelona Ave.
Los Alamos, NM 87544-3428
Cecil E. McClelland 28.85
5916 Inverness Dr.
Farmington, NM 87402-5071
Herschel W. Rogers 8.65
Rosemary E. Rogers Trs
H.W. & R.E. Rogers Rev. Trust
4509 Acapulco Dr.
Albuquerque, NM 87111-2813
Nuveen Flagship Pennsylvania
Municipal Bond Fund Class A Merrill Lynch, Pierce, Fenner & Smith 40.70
Shares..................... for the sole benefit of its customers
Attn: Fund Admin. / 97E74
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Pennsylvania
Municipal Bond Fund Class B Merrill Lynch, Pierce, Fenner & Smith 42.83
Shares..................... for the sole benefit of its customers
Attn: Fund Admin. / 97ND6
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Pennsylvania
Municipal Bond Fund Class C Merrill Lynch, Pierce, Fenner & Smith 72.27%
Shares..................... for the sole benefit of its customers
Attn: Fund Admin. / 97GX4
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 28.80
Class A Shares............. for the sole benefit of its customers
Attn: Fund Admin. / 97E81
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 30.82
Class B Shares............. for the sole benefit of its customers
Attn: Fund Admin. / 97ND7
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 54.07
Class C Shares............. for the sole benefit of its customers
Attn: Fund Admin. / 97GX2
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Virginia
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 5.07
Class R Shares............. for the sole benefit of its customers
Attn: Fund Admin. / 979D8
4800 Deer Lake Dr. E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-22
<PAGE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
- ------------------------ --------------
<S> <C>
For the first $125 million....................................... .5500 of 1%
For the next $125 million........................................ .5375 of 1%
For the next $250 million........................................ .5250 of 1%
For the next $500 million........................................ .5125 of 1%
For the next $1 billion.......................................... .5000 of 1%
For net assets over $2 billion................................... .4750 of 1%
</TABLE>
For the Maryland Fund, Nuveen Advisory has voluntarily agreed through July
31, 1999 to waive fees or reimburse expenses so that the total operating
expenses (not counting distribution and service fees) for the fund do not
exceed 0.75% of average daily net assets.
For the last three fiscal years, the Funds paid net management fees to Nuveen
Advisory as follows:
<TABLE>
<CAPTION>
Management Fees Net of Fee Waivers and Expense
Expense Reimbursement Paid Reimbursements
for the Year Ended For the Year Ended
----------------------------- ------------------------
5/31/97* 5/31/98 5/31/99 5/31/97* 5/31/98 5/31/99
--------- --------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Maryland Municipal Bond
Fund................... $332,471 313,921 347,750 81,437 36,658 47,257
Arizona Municipal Bond
Fund................... 277,387 493,414 540,464 190,556 108,424 113,607
Colorado Municipal Bond
Fund................... 24,740 195,474 213,775 142,072 3,777 33,939
Florida Municipal Bond
Fund................... 1,238,874 1,936,305 2,027,580 448,690 -- --
New Mexico Municipal
Bond Fund.............. 109,772 217,776 299,800 155,889 79,556 36,645
Pennsylvania Municipal
Bond Fund.............. 101,030 268,015 446,415 277,221 440,918 361,812
Virginia Municipal Bond
Fund................... 404,706 786,826 1,123,893 374,624 316,199 71,949
</TABLE>
- --------
*For the sixteen month period ended May 31, 1997.
S-23
<PAGE>
In addition to the management fee of Nuveen Advisory, each Fund pays all
other costs and expenses of its operations and a portion of the Trust's general
administrative expenses allocated in proportion to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. Nuveen is sponsor of
the Nuveen Defined Portfolios, and is the principal underwriter for the Nuveen
Mutual Funds, and has served as a co-managing underwriter for the shares of the
Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have invested to date
in Nuveen's funds and Defined Portfolios. Founded in 1898, Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78%
owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St.
Paul, Minnesota and is principally engaged in providing property-liability
insurance through subsidiaries. Effective January 1, 1997, The John Nuveen
Company acquired Flagship Resources Inc., and as part of that acquisition,
Flagship Financial, the adviser to the Flagship Funds, was merged with Nuveen
Advisory.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' securities business, the
negotiation of the prices to be paid for principal trades and the allocation of
its transactions among various dealer firms. Portfolio securities will normally
be purchased directly from an underwriter or in the over-the-counter market
from the principal dealers in such securities, unless it appears that a better
price or execution may be obtained elsewhere. Portfolio securities will not be
purchased from Nuveen or its affiliates except in compliance with the
Investment Company Act of 1940.
The Funds expect that substantially all portfolio transactions will be
effected on a principal (as opposed to an agency) basis and, accordingly, do
not expect to pay any brokerage commissions. Purchases from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers will include the spread between the bid and asked price.
Given the best price and execution obtainable, it will be the practice of the
Funds to select dealers which, in addition, furnish research information
(primarily credit analyses of issuers and general economic reports) and
statistical and other services to Nuveen Advisory. It is not possible to place
a dollar value on information and statistical and other services received from
dealers. Since it is only supplementary to Nuveen Advisory's own research
efforts, the receipt of research information is not expected to reduce
significantly Nuveen Advisory's expenses. While Nuveen Advisory will be
primarily responsible for the placement of the business of the Funds, the
policies and practices of Nuveen Advisory in this regard must be consistent
with the foregoing and will, at all times, be subject to review by the Board of
Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
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clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to the Funds from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Fund's shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the New York Stock Exchange (the
"Exchange") is normally open for trading. The Exchange is not open for trading
on New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of a class of shares of a Fund will be computed by dividing the
market value of the Fund's assets attributable to the class, less the
liabilities attributable to the class, by the number of shares of the class
outstanding.
In determining net asset value for the Funds, the Funds' custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. Securities for which quotations are not readily available
(which constitute a majority of the securities held by the Funds) are valued at
fair value as determined by the pricing service using methods which include
consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Board of Trustees.
TAX MATTERS
Federal Income Tax Matters
The following discussion of federal income tax matters is based upon the
advice of Morgan, Lewis & Bockius LLP, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets is comprised of
cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in
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respect of any one issuer to an amount not greater in value than 5% of the
value of a Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
the total assets is invested in the securities of any one issuer (other than
United States Government securities and securities of other regulated
investment companies) or two or more issuers controlled by a Fund and engaged
in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law the difference between the amount of the includible gain and the tax deemed
paid by the shareholder in respect of such shares. Each Fund intends to
distribute at least annually to its shareholders all or substantially all of
its net tax-exempt interest and any investment company taxable income and net
capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will be excludable from federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the insurer representing interest on "non-appropriation" lease
obligations will be excludable from gross income for federal income tax
purposes.
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will
be treated as taxable interest income to the extent such gain does not exceed
the market discount, and any gain realized in excess of the market discount
will be treated as capital gains. Any net long-term capital gains realized
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by a Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital
gain dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Internal Revenue Code for the
dividends received deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, net capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) will be taxed at a maximum
marginal rate of 28%, while short-term capital gains and other ordinary income
will be taxed at a maximum marginal rate of 39.6%. Because of the limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective tax rate may be higher in certain
circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or
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exchange of shares of a Fund if the shareholder purchases other shares of such
Fund (whether through reinvestment of distributions or otherwise) or the
shareholder acquires or enters into a contract or option to acquire securities
that are substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the
extent the redemption or exchange price exceeds the shareholder's tax basis in
the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all
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distributions by the Funds that would otherwise be tax-exempt, is included in
calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
State Tax Matters
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
satisfy the conditions which will cause distributions to qualify as exempt-
interest dividends to shareholders when distributed as intended, and that each
Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax purposes. The tax discussion summarizes general state tax laws which
are currently in effect and are subject to change by legislative or
administrative action; any such changes may be retroactive with respect to the
applicable Fund's transactions. Investors should consult a tax adviser for more
detailed information about state taxes to which they may be subject.
Maryland
The following is a general, abbreviated summary of certain provisions of the
applicable Maryland tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Maryland
Fund. This summary does not address the taxation of other shareholders. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Maryland Fund transactions.
The following is based on the assumptions that the Maryland Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Maryland Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Maryland Fund's shareholders.
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The Maryland Fund will be subject to the Maryland corporate income tax only
if it has a sufficient nexus with Maryland. If it is subject to the Maryland
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Maryland Fund that are attributable to interest on or
gain from the sale or exchange of any obligation of Maryland or its political
subdivisions ("Maryland Obligations") or any obligations of the United States,
its territories, possessions, or instrumentalities that are exempt from state
taxation under federal law ("Federal Obligations") will not be subject to the
Maryland individual income tax or the Maryland corporate income tax. All
remaining distributions to shareholders will be subject to the Maryland
individual and corporate income taxes, and in the case of individuals, will be
subject to local taxes as well.
Gain on the sale, exchange, or other disposition of shares of the Maryland
Fund will be subject to the Maryland individual and corporate income taxes, and
in the case of individuals, will be subject to local taxes as well.
Shares of the Maryland Fund may be subject to the Maryland estate tax if
owned by a Maryland decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Maryland state and local tax matters.
Arizona
The following is a general, abbreviated summary of certain provisions of the
applicable Arizona tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Arizona Fund.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Arizona Fund transactions.
The following is based on the assumptions that the Arizona Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
be registered as a diversified management company under (S)5 of the Federal
Investment Company Act of 1940, that it will satisfy the conditions which will
cause Arizona Fund distributions to qualify as exempt-interest dividends to
shareholders, and that it will distribute all interest and dividends it
receives to the Arizona Fund's shareholders.
The Arizona Fund is not subject to the Arizona corporate income tax.
Distributions by the Arizona Fund that are attributable to interest on any
obligation of Arizona and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Arizona individual and corporate income taxes. All
remaining distributions, including distributions attributable to capital gains,
will be subject to the Arizona individual and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Arizona
Fund will be subject to the Arizona individual and corporate income taxes.
Shares of the Arizona Fund may be subject to the Arizona estate tax if owned
by an Arizona decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Arizona state and local tax matters.
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Colorado
The following is a general, abbreviated summary of certain provisions of the
applicable Colorado tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Colorado
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Colorado Fund transactions.
The following is based on the assumptions that the Colorado Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Colorado Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Colorado Fund's shareholders.
The Colorado Fund will be subject to the Colorado corporate income tax only
if it has a sufficient nexus with Colorado. If it is subject to the Colorado
corporate income tax, it does not expect to pay a material amount of such tax.
Distributions by the Colorado Fund that are attributable to interest earned
on any obligation of Colorado and its political subdivisions issued on or after
May 1, 1980 and certain such obligations issued before May 1, 1980 or to
interest on obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Colorado corporate income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
Colorado individual and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Colorado
Fund will be subject to the Colorado individual and corporate income taxes.
Shares of the Colorado Fund may be subject to the Colorado estate tax if
owned by an Colorado decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Colorado state and local tax matters.
Florida
The following is a general, abbreviated summary of certain provisions of the
applicable Florida tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Florida Fund.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Florida Fund transactions.
The following is based on the assumptions that the Florida Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause distributions of the Florida Fund to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Florida Fund's
shareholders.
The Florida Fund will be subject to the Florida corporate income tax only if
it has a sufficient nexus with Florida. If the Florida Fund is subject to the
Florida corporate income tax, it does not expect to pay a material amount of
such tax. The Florida Fund will not be subject to the Florida intangible
personal property tax.
Shares of the Florida Fund will not be subject to the Florida intangible
personal property tax if on January 1 of the taxable year, at least 90 percent
of the Fund's assets consist of tax-exempt obligations of Florida and its
political subdivisions ("Florida Obligations") or of the United States, its
territories, possessions or
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instrumentalities that are exempt from state taxation under federal law
("Federal Obligations"). If more than 10 percent of the Fund's assets consist
of any other types of assets on that date, then the entire value of the Fund's
shares (except for the portion of the value of the shares attributable to
Federal Obligations) will be subject to the Florida intangible personal
property tax. (For periods prior to January 1, 2000, if any of the Fund's
assets consist of such other assets, then the Fund's shares that are not
attributable to Federal Obligations will be subject to the Florida intangible
personal property tax.)
All distributions by the Florida Fund to corporate shareholders either
organized or doing business in Florida, regardless of source, will be subject
to the Florida corporate income tax. Gain on the sale, exchange, or other
dispositions of shares of the Florida Fund will be subject to the Florida
corporate income tax.
Shares of the Florida Fund may be subject to the Florida estate tax if owned
by a Florida decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Florida state and local tax matters.
New Mexico
The following is a general, abbreviated summary of certain provisions of the
applicable New Mexico tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the New Mexico
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to New Mexico Fund transactions.
The following is based on the assumptions that the New Mexico Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause New Mexico Fund distributions
to qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the New Mexico Fund's
shareholders.
The New Mexico Fund will be subject to the New Mexico corporate franchise tax
and the New Mexico corporate income tax only if it has a sufficient nexus with
New Mexico. If the New Mexico Fund is subject to such taxes, it does not expect
to pay a material amount of either tax.
Distributions by the New Mexico Fund that are attributable to interest on any
obligation of New Mexico and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the New Mexico personal income tax or the New Mexico
corporate income tax. All other distributions, including distributions
attributable to capital gains, will be subject to the New Mexico personal and
corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the New Mexico
Fund will be subject to the New Mexico personal and corporate income taxes.
Shares of the New Mexico Fund may be subject to the New Mexico estate tax if
owned by a New Mexico decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New Mexico and local tax matters.
Pennsylvania
The following is a general, abbreviated summary of certain provisions of the
applicable Pennsylvania tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the
Pennsylvania Fund. This summary does not address the taxation of other
shareholders. These provisions are
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subject to change by legislative or administrative action, and any such change
may be retroactive with respect to Pennsylvania Fund transactions.
The following is based on the assumptions that the Pennsylvania Fund will
qualify under Subchapter M of the Code and under the Investment Company Act of
1940 as a regulated investment company, that it will satisfy the conditions
which will cause Pennsylvania Fund distributions to qualify as exempt-interest
dividends to shareholders, and that it will distribute all interest and
dividends it receives to the Pennsylvania Fund's shareholders.
The Pennsylvania Fund will not be subject to the Pennsylvania corporate net
income tax. The Pennsylvania Fund will be subject to the Pennsylvania franchise
tax only if it has a sufficient nexus with Pennsylvania. If it is subject to
the Pennsylvania franchise tax, it does not expect to pay a material amount of
such tax.
Distributions from the Pennsylvania Fund that are attributable to interest on
any obligation of Pennsylvania or its political subdivisions or to interest on
obligations of the United States, its territories, possessions, or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Pennsylvania personal income tax, the Pennsylvania
corporate net income tax, or to the Philadelphia School District income tax
(for Philadelphia residents). Distributions by the Pennsylvania Fund that are
attributable to interest on the obligations of states other than Pennsylvania
will not be subject to the Pennsylvania corporate net income tax unless they
are subject to federal income tax. Most other distributions, including those
attributable to capital gains, will be subject to the Pennsylvania personal and
corporate income taxes. Similarly, such other distributions would be subject to
the Philadelphia School District income tax (for Philadelphia residents) except
for distributions attributable to capital gains in respect to obligations held
by the Pennsylvania Fund.
Gain on the sale, exchange, or other disposition of shares of the
Pennsylvania Fund will be subject to the Pennsylvania personal and corporate
income taxes, but such gain will not be subject to the Philadelphia School
District income tax (for Philadelphia residents) if the shares are held in
excess of six months.
Shares of the Pennsylvania Fund may be subject to the Pennsylvania
inheritance tax and the Pennsylvania estate tax if held by a Pennsylvania
decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Pennsylvania and local tax matters.
Virginia
The following is a general, abbreviated summary of certain provisions of the
applicable Virginia tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Virginia
Fund. This summary does not address the taxation of other shareholders. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Virginia Fund transactions.
The following is based on the assumptions that the Virginia Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Virginia Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Virginia Fund's shareholders.
The Virginia Fund will be subject to the Virginia corporate income tax only
if it has a sufficient nexus with Virginia. If it is subject to the Virginia
corporate income tax, it does not expect to pay a material amount of such tax.
S-33
<PAGE>
Distributions by the Virginia Fund that are attributable to income derived
from or on the sale and exchange of, obligations of Virginia and its political
subdivisions and instrumentalities ("Virginia Obligations") or to income
derived from or on the sale and exchange of, obligations of the United States
and its territories, possessions or instrumentalities that are exempt from
state taxation under federal law ("Federal Obligations") will not be subject to
the Virginia personal income tax or the Virginia corporate income tax. All
remaining distributions will be subject to the Virginia personal and corporate
income taxes, and may be subject to local income taxes.
Gain on the sale, exchange, or other disposition of shares of the Virginia
Fund will be subject to the Virginia personal and corporate income taxes.
If a shareholder receives a distribution consisting in part of taxable
income, then the entire distribution will be taxed unless the shareholder
substantiates the portion which is exempt from taxation.
Shares of the Virginia Fund may be subject to the Virginia estate tax if
owned by a Virginia decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Virginia state and local tax matters.
PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each
of which will be calculated separately for each class of shares.
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20% (3% for the
Florida Intermediate Fund).
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
S-34
<PAGE>
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
As of May 31, 1999
------------------------------------------
Combined Federal Taxable
Yield and State Tax Rate* Equivalent Yield
----- ------------------- ----------------
<S> <C> <C> <C>
Arizona Municipal Bond Fund
Class A Shares............. 4.54% 44.70% 7.90%
Class B Shares ............ 3.98% 44.70% 6.92%
Class C Shares............. 4.19% 44.70% 7.29%
Class R Shares............. 4.94% 44.70% 8.59%
Colorado Municipal Bond Fund
Class A Shares............. 4.60% 44.60% 8.00%
Class B Shares ............ 4.05% 44.60% 7.04%
Class C Shares............. 4.25% 44.60% 7.39%
Class R Shares............. 5.00% 44.60% 8.70%
Florida Municipal Bond Fund
Class A Shares............. 3.94% 39.60% 6.52%
Class B Shares ............ 3.36% 39.60% 5.56%
Class C Shares............. 3.56% 39.60% 5.89%
Class R Shares............. 4.31% 39.60% 7.14%
Maryland Municipal Bond Fund
Class A Shares............. 3.92% 44.50% 6.82%
Class B Shares ............ 3.34% 44.50% 5.81%
Class C Shares............. 3.55% 44.50% 6.17%
Class R Shares............. 4.30% 44.50% 7.48%
New Mexico Municipal Bond
Fund
Class A Shares............. 3.87% 47.80% 6.97%
Class B Shares ............ 3.29% 47.80% 5.93%
Class C Shares............. 3.49% 47.80% 6.29%
Class R Shares............. 4.25% 47.80% 7.66%
Pennsylvania Municipal Bond
Fund
Class A Shares............. 4.52% 42.40% 7.73%
Class B Shares ............ 3.97% 42.40% 6.79%
Class C Shares............. 4.17% 42.40% 7.13%
Class R Shares............. 4.93% 42.40% 8.43%
Virginia Municipal Bond Fund
Class A Shares............. 4.06% 45.40% 7.12%
Class B Shares ............ 3.48% 45.40% 6.11%
Class C Shares............. 3.69% 45.40% 6.47%
Class R Shares............. 4.44% 45.40% 7.79%
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
S-35
<PAGE>
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Defined Portfolios, or the
maximum public offering price). The distribution rate differs from yield and
total return and therefore is not intended to be a complete measure of
performance. Distribution rate may sometimes differ from yield because a Fund
may be paying out more than it is earning and because it may not include the
effect of amortization of bond premiums to the extent such premiums arise after
the bonds were purchased.
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20%, were as follows:
<TABLE>
<CAPTION>
May 31, 1999
-----------------------------
Distribution Rates
-----------------------------
Class
Class A B Class C Class R
------- ----- ------- -------
<S> <C> <C> <C> <C>
Arizona Municipal Bond Fund................. 4.55% 4.00% 4.22% 4.96%
Colorado Municipal Bond Fund................ 4.41% 3.87% 4.05% 4.83%
Florida Municipal Bond Fund ................ 4.86% 4.35% 4.51% 5.30%
Maryland Municipal Bond Fund................ 4.45% 3.84% 4.07% 4.81%
New Mexico Municipal Bond Fund.............. 4.29% 3.75% 3.97% 4.70%
Pennsylvania Municipal Bond Fund............ 4.73% 4.18% 4.43% 5.17%
Virginia Municipal Bond Fund................ 4.57% 4.01% 4.23% 5.00%
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Total returns for the oldest class of each fund reflect actual performance
for all periods. For other classes, total returns reflect actual performance
for periods since class inception, and the oldest class's performance for
periods prior to inception, adjusted for the differences in sales charges and
fees between the classes.
S-36
<PAGE>
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
Inception Dates
------------------
<S> <C>
Arizona Municipal Bond fund
Class A Shares............................................. October 29, 1986
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 7, 1994
Class R Shares............................................. February 1, 1997
Colorado Municipal Bond fund
Class A Shares............................................. May 4, 1987
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 1, 1997
Class R Shares............................................. February 1, 1997
Florida Municipal Bond fund
Class A Shares............................................. June 15, 1990
Class B Shares............................................. February 1, 1997
Class C Shares............................................. September 14, 1995
Class R Shares............................................. February 1, 1997
Maryland Municipal Bond fund
Class A Shares............................................. September 6, 1994
Class B Shares............................................. February 1, 1997
Class C Shares............................................. September 6, 1994
Class R Shares............................................. July 26, 1991
New Mexico Municipal Bond fund
Class A Shares............................................. September 16, 1992
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 1, 1997
Class R Shares............................................. February 1, 1997
Pennsylvania Municipal Bond fund
Class A Shares............................................. October 29, 1986
Class B Shares............................................. February 1, 1997
Class C Shares............................................. February 2, 1994
Class R Shares............................................. February 1, 1997
Virginia Municipal Bond fund
Class A Shares............................................. March 27, 1986
Class B Shares............................................. February 1, 1997
Class C Shares............................................. October 4, 1993
Class R Shares............................................. February 1, 1997
</TABLE>
S-37
<PAGE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A shares, and applicable CDSC for Class B
Shares, for the one-year, five-year, and ten-year periods (as applicable) ended
May 31, 1999 and for the period from inception through May 31, 1999,
respectively, using the performance of the oldest class for periods prior to
the inception of the newer classes, as described above, were:
<TABLE>
<CAPTION>
Annual Total Return
---------------------------------------
From
One year Five years Ten Years inception
ended ended ended through
May 31, May 31, May 31, May 31,
1999 1999 1999 1999
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Municipal Bond Fund
Class A Shares................. -0.49% 6.15% 7.06% 7.16%
Class B Shares................. -0.83% 6.22% 7.05% 7.15%
Class C Shares................. 3.33% 6.48% 6.93% 6.93%
Class R Shares................. 4.09% 7.18% 7.58% 7.56%
Colorado Municipal Bond Fund
Class A Shares................. -0.57% 6.74% 7.18% 6.92%
Class B Shares................. -0.85% 6.86% 7.18% 6.91%
Class C Shares................. 3.19% 7.17% 7.22% 6.88%
Class R Shares................. 4.08% 7.78% 7.71% 7.36%
Florida Municipal Bond Fund
Class A Shares................. -0.58% 5.38% N/A 6.80%
Class B Shares................. -0.89% 5.49% N/A 6.77%
Class C Shares................. 3.22% 5.74% N/A 6.73%
Class R Shares................. 4.01% 6.40% N/A 7.37%
Maryland Municipal Bond Fund
Class A Shares................. -0.68% 5.28% N/A 5.63%
Class B Shares................. -1.02% 5.31% N/A 5.53%
Class C Shares................. 3.07% 5.53% N/A 5.56%
Class R Shares................. 3.82% 6.44% N/A 6.51%
New Mexico Municipal Bond Fund
Class A Shares................. -0.64% 6.10% N/A 6.06%
Class B Shares................. -1.07% 6.15% N/A 6.07%
Class C Shares................. 3.22% 6.55% N/A 6.31%
Class R Shares................. 3.86% 7.15% N/A 6.85%
Pennsylvania Municipal Bond Fund
Class A Shares................. -0.94% 5.77% 6.75% 6.73%
Class B Shares................. -1.25% 5.88% 6.76% 6.73%
Class C Shares................. 2.80% 6.10% 6.63% 6.51%
Class R Shares................. 3.55% 6.77% 7.26% 7.14%
</TABLE>
S-38
<PAGE>
<TABLE>
<CAPTION>
Annual Total Return
---------------------------------------
From
One year Five years Ten Years inception
ended ended ended through
May 31, May 31, May 31, May 31,
1999 1999 1999 1999
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Virginia Municipal Bond Fund
Class A Shares................ -0.37% 5.77% 6.87% 7.03%
Class B Shares................ -0.76% 5.84% 6.86% 7.02%
Class C Shares................ 3.30% 6.07% 6.74% 6.78%
Class R Shares................ 4.18% 6.78% 7.39% 7.42%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
S-39
<PAGE>
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, and applicable CDSC for Class
B Shares, for the one-year, five-year and ten-year periods (as applicable)
ended May 31, 1999, and for the period since inception through May 31, 1999,
respectively, using the performance of the oldest class for periods prior to
the inception of the newer classes, as described above, were:
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------
From
One Year Ten Years Inception
Ended Five Years ended Through
May 31, Ended May May 31, May 31,
1999 31, 1999 1999 1999
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Arizona Municipal Bond Fund
Class A Shares................. -0.49% 34.80% 97.82% 138.70%
Class B Shares................. -0.83% 35.25% 97.63% 138.52%
Class C Shares................. 3.33% 36.89% 95.49% 132.37%
Class R Shares................. 4.09% 41.43% 107.58% 150.37%
Colorado Municipal Bond Fund
Class A Shares................. -0.57% 38.54% 100.14% 123.28%
Class B Shares................. -0.85% 39.37% 100.10% 123.02%
Class C Shares................. 3.19% 41.36% 100.82% 122.30%
Class R Shares................. 4.08% 45.42% 110.21% 134.39%
Florida Municipal Bond Fund
Class A Shares................. -0.58% 29.94% N/A 80.21%
Class B Shares................. -0.89% 30.62% N/A 79.77%
Class C Shares................. 3.22% 32.19% N/A 79.27%
Class R Shares................. 4.01% 36.39% N/A 89.08%
Maryland Municipal Bond Fund
Class A Shares................. -0.68% 29.33% N/A 48.75%
Class B Shares................. -1.02% 29.50% N/A 47.79%
Class C Shares................. 3.07% 30.91% N/A 48.09%
Class R Shares................. 3.82% 36.62% N/A 58.04%
New Mexico Municipal Bond Fund
Class A Shares................. -0.64% 34.45% N/A 48.32%
Class B Shares................. -1.07% 34.80% N/A 48.47%
Class C Shares................. 3.22% 37.34% N/A 50.68%
Class R Shares................. 3.86% 41.21% N/A 55.88%
Pennsylvania Municipal Bond Fund
Class A Shares ................ -0.94% 32.38% 92.18% 127.21%
Class B Shares................. -1.25% 33.07% 92.35% 126.95%
Class C Shares................. 2.80% 34.44% 90.01% 121.19%
Class R Shares................. 3.55% 38.76% 101.55% 138.08%
</TABLE>
S-40
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------
From
One Year Ten Years Inception
Ended Five Years Ended Through
May 31, Ended May May 31, May 31,
1999 31, 1999 1999 1999
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Virginia Municipal Bond Fund
Class A Shares ............... -0.37% 32.38% 94.35% 144.81%
Class B Shares................ -0.76% 32.84% 94.08% 144.62%
Class C Shares................ 3.30% 34.28% 91.92% 137.45%
Class R Shares................ 4.18% 38.82% 103.94% 156.85%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 42.50% maximum combined marginal federal and state tax rate for
1999, the annual taxable equivalent total return for the Maryland Municipal
Bond Fund's shares for the five-year period ended May 31, 1999 with respect to
the Class R Shares was 10.23%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
S-41
<PAGE>
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Funds primarily invest in investment grade Municipal
Obligations in pursuing their objective of as high a level of current interest
income which is exempt from federal and state income tax as is consistent, in
the view of the Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury
securities funds, corporate bond funds (either investment grade or high yield),
or Ginnie Mae funds. These types of funds, because of the character of their
underlying securities, differ from municipal bond funds in several respects.
The susceptibility of the price of treasury bonds to credit risk is far less
than that of municipal bonds, but the price of treasury bonds tends to be
slightly more susceptible to change resulting from changes in market interest
rates. The susceptibility of the price of investment grade corporate bonds and
municipal bonds to market interest rate changes and general credit changes is
similar. High yield bonds are subject to a greater degree of price volatility
than municipal bonds resulting from changes in market interest rates and are
particularly susceptible to volatility from credit changes. Ginnie Mae bonds
are generally subject to less price volatility than municipal bonds from credit
concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market
interest rate changes. In addition, the volatility of Ginnie Mae bonds due to
changes in market interest rates may differ from municipal bonds of comparable
coupon and maturity because bonds of the sensitivity of Ginnie Mae prepayment
experience to change in interest rates.
S-42
<PAGE>
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
The minimum initial investment is $3,000 per fund share class ($50 if you
establish a systematic investment plan), and may be lower for accounts opened
through fee-based programs.
Class A Shares may be purchased at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. Shareholders may qualify
for a reduced sales charge, or the sales charge may be waived in its entirety,
as described below. Class A Shares are also subject to an annual service fee of
.20%. See "Distribution and Service Plan." Set forth below is an example of the
method of computing the offering price of the Class A shares of a Fund. The
example assumes a purchase on May 31, 1999 of Class A shares from the Nuveen
Flagship Arizona Municipal Bond Fund aggregating less than $50,000 subject to
the schedule of sales charges set forth in the Prospectus at a price based upon
the net asset value of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per share......................................... $11.40
Per Share Sales Charge--4.20% of public offering price (4.39% of
net asset value per share)....................................... .50
------
Per Share Offering Price to the Public............................ $11.90
</TABLE>
The Funds receive the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
S-43
<PAGE>
The following Class A sales charges and commissions apply to the Funds:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
- ------------------ --------------------- -------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000....... 4.20% 4.38% 3.70%
$50,000 but less than
$100,000............... 4.00% 4.18% 3.50%
$100,000 but less than
$250,000............... 3.50% 3.63% 3.00%
$250,000 but less than
$500,000............... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000............. 2.00% 2.04% 1.50%
$1,000,000 and over..... --(1) -- 1.00%(1)
</TABLE>
- --------
(1) You can buy $1 million or more of Class A shares or net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus
.50% of the next $2.5 million, plus .25% of the amount over $5.0 million.
If you redeem your shares within 18 months of purchase, you may have to pay
a CDSC of 1% of either your purchase price or your redemption proceeds,
whichever is lower. You do not have to pay this CDSC if your financial
adviser has made arrangements with Nuveen and agrees to waive the
commission.
Reduction or Elimination of Up-Front Sales Charge on Class A Shares and Class R
Shares Purchase Eligibility
Rights of Accumulation. You may qualify for a reduced sales charge on a
purchase of Class A Shares of any Fund if the amount of your purchase, when
added to the value that day of all of your prior purchases of shares of any
Fund or of another Nuveen Mutual Fund, or Nuveen exchange-traded fund, or units
of a Nuveen Defined Portfolio, on which an up-front sales charge or ongoing
distribution fee is imposed, or is normally imposed, falls within the amounts
stated in the Class A Sales Charges and Commissions table in "How You Can Buy
and Sell Shares" in the Prospectus. You or your financial adviser must notify
Nuveen or the Fund's transfer agent of any cumulative discount whenever you
plan to purchase Class A Shares of a Fund that you wish to qualify for a
reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How You
Can Buy and Sell Shares" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A Shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Mutual Fund
that you already own on which you paid an up-front sales charge or an ongoing
distribution fee and any Class B or C Shares of a Nuveen Mutual Fund that you
purchase over the next 13 months towards completion of your investment program,
but you will receive a reduced sales charge only on new Class A Shares you
purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without
a sales charge through investment of distributions from a Nuveen Mutual Fund or
a Nuveen Defined Portfolio, or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period
S-44
<PAGE>
equal or exceed the amount specified in your Letter of Intent, the Class A
Shares held in escrow will be transferred to your account. If the total
purchases, less redemptions, exceed the amount specified in your Letter of
Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount specified, you must pay
Nuveen an amount equal to the difference between the amounts paid for these
purchases and the amounts which would have been paid if the higher sales charge
had been applied. If you do not pay the additional amount within 20 days after
written request by Nuveen or your financial adviser, Nuveen will redeem an
appropriate number of your escrowed Class A Shares to meet the required
payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as
attorney to give instructions to redeem any or all of your escrowed shares,
with full power of substitution in the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Defined Portfolio Distributions. You may purchase
Class A Shares without an up-front sales charge by reinvestment of
distributions from any of the various Defined Portfolios sponsored by Nuveen.
There is no initial or subsequent minimum investment requirement for such
reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten or more participating members, has agreed to
include Fund sales publications in mailings to members and has agreed to comply
with certain administrative requirements relating to its group purchases.
Under any group purchase program, the minimum initial investment in Class A
shares of any particular Fund or portfolio for each participant in the program
is $3,000 and the minimum monthly investment in Class A shares of any
particular Fund or portfolio by each participant is $50. No certificates will
be issued for any participant's account. All dividends and other distributions
by a Fund will be reinvested in additional Class A Shares of the same Fund. No
participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by calling Nuveen
toll-free (800) 257-8787.
Reinvestment of Redemption Proceeds from Unaffiliated Funds Subject to Merger
or Closure. You may also purchase Class A Shares at net asset value without a
sales charge if the purchase takes place through a broker-dealer and represents
the reinvestment of the proceeds of the redemption of shares of one or more
registered investment companies not affiliated with Nuveen that are subject to
merger or closure. You must provide appropriate documentation that the
redemption occurred not more than one year prior to the reinvestment of the
proceeds in Class A Shares, and that you either paid an up-front sales charge
or were subject to a contingent deferred sales charge in respect of the
redemption of such shares of such other investment company.
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and may be purchased by the following
categories of investors:
. investors purchasing $1,000,000 or more;
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
S-45
<PAGE>
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services; and
. any eligible employer-sponsored qualified defined contribution retirement
plan. Eligible plans are those with at least 25 employees and which
either (a) make an initial purchase of one or more Nuveen Mutual Funds
aggregating $500,000 or more or (b) execute a Letter of Intent to
purchase in the aggregate $500,000 or more of fund shares. Nuveen will
pay Authorized Dealers a sales commission on such purchases equal to 1%
of the first $2.5 million, plus 2.5% of any amount purchased over $5.0
million. For this category of investors a contingent deferred sales
charge of 1% will be assessed on redemptions within 18 months of
purchase, unless waived. Municipal bond funds are not a suitable
investment for individuals investing in retirement plans.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. Holders of Class C Shares purchased after that date will not have
the option to convert those shares to Class A Shares.
Class B Shares will automatically convert to Class A Shares eight years after
purchase. The purpose of the conversion is to limit the distribution fees you
pay over the life of your investment. All conversions will be done at net asset
value without the imposition of any sales load, fee, or other charge, so that
the value of each shareholder's account immediately before conversion will be
the same as the value of the account immediately after conversion. Class B
Shares acquired through reinvestment of distributions will convert into Class A
Shares based on the date of the initial purchase to which such shares relate.
For this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. Class
B Shares that are converted to Class A Shares will remain subject to an annual
service fee that is identical in amount for both Class B Shares and Class A
Shares. Since net asset value per share of the Class B Shares and the Class A
Shares may differ at the time of conversion, a shareholder may receive more or
fewer Class A Shares than the number of Class B Shares converted. Any
conversion of Class B Shares into Class A Shares will be subject to the
continuing availability of an opinion of counsel or a private letter ruling
from the Internal Revenue Service to the effect that the conversion of shares
would not constitute a taxable event under federal income tax law. Conversion
of Class B Shares into Class A Shares might be suspended if such an opinion or
ruling were no longer available.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the
S-46
<PAGE>
Funds. You or your financial adviser must notify Nuveen or the Fund's transfer
agent whenever you make a purchase of Class A Shares of any Fund that you wish
to be covered under these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $2.5 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds
and their immediate family members or trustees/directors of any fund,
sponsored by Nuveen, any parent company of Nuveen and subsidiaries
thereof and their immediate family members;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
Any shares purchased by investors falling within any of the first four
categories listed above must be acquired for investment purposes and on the
condition that they will not be transferred or resold except through redemption
by the fund.
In addition, purchasers of Nuveen Defined Portfolios may reinvest their
distributions from such Defined Portfolios in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions in
Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund
shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into
Class R Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
S-47
<PAGE>
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 257-8787.
Reduction or Elimination of Contingent Deferred Sales Charge
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18
months of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged on shares purchased as a result of automatic reinvestment of dividends
or capital gains paid. In addition, no CDSC will be charged on exchanges of
shares into another Nuveen Mutual Fund or Nuveen money market fund. The holding
period is calculated on a monthly basis and begins the first day of the month
in which the order for investment is received. The CDSC is calculated based on
the lower of the redeemed shares' cost or net asset value at the time of the
redemption and is deducted from the redemption proceeds. Nuveen receives the
amount of any CDSC shareholders pay. If shares subject to a CDSC are exchanged
for shares of a Nuveen money market fund, the CDSC would be imposed on the
subsequent redemption of those money market shares, and the period during which
the shareholder holds the money market fund shares would be counted in
determining the remaining duration of the CDSC. The Fund may elect not to so
count the period during which the shareholder held the money market fund
shares, in which event the amount of any applicable CDSC would be reduced in
accordance with applicable rules by the amount of any 12b-1 plan payments to
which those money market funds shares may be subject.
The CDSC may be waived or reduced under the following seven special
circumstances: 1) redemptions within one year following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended, of a shareholder; 2) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge; 4)
in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are
reinvested in shares of certain Funds within a specified number of days; 5) in
connection with the exercise of a Fund's right to redeem all shares in an
account that does not maintain a certain minimum balance or that the applicable
board has determined may have material adverse consequences to the shareholders
of such Fund; 6) redemptions made pursuant to a Fund's automatic withdrawal
plan, up to 12% of the current market value; and 7) redemptions of Class B or
Class C shares if the proceeds are transferred to an account managed by another
Nuveen Adviser and the adviser refunds the advance service and distribution
fees to Nuveen. If a Fund waives or reduces the CDSC, such waiver or reduction
would be uniformly applied to all Fund shares in the particular category. In
waiving or reducing a CDSC, the Funds will comply with the requirements of Rule
22d-1 of the Investment Company Act of 1940, as amended.
S-48
<PAGE>
General Matters
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen Mutual Funds
during specified time periods. Promotional support may include providing sales
literature to and holding informational or educational programs for the benefit
of such Authorized Dealers' representatives, seminars for the public, and
advertising and sales campaigns. Nuveen may reimburse a participating
Authorized Dealer for up to one-half of specified media costs incurred in the
placement of advertisements which jointly feature the Authorized Dealer and
Nuveen Funds and Nuveen Defined Portfolios.
Such reimbursement will be based on the number of Nuveen Fund shares sold,
the dollar amounts of such sales, or a combination of the foregoing, during the
prior calendar year according to an established schedule. Any such support or
reimbursement would be provided by Nuveen out of its own assets, and not out of
the assets of the Funds, and will not change the price an investor pays for
shares or the amounts that a Fund will receive from such a sale.
To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software, electronic information sites, or additional sales literature to
promote the advantages of using the Funds to meet these and other specific
investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
The Funds have reserved the right to redeem in kind (that is, to pay
redemption requests in cash and portfolio securities, or wholly in portfolio
securities), although the Funds have no present intention to redeem in kind.
The Funds voluntarily have committed to pay in cash all requests for redemption
by any shareholder, limited as to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value of a Fund at the
beginning of the ninety-day period.
S-49
<PAGE>
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
A fee of 1% of the current market value of any shares represented by a
certificate will be charged if the certificate is lost, stolen, or destroyed.
The fee is paid to Seaboard Surety Company for insurance of the lost, stolen,
or destroyed certificate.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Shares" in
the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Nuveen Flagship Multistate Trust I, dated February 1, 1997
and last renewed on July 31, 1998 ("Distribution Agreement"). Pursuant to the
Distribution Agreement, the Trust appointed Nuveen to be its agent for the
distribution of the Funds' shares on a continuous offering basis. Nuveen sells
shares to or through brokers, dealers, banks or other qualified financial
intermediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of the Trust.
Pursuant to the Distribution Agreement, Nuveen, at its own expense, finances
certain activities incident to the sale and distribution of the Funds' shares,
including printing and distributing of prospectuses and statements of
additional information to other than existing shareholders, the printing and
distributing of sales literature, advertising and payment of compensation and
giving of concessions to Dealers. Nuveen receives for its services the excess,
if any, of the sales price of the Funds' shares less the net asset value of
those shares, and reallows a majority or all of such amounts to the Dealers who
sold the shares; Nuveen may act as such a Dealer. Nuveen also receives
compensation pursuant to a distribution plan adopted by the Trust pursuant to
Rule 12b-1 and described herein under "Distribution and Service Plan." Nuveen
receives any CDSCs imposed on redemptions of shares.
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The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Financial Inc., which Nuveen acquired on
January 1, 1997) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
May 31, 1999 May 31, 1998 May 31, 1997*
------------------------ ------------------------ ------------------------
Amount of Amount Amount of Amount Amount of Amount
Underwriting Retained By Underwriting Retained By Underwriting Retained By
Commissions Nuveen Commissions Nuveen Commissions Nuveen
Fund ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Maryland Fund........... 122 19 157 25 191 25
<CAPTION>
Year Ended Year Ended Year Ended
May 31, 1999 May 31, 1998 May 31, 1997
------------------------ ------------------------ ------------------------
Amount of Amount Amount of Amount Amount of Amount
Underwriting Retained By Underwriting Retained By Underwriting Retained By
Commissions Nuveen Commissions Flagship Commissions Nuveen
Fund ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund............ 278 24 266 38 145 20
Colorado Fund........... 187 27 120 19 78 10
Florida Fund............ 730 90 488 69 443 61
New Mexico Fund......... 154 21 145 20 113 15
Pennsylvania Fund....... 224 19 242 34 110 14
Virginia Fund........... 419 52 474 67 279 38
</TABLE>
- --------
*For the sixteen month period ended May 31, 1997.
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
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<PAGE>
For the fiscal year ended May 31, 1999, 100% of service fees and distribution
fees were paid out as compensation to Authorized Dealers. The service fee for
the Class A, Class B and Class C Shares was .20% and the distribution fee for
the Class B Shares was .75% and for the Class C Shares was .55%.
<TABLE>
<CAPTION>
Compensation Paid to
Authorized Dealers for
end of Fiscal 1999
----------------------
<S> <C>
Arizona Municipal Bond Fund
Class A................................................ $ 175,649
Class B................................................ $ 28,034
Class C................................................ $ 50,336
Colorado Municipal Bond Fund
Class A................................................ $ 78,533
Class B................................................ $ 30,378
Class C................................................ $ 12,612
Florida Municipal Bond Fund
Class A................................................ $ 593,582
Class B................................................ $ 99,243
Class C................................................ $ 86,121
Maryland Municipal Bond Fund
Class A................................................ $ 39,229
Class B................................................ $ 34,859
Class C................................................ $ 25,426
New Mexico Municipal Bond Fund
Class A................................................ $ 113,081
Class B................................................ $ 20,117
Class C................................................ $ 15,270
Pennsylvania Municipal Bond Fund
Class A................................................ $ 137,788
Class B................................................ $ 51,898
Class C................................................ $ 84,233
Virginia Municipal Bond Fund
Class A................................................ $ 273,937
Class B................................................ $ 68,330
Class C................................................ $ 129,361
</TABLE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast
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<PAGE>
in person at a meeting called for the purpose of considering such amendments.
During the continuance of the Plan, the selection and nomination of the non-
interested trustees of the Trust will be committed to the discretion of the
non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois, 60603 has been selected as auditors for the Trust. In
addition to audit services, the auditors provide consultation and assistance on
accounting, internal control, tax and related matters. The financial statements
incorporated by reference elsewhere in this Statement of Additional Information
and the information for prior periods set forth under "Financial Highlights" in
the Prospectus have been audited by the auditors as indicated in their reports
with respect thereto, and are included in reliance upon the authority of those
firms in giving their reports.
The custodian of the Funds' assets is The Chase Manhattan Bank, 4 New York
Plaza, New York, New York 10004. The custodian performs custodial, fund
accounting, and portfolio accounting services.
The Funds' transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports and are incorporated herein by reference.
53
<PAGE>
APPENDIX A
Ratings of Investments
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
A-1
<PAGE>
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
Futures and Index Transactions
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
B-1
<PAGE>
Index Contracts
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash--rather than any security--equal to specified dollar amount times the
difference between the index value at the close of the last trading day of the
contract and the price at which the index future was originally written. Thus,
an index future is similar to traditional financial futures except that
settlement is made in cash.
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
Repurchase Agreements
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-2
<PAGE>
VAI-MS1 9-99
<PAGE>
May 31, 1999 Annual Report
NUVEEN
Mutual Funds
Extraordinary Talent. Masterful Performance.
Nuveen Municipal Bond Funds
Dependable, tax-free
income to help
you keep more
of what you earn.
[PHOTO APPEARS HERE]
Arizona
Colorado
New Mexico
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
<PAGE>
Contents
1 Dear Shareholder
3 Nuveen Flagship Arizona Municipal Bond Fund
6 Nuveen Flagship Colorado Municipal Bond Fund
9 Nuveen Flagship New Mexico Municipal Bond Fund
12 Portfolio of Investments
24 Statement of Net Assets
25 Statement of Operations
26 Statement of Changes in Net Assets
27 Notes to Financial Statements
32 Financial Highlights
35 Report of Independent Public Accountants
36 Building a Better Portfolio
37 Fund Information
<PAGE>
[Photo of Timothy R. Schwertfeger Appears Here]
Timothy R. Schwertfeger
Chairman of the Board
DEAR Shareholder
I invite you to take a few minutes to read the annual report we've prepared for
you on the performance of your Nuveen state municipal bond fund for the fiscal
year ended May 31, 1999. You, along with your financial adviser, have made a
sound choice in choosing Nuveen to manage this portion of your assets. Since
1898, more than 1.3 million investors have trusted us to help them build and
sustain the wealth of a lifetime.
I'm pleased to report your fund continued to meet its primary objective of
providing you with dependable tax-free income and attractive after-tax total
returns. I will briefly describe the national economic environment during the
past 12 months. My discussion is followed by comments about the strategies
employed in managing your fund from the portfolio manager of each fund
represented in this report.
The Year In Review.
The Federal Reserve eased short-term rates for the first time in almost three
years by cutting the federal funds rate in the fall of 1998 three times,
bringing it to 4.75%. A month after the close of your fund's fiscal year, the
Fed raised its target by 25 basis points to 5%. (Be sure to read your fund
manager's comments about managing your fund in a rising interest rate
environment.)
The fed funds rate is the rate that banks charge each other for overnight
loans and serves as the basis many financial institutions use for setting
interest charges on a variety of products, from mortgage and car loans to credit
cards.
The Fed's rate cuts were made to avert a potential domestic credit crunch
and restore some stability to global markets. The moves seemed to have worked,
as the U.S. economy since has continued its pattern of non-inflationary growth,
accompanied by low interest rates and unemployment levels that remain among the
lowest in three decades, prompting the late June reversal by the Fed.
All indications point to a confident U.S. consumer who is comfortable with
the current state of the economy, especially the performance of the housing,
stock and job markets. This confidence is reflected in the most recent Consumer
Confidence Index report, issued by the University of Michigan's Conference Board
Inc., which showed a record-setting eighth consecutive month of gains in June.
On the global front, the turmoil of the past two years appears to be fading
somewhat, as international financial markets have begun to send recovery
signals.
Domestic inflation continues to be benign, with an increase of 2.1% for the
12 months ended May 31, 1999. The general backdrop of inflation indicators
continued to be mild, with the employment cost index, average hourly earnings,
and import and producer price trends all remaining favorable.
Federal Reserve Chairman Alan Greenspan recently stated that a key factor
in achieving today's peaceful coexistence of economic growth and low inflation
has been increased productivity. Improvements in productivity, spurred by
technological advances, have been responsible for
1
<PAGE>
offsetting wage and other inflationary pressures that we would normally expect
to see as part of a growing economy.
Why Municipal Bonds? Our municipal bond funds continued to offer attractive,
stable income in a market that places a high premium on yield. In 1998,
municipal bonds represented a reasonably insulated haven in an otherwise
turbulent market, with lower volatility relative to Treasury bonds and other
fixed-income investments. Even in 1999, with interest rates rising again,
municipals outperformed Treasuries through the end of May.
The high ratio of tax-exempt municipal yields to Treasury yields sheltered
municipal bonds, to some extent, from the price decline that occurred in the
Treasury market during the first part of the year. While the yield on 30-year
Treasury bonds rose from 5.10% at the end of December to 5.83% as of May 31,
1999, the yield on the Bond Buyer Revenue Bond Index, an unmanaged index of
long-term municipal revenue bonds, gained 15 basis points--from 5.26% to 5.41%.
Given the inverse relationship between interest rates and bond prices, we saw
bond prices fall as rates rose over this period.
Though municipal bond prices did decrease, the decline was not as dramatic
as the drop in Treasuries.
This performance differential reflects the fact that Treasuries had become
relatively expensive as the result of safe-haven buying during the international
economic crises in 1998. As the financial turmoil subsided, however, foreign
investors returned to investing in their own countries rather than in U.S.
dollar-denominated securities, and the decline in demand caused U.S. Treasuries
to drop in price.
At the end of May 1999, the ratio between long-term municipal yields and
30-year Treasury yields stood at 93%, compared with the historical average of
86% for the period of 1986-1999. For investors, this meant that quality long-
term municipal bonds offered yields comparable to those of long Treasury bonds--
even before the tax advantages of municipal bonds were taken into account.
During the funds' fiscal year, that ratio hit a high of 104% in December.
On an after-tax basis in today's market, municipal bonds continue to
present an exceptionally attractive investment option relative to Treasuries.
During 1998, lower interest rates and the strong economy combined to
generate high levels of new municipal issuance and a significant increase in the
refinancing of existing bonds. Municipal issuance in 1998 reached $284 billion,
up 29% over 1997.
In the first part of 1999, however, as the market settled into a more
stable interest rate environment, refunding activity has dropped off
dramatically, resulting in a drop in municipal supply. This, in turn, has
enhanced the attractiveness of the municipal bonds that were brought to market,
as demand--especially from individual investors--remained relatively strong.
The Value of Nuveen Expertise. Nuveen Mutual Funds are a diverse collection
of investments featuring highly regarded asset management firms--Premier
Advisers/SM/--who direct the investment activities of each portfolio.
The Premier Advisers are firms that have earned a reputation for excellence
in their field of expertise--including Nuveen Investment Advisory Services for
income investing, Rittenhouse Financial Services for growth investing and
Institutional Capital Corporation for value investing.
For more information on our funds, contact your financial adviser for a
prospectus, or call Nuveen at (800) 621-7227, or download one from
www.nuveen.com. Please read the prospectus carefully before you invest or send
money.
We encourage you to talk with your financial adviser about Nuveen's
expanding array of investments and the ways they can help you establish a
diversified portfolio designed to build and sustain long-term financial
security.
We are grateful for the confidence you have placed in us and are dedicated
to maintaining your trust in the years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
- --------------------------
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1999
<PAGE>
NUVEEN FLAGSHIP ARIZONA MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Mike Davern discusses fund performance, the municipal market
and key investment strategies for the Arizona fund for the fiscal year ended
May 31, 1999.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
How strong is Arizona's economy? Arizona's economy is a healthy mixture of high-
technology manufacturing, retail trade, tourism, agriculture, mining and the
military. The state's economic and population growth are among the nation's
fastest, thanks to a pro-business tax regulatory environment and a high quality
of life, which make the state popular with corporations and individuals.
In 1998, Arizona was No. 1 in the nation for non-agricultural job growth,
increasing nearly 5% for the year. In manufacturing job growth, Arizona ranked
third behind California and Texas. Unemployment was about 4.7% at May 31,
slightly higher than the national average.
Retail sales are strong, although growth is down slightly from 1998 levels,
similar to the national trend. Housing permits are flat for the year, indicating
that the economy may be cooling somewhat. Services and retail trade dominate the
state's employment sector, which has seen about 30% job growth since 1994.
Arizona's expanding economy led to growing infrastructure and school
financing needs, resulting in strong municipal bond issuance in 1998. Rising
interest rates in 1999, however, significantly slowed municipal bond activity--
both new issuance and refundings--in the latter half of the fund's fiscal year.
There were two reasons the market slowed--the increased interest rates,
which primarily slowed new issuance, plus the fact that the refunding market has
essentially been exhausted. Municipalities flooded the market with refundings in
recent years when interest rates were dropping. A provision of the Tax Reform
Act of 1986, however, limits municipalities to only one tax-exempt refunding per
issue.
As was the case nationally, increasing concerns about rising economic
growth and potential inflation caused bond yields to rise and prices to fall.
However, municipal bonds held their values quite well compared to U.S. Treasury
bonds.
In this economic environment, how did Nuveen Flagship Arizona Municipal
Bond Fund perform? Nuveen Flagship Arizona Municipal Bond Fund generated a total
return on net asset value of 3.87% in the fiscal year ended May 31. That
compares to the 3.63% average annual total return posted by the Lipper Arizona
Municipal Debt Peer Group.* The fund ranked 12th out of 39 municipal bond funds
in its Lipper category for the fiscal year period. Total return equals a fund's
income and capital gains distributions, if any, plus or minus changes in net
asset value. The fund's taxable equivalent total return, for investors in the
34.5% combined federal and state income tax bracket, was 6.40%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.74%. For investors in
the combined 34.5% federal and state income tax bracket, that is equivalent to a
yield of 7.24% on a taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates declined. To protect the fund's income
stream, we looked for bonds with call dates far in the future--or better yet,
that are noncallable.
* The Lipper Peer Group represents the average return annualized total return
of the 39 funds in the Lipper Arizona Municipal Debt category. The return
assumes reinvestment dividends and does not reflect any applicable sales
charges.
** Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus minus or changes in net asset value.
3
<PAGE>
Only 2.5% of the Arizona portfolio is callable between now and the year 2001.
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality. We rely on Nuveen
Research to help identify these opportunities.
Nuveen Research also helps us monitor events in the municipal market and
analyze how those events affect individual state and national municipal markets.
For example, during spring 1998, a major not-for-profit healthcare provider in
Philadelphia declared bankruptcy. While the impact of this bankruptcy was most
pronounced in the healthcare sector of the Pennsylvania municipal market, it was
felt to a lesser extent throughout the municipal market.
Uncertainty created by the Philadelphia healthcare situation prompted
investors to demand higher yields for lower-rated issues across the country,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen. Prior to the bankruptcy,
this spread had been relatively narrow, suggesting that investors were not being
compensated adequately for taking on additional credit risk. With spreads having
widened, lower-rated securities have become more attractive on a risk-adjusted
basis.
With interest rates at a higher level, and the widening differential
between low-rated and high-rated credits, we took the opportunity to investigate
lower-rated issues.
For example, we used the fund's market presence to purchase 100% of an
issuance of Maricopa County multifamily housing bonds at a 6.7% yield,
representing a 1.50 percentage point premium over yields offered on insured
bonds.
After a thorough investigation by Nuveen Research, we determined that this
non-rated bond issue, which is financing apartment buildings for low-income
tenants and senior citizens in Maricopa County, met our stringent credit
standards.
In recent months, we have taken advantage of rising interest rates by
selling some bonds at a loss--because as interest rates rose, prices of the
bonds fell--and subsequently buying similar securities, whose yield now
reflected the higher interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income.
Tax losses were created by the swaps, which will benefit the fund and are used
to offset capital gains for up to eight years. The higher yield of the new bonds
should boost the fund's income as well.
What is your outlook for Nuveen Flagship Arizona Municipal Bond Fund? Rising
interest rates in 1999 have made it advantageous for us to lock in higher yields
by extending the portfolio's average maturity beyond that of our peer group. We
believe that bond yields are currently attractive in relation to inflation.
Should interest rates fall or remain stable, the portfolio's longer effective
maturity would be advantageous.
With Arizona's strong economy and influx of population, we expect buoyant
supply and demand for municipal bonds in areas such as housing and utilities.
We will continue to seek out undervalued securities that provide income and
the opportunity for price appreciation through credit rating upgrades.
"We used the fund's market presence to purchase 100% of an issuance of
Maricopa County multifamily housing bonds at a 6.75% yield."
4
<PAGE>
NUVEEN FLAGSHIP ARIZONA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
- ------------------------------------------------------------------------------
Quick Facts
- ------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV $11.25 $11.24 $11.24 $11.25
- ------------------------------------------------------------------------------
May's Declared Dividend* $0.0445 $0.0375 $0.0395 $0.0465
- ------------------------------------------------------------------------------
Fund Symbol FAZTX N/A FAZCX NMARX
- ------------------------------------------------------------------------------
CUSIP 67065L104 67065L203 67065L302 67065L401
- ------------------------------------------------------------------------------
Inception Date 10/86 2/97 2/94 2/97
- ------------------------------------------------------------------------------
* Paid June 1, 1999
- ------------------------------------------------------------------------------
Total Returns (Annualized)/+/
- ------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.87% -0.49% 3.12% 3.33% 4.09%
- ------------------------------------------------------------------------------
1-Year TER** 6.40% 1.93% 5.25% 5.58% 6.74%
- ------------------------------------------------------------------------------
5-Year 7.07% 6.15% 6.38% 6.48% 7.18%
- ------------------------------------------------------------------------------
10-Year 7.52% 7.06% 7.05% 6.93% 7.58%
- ------------------------------------------------------------------------------
/+/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate
of 34.5%).
- ------------------------------------------------------------------------------
Index Comparison/./
- ------------------------------------------------------------------------------
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Arizona Arizona Lehman Brothers
Municipal Municipal Municipal
May Bond Fund (Offer) Bond Fund (NAV) Bond Index
<S> <C> <C> <C>
1989 9,580 10,000 10,000
1990 10,109 10,552 10,731
1991 11,039 11,523 11,813
1992 12,170 12,704 12,974
1993 13,795 14,400 14,526
1994 14,060 14,676 14,885
1995 15,472 16,150 16,240
1996 16,124 16,831 16,982
1997 17,389 18,151 18,391
1998 19,054 19,890 20,117
1999 19,793 20,661 21,058
</TABLE>
Nuveen Flagship Arizona Municipal Bond Fund (Offer) $19,793
Nuveen Flagship Arizona Municipal Bond Fund (NAV) $20,661
Lehman Brothers Municipal Bond Index $21,058
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
- -------------------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares)/../
- -------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Month
- -----
<S> <C>
June .0455
July .0445
August .0445
September .0445
October .0445
November .0445
December .0445
January .0445
February .0445
March .0445
April .0445
May .0445
</TABLE>
/../ The fund also paid shareholders capital gains and net ordinary income
distributions in December of $0.0539 per share.
- ------------------------------------------------------------------------------
Portfolio Statistics
- ------------------------------------------------------------------------------
Fund Net Assets $118.6 million
Effective Maturity 16.43 years
- ------------------------------------------------------------------------------
Average Effective Duration 8.36
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Top Five Sectors/1/
- ------------------------------------------------------------------------------
Tax Obligation (General) 24%
- ------------------------------------------------------------------------------
U.S. Guaranteed 19%
- ------------------------------------------------------------------------------
Health Care 15%
- ------------------------------------------------------------------------------
Tax Obligation (Limited) 11%
- ------------------------------------------------------------------------------
Utilities 6%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Bond Credit Quality/1/
- ------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed......67%
AA....................... 7%
A........................12%
BBB/NR...................14%
/1/ as a percentage of total bond holdings
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
5
<PAGE>
NUVEEN FLAGSHIP COLORADO MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Mike Davern discusses fund performance, the municipal market
and key investment strategies for the Colorado fund for the fiscal year ended
May 31, 1999.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
In what condition has Colorado's economy been during the fund's fiscal year?
Colorado's economy is notably strong, with an unemployment level of just 2.9% in
May, and is broadly diversified among high-technology manufacturing, retail
trade, tourism, agriculture, energy and mining. It enjoys a pro-business tax and
regulatory environment and high quality of life.
How does the economy's strength benefit the local municipal bond market?
Colorado's expanding economy led to growing infrastructure and school financing
needs, resulting in strong municipal bond issuance in 1998.
The strength in the economy, however, also led to rising interest rates in
1999, which significantly slowed municipal financing through bond issuance in
the latter half of the fund's fiscal year.
Another continuing constraint on supply in Colorado is that state's
Taxpayer's Bill of Rights (TABOR), which was enacted in 1992 and imposed new
constitutional limitations on taxes, revenue and debt.
As was the case nationally, increasing concerns about rising economic
growth and potential inflation caused bond yields to rise and prices to fall.
However, municipal bonds held their values quite well compared to U.S. Treasury
bonds.
How did Nuveen Flagship Colorado Municipal Bond Fund perform during its fiscal
year? Nuveen Flagship Colorado Municipal Bond Fund generated a total return on
net asset value of 3.76%. That compares to the 3.55% average annual total return
posted by the Lipper Colorado Municipal Debt Peer Group.* The fund ranked 8th
out of 28 municipal bond funds in the June 1, 1998 through May 31, 1999 period.
Total return equals a fund's income plus capital gains distributions, if any,
plus or minus changes in net asset value. The fund's taxable equivalent total
return, for investors in the 34.5% combined federal and state income tax
bracket, was 6.27.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.80%. For investors in
the combined 34.5% federal and state income tax bracket, that is equivalent to a
yield of 7.33% on a taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates declined.
To protect the fund's income stream, we looked for bonds with calls far
into the future--or better yet, that are noncallable. Only 2% of the fund's
portfolio is callable before 2002.
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality.
In addition to assessing the credit quality of individual issuers, Nuveen
Research helps us monitor events in the municipal market and how those events
affect individual state and national municipal markets.
For example, during spring 1998, a major not-for-profit healthcare provider
in Philadelphia declared bankruptcy.
* The Lipper Peer Group return represents the average annualized total
return of the 28 funds in the Lipper Colorado Municipal Debt category. The
return assumes reinvestment of dividends and does not reflect any applicable
sales charges.
** Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
6
<PAGE>
While the impact of this bankruptcy was most pronounced in the healthcare sector
of the Pennsylvania municipal market, it was felt to a lesser extent throughout
the municipal market.
Uncertainty created by the Philadelphia healthcare situation prompted
investors to demand higher yields for lower-rated issues across the country,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen. Prior to the bankruptcy,
this spread had been relatively narrow, suggesting that investors were not being
compensated adequately for taking on additional credit risk. With spreads having
widened, lower-rated securities have become more attractive on a risk-adjusted
basis.
With interest rates at a higher level, and the widening differential
between low-rated and high-rated credits, we took the opportunity to investigate
lower-rated issues. Using the expertise of Nuveen Research, we considered only
those bonds that offered adequate compensation for the level of risk offered.
For example, one new issue that met Nuveen's strict credit criteria was
$1.25 million worth of non-rated Boulder County Multifamily Housing bonds issued
on behalf of the Thistle Community Project, a low income multifamily housing
project for the city of Boulder. We purchased these bonds at a 6.5% yield, a
full percentage point higher than what insured bonds were offering at the same
time.
We will continue to look for opportunities like the Thistle Community
Project bonds to enhance the fund's yield while continuing to apply the same
stringent selection process for lower-rated and non-rated purchases.
In recent months, we have taken advantage of rising interest rates by
selling some bonds at a loss--because as interest rates rose, prices of the
bonds fell--and subsequently buying similar securities, whose yield now
reflected the higher interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income. Tax losses were
created by the swaps, which will benefit the fund and are used to offset capital
gains for up to seven years. The higher yield of the new bonds should boost the
fund's income as well.
What is your outlook for the Colorado fund? Rising interest rates in 1999 have
made it advantageous for us to lock in higher yields by extending the
portfolio's average maturity beyond that of our peer group. We believe that bond
yields are currently attractive in relation to inflation. Should interest rates
fall or remain stable, the portfolio's longer effective maturity would be
beneficial.
With Colorado's strong economy and influx of population, we expect a
buoyant supply and demand for municipal bonds in areas such as housing,
healthcare, education and utilities.
We will continue to seek out undervalued securities that provide income and
the opportunity for price appreciation through credit rating upgrades.
"We will continue to look for opportunities like the Thistle Community Project
bonds to enhance the fund's yield while continuing to apply the same stringent
selection process for lower-rated and non-rated purchases."
7
<PAGE>
NUVEEN FLAGSHIP COLORADO MUNICIPAL BOND FUND
Highlights as of May 31, 1999
- ------------------------------------------------------------------------------
Quick Facts
- ------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV $10.68 $10.70 $10.67 $10.69
- ------------------------------------------------------------------------------
May's Declared Dividend* $0.0410 $0.0345 $0.0360 $0.0430
- ------------------------------------------------------------------------------
Fund Symbol FA0TX N/A N/A N/A
- ------------------------------------------------------------------------------
CUSIP 67065L609 67065L500 67065L807 67065L880
- ------------------------------------------------------------------------------
Inception Date 5/87 2/97 2/97 2/97
- ------------------------------------------------------------------------------
* Paid June 1, 1999
- ------------------------------------------------------------------------------
Total Returns (Annualized)/+/
- ------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.76% -0.57% 3.11% 3.19% 4.08%
- ------------------------------------------------------------------------------
1-Year TER** 6.27% 1.84% 5.22% 5.40% 6.71%
- ------------------------------------------------------------------------------
5-Year 7.65% 6.74% 7.02% 7.17% 7.78%
- ------------------------------------------------------------------------------
10-Year 7.65% 7.18% 7.18% 7.22% 7.71%
/+/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate
of 34.5%).
- ------------------------------------------------------------------------------
Index Comparison/./
- ------------------------------------------------------------------------------
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship Lehman Brothers
Colorado Municipal Colorado Municipal Municipal
May Bond Fund (Offer) Bond Fund (NAV) Bond Index
<S> <C> <C> <C>
1989 9,580 10,000 10,000
1990 10,116 10,559 10,731
1991 11,000 11,482 11,813
1992 12,076 12,606 12,974
1993 13,573 14,169 14,526
1994 13,849 14,456 14,885
1995 15,170 15,835 16,240
1996 15,797 16,489 16,982
1997 17,256 18,012 18,391
1998 19,299 20,145 21,117
1999 20,024 20,902 21,058
</TABLE>
Nuveen Flagship Colorado Municipal Bond Fund (Offer) $20,024
Nuveen Flagship Colorado Municipal Bond Fund (NAV) $20,902
Lehman Brothers Municipal Bond Index $21,058
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
- -------------------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares)/../
- -------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Month
- -----
<S> <C>
June .0435
July .0425
August .0425
September .0425
October .0425
November .0425
December .0425
January .0410
February .0410
March .0410
April .0410
May .0410
</TABLE>
/../ The fund also paid shareholders capital gains distributions in December of
$0.0300 per share.
- ------------------------------------------------------------------------------
Morningstar Rating/TM//1/
- ------------------------------------------------------------------------------
****
Overall rating among 1,586 municipal bond funds as of 5/31/99
- ------------------------------------------------------------------------------
Portfolio Statistics
- ------------------------------------------------------------------------------
Fund Net Assets $46.9 million
- ------------------------------------------------------------------------------
Effective Maturity 20.95 years
- ------------------------------------------------------------------------------
Average Effective Duration 9.34
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Top Five Sectors/2/
- ------------------------------------------------------------------------------
U.S. Guaranteed 32%
- ------------------------------------------------------------------------------
Housing (Multifamily) 24%
- ------------------------------------------------------------------------------
Health Care 13%
- ------------------------------------------------------------------------------
Transportation 12%
- ------------------------------------------------------------------------------
Education and Civic Organizations 7%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Bond Credit Quality/2/
- ------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed......56%
AA.......................19%
A........................ 4%
BBB/NR...................21%
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
/1/ The Morningstar rating is an overall rating for the municipal bond category
and relates to Class A Shares only; other classes may vary. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
5/31/99 and are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the fund's three-,
five-, and 10-year average annual returns (if applicable) in excess of 90-
day Treasury bill returns, with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. A shares
of the fund received 4 stars for the 3-and 5-year periods and 3 stars for
the 10-year period. The top 10% of the funds in a broad asset class receive
5 stars and the next 22.5% receive 4 stars. The fund was rated among 1,586,
1,184, and 368 funds for the three-, five-, and 10-year periods,
respectively.
/2/ as a percentage of total bond holdings
8
<PAGE>
NUVEEN FLAGSHIP NEW MEXICO MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Mike Davern discusses fund performance, the municipal market
and key investment strategies for the New Mexico fund for the fiscal year ended
May 31, 1999.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
In what condition is New Mexico's economy? Although New Mexico's unemployment
rate was 6.1% in May, which is higher than the national average, the state's
economy is improving. Its per capita income is increasing, and employment levels
in service industries have risen about 21% over the past five years.
In addition to services, New Mexico's major industries include energy,
tourism, crafts, agribusiness, manufacturing and mining. The state's economy
also benefits from scientific research facilities at Los Alamos, Albuquerque and
White Sands.
New Mexico's expanding economy and growing infrastructure and school financing
needs led to increased municipal bond issuance in 1998. Despite rising interest
rates in 1999, New Mexico municipal bond issuance continued to increase in
recent months. Even so, the state's municipal bond supply is among the smallest
in the country.
We were able to continue to invest the fund in high quality New Mexico bonds,
however, thanks to its market presence. That is, the fund's large size and
market power gave us access to deals that smaller or individual retail buyers
might not hear about.
As was the case nationally, increasing concerns about strong economic growth
and potential inflation caused bond yields to rise and prices to fall. However,
municipal bonds held their values quite well compared to U.S. Treasury bonds.
How did Nuveen Flagship New Mexico Municipal Bond Fund perform during its fiscal
year? Nuveen Flagship New Mexico Municipal Bond Fund generated a total return on
net asset value of 3.74%. That compares to the 3.50% average annual total return
posted by the Lipper Other States Municipal Debt Peer Group.* Total return
equals a fund's income plus capital gains distributions, if any, plus or minus
changes in net asset value. The fund's tax-equivalent total return, for
investors with a combined federal and state tax rate of 36.50%, was 6.41%.
As of May 31, 1999, the fund's SEC 30-day yield was 4.04%. For investors in
the combined 36.50% income tax bracket, that is equivalent to a yield of 6.36%
on a taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates declined. To protect the fund's income
stream, we looked for bonds with call dates far in the future--or better yet,
that are noncallable. Only 2.5% of the New Mexico portfolio is callable between
now and the year 2002.
For instance, we added two bonds that offered attractive yields and good call
protection. The first was a AA rated Albuquerque Gross Receipts Tax Revenue bond
with a 4.75% coupon maturing in 2022. The second was an insured AAA rated
Farmington Pollution Control Revenue Bond issued by Southern California Edison,
paying a coupon of 5.125% and maturing in 2029.
* The Lipper Peer Group return represents the average annualized total return of
the 79 funds in the Lipper Other States Municipal Debt category. The return
assumes reinvestment of dividends and does not reflect any applicable sales
charges.
**Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus or minus charges in net asset value.
9
<PAGE>
We will continue to search for attractive opportunities to add to the portfolio
as supply comes to market.
Although the fund's portfolio continues to be of very high quality, with 75%
of its holdings rated AAA or AA, Nuveen's extensive research capabilities gives
us the ability to identify lower-rated debt that offers strong quality
characteristics and the opportunity for additional yield.
In addition to assessing the credit quality of individual issuers, Nuveen
Research helps us monitor events in the municipal market and analyze how those
events affect individual state and national municipal markets.
For example, during spring 1998, a major not-for-profit healthcare provider in
Philadelphia declared bankruptcy. While the impact of this bankruptcy was most
pronounced in the healthcare sector of the Pennsylvania municipal market, it was
felt to a lesser extent throughout the municipal market.
Uncertainty created by the Philadelphia health-care situation prompted
investors to demand higher yields for lower-rated issues across the country,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen. Prior to the bankruptcy,
this spread had been relatively narrow, suggesting that investors were not being
compensated adequately for taking on additional credit risk. With spreads having
widened, lower-rated securities have become more attractive on a risk-adjusted
basis.
With interest rates higher, and the widening differential between low-rated
and high-rated credits, we took the opportunity to investigate lower-rated
issues. Using the expertise of Nuveen Research, we considered only those bonds
that offered adequate compensation for the level of risk offered.
For instance, we invested in some lower-rated hospital revenue bonds that
offered a 5.5% coupon due June 2028. As a large purchaser in the state, we were
able to purchase a large percentage of the issue. We believe that this is an
example of a high-quality lower investment-grade credit that is hard to find in
a state with sporadic issuance.
In recent months, we have taken advantage of rising interest rates by selling
some bonds at a loss--because as interest rates rose, prices of the bonds fell--
and subsequently buying similar securities, whose yield now reflected the higher
interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income. Tax losses were
created by the swaps, which will benefit the fund and are used to offset capital
gains for up to eight years. The higher yield of the new bonds should boost the
fund's income as well.
What is your outlook for Nuveen Flagship New Mexico Municipal Bond Fund? Rising
interest rates in 1999 have made it advantageous for us to lock in higher yields
by extending the portfolio's average maturity beyond that of our peer group.
We believe that bond yields are currently attractive in relation to inflation.
Should interest rates fall or remain stable, the portfolio's longer effective
maturity would be advantageous.
We will continue to seek out undervalued securities that provide income and
the opportunity for price appreciation through credit rating upgrades.
"To protect the fund's income stream, we looked for bonds with call dates far in
the future--or better yet, that are noncallable. Only 2.5% of the New Mexico
portfolio is callable between now and the year 2002."
10
<PAGE>
NUVEEN FLAGSHIP NEW MEXICO MUNICIPAL BOND FUND
Highlights as of May 31, 1999
- ------------------------------------------------------------------------------
Quick Facts
- ------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV $10.58 $10.57 $10.58 $10.60
- ------------------------------------------------------------------------------
May's Declared Dividend* $0.0395 $0.0330 $0.0350 $0.0415
- ------------------------------------------------------------------------------
Fund Symbol FNMTX N/A N/A N/A
- ------------------------------------------------------------------------------
CUSIP 67065L781 67065L773 67065L765 67065L757
- ------------------------------------------------------------------------------
Inception Date 9/92 2/97 2/97 2/97
- ------------------------------------------------------------------------------
* Paid June 1, 1999
- ------------------------------------------------------------------------------
Total Returns (Annualized)/+/
- ------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.74% -0.64% 2.89% 3.22% 3.86%
- ------------------------------------------------------------------------------
1-Year TER** 6.41% 1.92% 5.13% 5.59% 6.66%
- ------------------------------------------------------------------------------
5-Year 7.00% 6.10% 6.31% 6.55% 7.15%
- ------------------------------------------------------------------------------
Since Inception 6.74% 6.06% 6.07% 6.31% 6.85%
/+/ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate
of 36.5%).
- ------------------------------------------------------------------------------
Index Comparison/./
- ------------------------------------------------------------------------------
[LINE CHART APPEARS HERE]
Nuveen Flagship Nuveen Flagship
New Mexico Mew Mexico Lehman Brothers
Municipal Municipal Municipal
September Bond Fund (Offer) Bond Fund (NAV) Bond Index
- ---------
1992 9,580 10,000 10,000
May
---
1993 11,063 11,548 11,274
1994 10,547 11,010 10,999
1995 11,691 12,204 12,230
1996 12,423 12,967 12,969
1997 13,588 14,184 14,140
1998 14,830 15,480 15,372
1999 14,897 15,550 15,549
Nuveen Flagship New Mexico Municipal Bond Fund (Offer) $14,897
Nuveen Flagship New Mexico Municipal Bond Fund (NAV) $15,550
Lehman Brothers Municipal Bond Index $15,549
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
- -------------------------------------------------------------------------------
Monthly Tax-Free Dividends (Class A Shares)
- -------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
Month
- -----
June .0420
July .0410
August .0410
September .0410
October .0410
November .0410
December .0410
January .0395
February .0395
March .0395
April .0395
May .0395
- ------------------------------------------------------------------------------
Portfolio Statistics
- ------------------------------------------------------------------------------
Fund Net Assets $61.9 million
- ------------------------------------------------------------------------------
Effective Maturity 21.23 years
- ------------------------------------------------------------------------------
Average Effective Duration 8.19
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Top Five Sectors/1/
- ------------------------------------------------------------------------------
Tax Obligation (Limited) 25%
- ------------------------------------------------------------------------------
Housing (Single Family) 17%
- ------------------------------------------------------------------------------
Education & Civic Organizations 15%
- ------------------------------------------------------------------------------
Housing (Multifamily) 8%
- ------------------------------------------------------------------------------
U.S. Guaranteed 8%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Bond Credit Quality/1/
- ------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed......62%
AA.......................13%
A........................15%
BBB/NR...................10%
/1/ as a percentage of total bond holdings
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Cyclical - 0.9%
$ 1,000,000 Mesa, Arizona, Industrial Development Authority, Industrial Revenue No Opt. Call N/R $1,065,730
Bonds (TRW Vehicle Safety System Inc. Project), Series 1992, 7.250%,
10/15/04 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 0.2%
250,000 Casa Grande, Arizona, Industrial Development Authority, Pollution Control 12/02 at 103 A1 274,583
Revenue Bonds (Frito-Lay Inc/PepsiCo), Series 1984, 6.650%, 12/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 4.7%
570,000 Arizona Educational Loan Marketing Corporation, 1992 Educational 3/02 at 101 Aa2 605,312
Loan Revenue Bonds, Series B, 7.000%, 3/01/05 (Alternative Minimum Tax)
100,000 Arizona Educational Loan Marketing Corporation, Educational Loan 9/02 at 101 Aa 106,983
Revenue Bonds, 6.375%, 9/01/05 (Alternative Minimum Tax)
1,500,000 Student Loan Acquisition Authority of Arizona, Student Loan Revenue 5/04 at 102 Aa 1,601,610
Bonds, Series 1994B, Subordinated Fixed Rate Bonds, 6.600%, 5/01/10
(Alternative Minimum Tax)
2,500,000 The Industrial Development Authority of the City of Glendale, Arizona, 5/08 at 101 BBB+ 2,444,300
Revenue Bonds, Midwestern University, Series 1998A, 5.375%, 5/15/28
115,000 The Industrial Development Authority of the City of Glendale, Arizona, 5/06 at 102 AAA 122,838
Revenue Bonds, Midwestern University, Series 1996A,
6.000%, 5/15/16
300,000 Arizona Board of Regents, University of Arizona, System Revenue Refunding 6/02 at 102 AA 323,124
Bonds, Series 1992, 6.250%, 6/01/11
335,000 Yavapai County Community College, District of Yavapai County, Arizona, 7/03 at 101 A- 351,814
Revenue Bonds, Series 1993, 6.000%, 7/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 15.3%
1,250,000 Arizona Health Facilities Authority, Revenue Bonds (Arizona Voluntary 10/99 at 101 AAA 1,278,250
Hospital Federation Pooled Loan Program), 1985 Series B, 7.250%,
10/01/13
4,500,000 The Industrial Development Authority of the County of Maricopa, 7/08 at 101 A 4,341,870
Arizona, Health Facility Revenue Bonds (Catholic Healthcare West
Project), 1998 Series A, 5.000%, 7/01/16
2,775,000 The Industrial Development Authority of the County of Maricopa, No Opt. Call AAA 3,426,709
Arizona, Samaritan Health Services, Hospital System Revenue Refunding
Bonds, Series 1990A, 7.000%, 12/01/16
375,000 The Industrial Development Authority of the County of Maricopa, 12/00 at 102 AAA 402,296
Arizona, Hospital Refunding Revenue Bonds (John C. Lincoln Hospital
and Health Center), Series 1990, 7.500%, 12/01/13
600,000 The Industrial Development Authority of the County of Maricopa, 9/05 at 101 AAA 611,706
Arizona, Baptist Hospital System, Revenue Refunding Bonds, Series 1995,
5.500%, 9/01/16
The Industrial Development Authority of the City of Phoenix, Arizona,
Hospital Revenue Bonds (John C. Lincoln Hospital and Health Center),
Series 1994:
500,000 6.000%, 12/01/10 12/03 at 102 BBB+ 517,835
500,000 6.000%, 12/01/14 12/03 at 102 BBB+ 517,145
The Industrial Development Authority of the County of Pima, Arizona,
Health Care System Revenue Bonds, Carondelet Health Care Corporation of
Arizona Issue, Series 1993:
500,000 5.250%, 7/01/12 No Opt. Call AAA 519,930
640,000 5.250%, 7/01/13 No Opt. Call AAA 664,890
1,500,000 Scottsdale Industrial Development Authority (Scottsdale Memorial No Opt. Call AAA 1,596,675
Hospitals), 5.500%, 9/01/12
3,000,000 Industrial Development Authority of the City of Scottsdale, Arizona, 9/07 at 102 AAA 3,234,270
Hospital Revenue Refunding Bonds (Scottsdale Memorial Hospitals),
Series 1997A, 6.125%, 9/01/17
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Health Care (continued)
$1,055,000 The Industrial Development Authority of the City of Winslow, Arizona, 6/08 at 101 N/R $1,015,321
Hospital Revenue Bonds (Winslow Memorial Hospital Project), Series 1998,
5.500%, 6/01/22
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 6.2%
2,900,000 The Industrial Development Authority of the County of Maricopa, 10/09 at 102 N/R 2,866,273
Arizona, Multifamily Housing Revenue Bonds (Metro Gardens-Mesa Ridge
Apartments Project), Series 1999A, 6.700%, 10/01/29
295,000 Phoenix Housing Finance Corporation, Arizona, Mortgage Revenue 7/02 at 101 AAA 308,924
Refunding Bonds, Series 1992A (FHA-Insured Mortgage Loans - Section 8
Assisted Projects), 6.500%, 7/01/24
The Industrial Development Authority of the City of Phoenix, Arizona,
Mortgage Revenue Refunding Bonds, Series 1992 (FHA-Insured Mortgage Loan -
Chris Ridge Village Project):
200,000 6.750%, 11/01/12 11/02 at 101 AAA 211,342
425,000 6.800%, 11/01/25 11/02 at 101 AAA 449,076
500,000 The Industrial Development Authority of the City of Phoenix, Arizona, 2/03 at 102 Aaa 515,400
Multifamily Housing Revenue Refunding Bonds, Series 1993 (GNMA
Collateralized Meadow Glen Apartment Project), 5.800%, 8/20/28
2,500,000 The Industrial Development Authority of the City of Phoenix, Arizona, 12/05 at 103 AAA 2,477,000
Multifamily Housing Revenue Bonds, Series 1998A (Heather Ridge
Apartments Project), 5.200%, 12/15/21 (Alternative Minimum Tax)
500,000 The Industrial Development Authority of the City of Tempe, Arizona, 6/03 at 102 AAA 527,660
Multifamily Mortgage Refunding Bonds, Series 1993A (FHA-Insured
Mortgage Loan - Quadrangles Village Apartments), 6.250%, 6/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 4.0%
1,500,000 The Industrial Development Authority of the County of Maricopa, 6/08 at 108 Aaa 1,609,170
Arizona, Single Family Mortgage Revenue Refunding Bonds
(Mortgage-Backed Securities Program), Series 1998B, 4.750%,
12/01/30 (Alternative Minimum Tax)
440,000 The Industrial Development Authority of the City of Phoenix, Arizona, 6/05 at 102 AAA 457,631
Statewide Single Family Mortgage Revenue Bonds, Series 1995, 6.150%,
12/01/08 (Alternative Minimum Tax)
1,400,000 The Industrial Development Authority of the City of Phoenix, 4/08 at 101 1/2 AAA 1,398,138
Arizona, Statewide Single Family Mortgage Revenue Bonds, 1998
Series C, 5.300%, 4/01/20 (Alternative Minimum Tax)
355,000 The Industrial Development Authority of the County of Pima, Arizona, 8/05 at 102 A 377,127
Single Family Mortgage Revenue Refunding Bonds, Series 1995A, 6.500%,
2/01/17
800,000 The Industrial Development Authority of the County of Pima, 5/07 at 102 AAA 850,416
Arizona, Single Family Mortgage Revenue Bonds, Series 1997A, 6.250%,
11/01/30 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 1.5%
1,645,000 The Industrial Development Authority of the County of Cochise, 12/04 at 102 AAA 1,826,427
Arizona, Tax Exempt Mortgage Revenue Refunding Bonds, Series 1994A
(GNMA Collateralized - Sierra Vista Care Center), 6.750%, 11/20/19
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 23.7%
800,000 City of Chandler, Arizona, General Obligation Refunding Bonds, Series 7/01 at 101 AAA 856,528
1991, 7.000%, 7/01/12
Sierra Vista Unified School District No. 68 of Cochise County, Arizona,
General Obligation Refunding Bonds, Series 1992:
250,000 7.500%, 7/01/09 No Opt. Call AAA 307,128
300,000 7.500%, 7/01/10 No Opt. Call AAA 370,770
375,000 Maricopa Rural Road Improvement District of Pinal County, Arizona, 7/99 at 101 N/R 379,864
Refunding Bonds, Series 1994, 6.900%, 7/01/05
675,000 Peoria Unified School District No. 11 of Maricopa County, Arizona, No Opt. Call AAA 493,688
Refunding Bonds, Second Series of 1992, 0.000%, 7/01/06
480,000 Peoria Unified School District No. 11 of Maricopa County, Arizona, 7/01 at 101 AAA 507,590
School Improvement and Refunding Bonds, Series 1992, 6.400%, 7/01/10
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/General (continued)
Kyrene Elementary School District No. 28 of Maricopa County, Arizona,
Refunding Bonds, Series 1993C:
$ 4,000,000 0.000%, 7/01/07 No Opt. Call AAA $ 2,777,240
1,870,000 0.000%, 1/01/09 No Opt. Call AAA 1,193,154
3,805,000 0.000%, 1/01/10 No Opt. Call AAA 2,288,099
2,500,000 0.000%, 7/01/10 No Opt. Call AAA 1,467,675
6,000,000 0.000%, 1/01/11 No Opt. Call AAA 3,407,880
50,000 Kyrene Elementary School District No. 28 of Maricopa County, 7/02 at 100 AAA 52,664
Arizona, School Improvement Bonds, Project of 1990,
Series 1993E, 6.000%, 7/01/12
Glendale Elementary School District No. 40 of Maricopa County, Arizona,
School Improvement and Refunding Bonds, Series 1995:
500,000 6.200%, 7/01/09 7/05 at 101 AAA 550,320
2,500,000 6.250%, 7/01/10 7/05 at 101 AAA 2,758,225
1,750,000 6.300%, 7/01/11 7/05 at 101 AAA 1,927,993
2,000,000 Gilbert Unified School District No. 41 of Maricopa County, Arizona, No Opt. Call AAA 1,495,400
Refunding Bonds, Series 1994, 0.000%, 1/01/06
500,000 Gilbert Unified School District No. 41 of Maricopa County, Arizona, 7/08 at 100 AAA 555,800
School Improvement Bonds, Project of 1993, Series D, 6.250%, 7/01/15
515,000 Alhambra Elementary School District No. 68 of Maricopa County, Arizona, 7/04 at 102 AAA 581,806
School Improvement and Refunding Bonds, Series 1994A, 6.750%, 7/01/14
310,000 Chandler Unified School District No. 80 of Chandler County, Arizona, No Opt. Call AAA 350,095
School Improvement and Refunding Bonds, Series 1994, 6.250%, 7/01/11
1,275,000 Maricopa County, Arizona, School District No. 98, Fountain Hills No Opt. Call AAA 932,522
Unit, Refunding Bonds, 0.000%, 7/01/06
635,000 Blue Ridge Unified School District No. 32 of Navajo County, Arizona, 7/06 at 101 AAA 681,526
School Improvement Bonds (Projects of 1994), Series 1996, 5.800%,
7/01/14
1,000,000 Tucson Unified School District No. 1 of Pima County, Arizona, Refunding No Opt. Call AAA 1,238,840
Bonds, Series 1992, 7.500%, 7/01/10
500,000 Tanque Verde Unified School District No. 13 of Pima County, Arizona, 7/04 at 102 AAA 562,870
School Improvement and Refunding Bonds, Series 1994, 6.700%, 7/01/10
500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 5.375%, 7/07 at 100 A 503,890
7/01/25
315,000 Scottsdale Mountain Community Facilities District, Scottsdale, Arizona, 7/03 at 102 A 336,319
District General Obligation Bonds, Series 1993A, 6.200%, 7/01/17
225,000 City of Tempe, Arizona, General Obligation Bonds, Series 1992B, 6.000%, 7/02 at 101 AA+ 240,658
7/01/08
180,000 Tempe Union High School District No. 213 of Maricopa County, Arizona, 7/04 at 101 AAA 194,402
School Improvement and Refunding Bonds, Series 1994, 6.000%, 7/01/12
1,130,000 City of Tucson, Arizona, General Obligation Refunding Bonds, Series 1997, 7/07 at 100 AA 1,110,960
5.000%, 7/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited--10.8%
250,000 State of Arizona, Refunding Certificates of Participation, Series 1992B, 9/02 at 102 AAA 268,770
6.250%, 9/01/10
225,000 Arizona Municipal Financing Program, Certificates of Participation, No Opt. Call AAA 263,747
Series 11, 8.000%, 8/01/17
965,000 City of Bullhead, Bullhead Parkway District Improvement Bonds, 6.100%, 1/03 at 103 Baa 1,035,291
1/01/13
550,000 City of Douglas, Arizona, Municipal Property Corporation, Municipal 7/05 at 101 AAA 581,235
Facilities Excise Tax Revenue Bonds, Series 1995, 5.750%, 7/01/15
280,000 Eloy Municipal Property Corporation, Municipal Facilities Revenue Bonds, 7/02 at 101 BBB 299,989
Series 1992, 7.000%, 7/01/11
385,000 City of Flagstaff, Arizona, Junior Lien Street and Highway User Revenue No Opt. Call AAA 425,086
Bonds, Series 1992, 5.900%, 7/01/10
300,000 Hospital District No. One, Maricopa County, Arizona, Hospital Facilities 6/04 at 101 AAA 325,989
Refunding Bonds, Series 1992B, 6.250%, 6/01/10
1,000,000 Hospital District No. One, Maricopa County, Arizona, General Obligation 6/06 at 101 A 1,071,570
Bonds, Series 1996, 6.500%, 6/01/17
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited (continued)
City of Peoria, Arizona, Improvement District No. 8801 (North Valley
Power Center), Improvement Bonds:
$ 425,000 7.300%, 1/01/12 1/03 at 101 BBB $ 458,635
460,000 7.300%, 1/01/13 1/03 at 101 BBB 496,404
300,000 City of Phoenix, Arizona, Junior Lien Street and Highway User Revenue 7/02 at 102 A+ 323,556
Refunding Bonds, Series 1992, 6.250%, 7/01/11
Pinal County, Arizona, Certificates of Participation, Series 1994:
300,000 6.375%, 6/01/06 6/02 at 101 AA 323,154
200,000 6.500%, 6/01/09 6/02 at 101 AA 216,140
2,050,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 2,108,425
Bonds, Series Y of 1996, 5.500%, 7/01/36
1,200,000 Puerto Rico Highway and Transportation Authority, Transportation 7/08 at 101 A 1,139,856
Revenue Bonds, Series A, 5.000%, 7/01/38
2,350,000 Puerto Rico Public Buildings Authority, Government Facilities 7/07 at 101 1/2 A 2,336,206
Revenue Bonds, Series B, Guaranteed by the Commonwealth of
Puerto Rico, 5.250%, 7/01/21
850,000 City of Tucson, Arizona, Certificates of Participation, Series 7/04 at 100 AA 924,579
1994, 6.375%, 7/01/09
175,000 Business Development Finance Corporation, Tucson, Arizona, Local 7/02 at 102 AAA 188,503
Development Lease Revenue Refunding Bonds, Series 1992,
6.250%, 7/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 1.7%
500,000 City of Phoenix, Arizona, Airport Revenue Bonds, Series 1994D, 7/04 at 102 AAA 547,510
6.400%, 7/01/12 (Alternative Minimum Tax)
1,000,000 City of Phoenix, Arizona, Civic Improvement Corporation, Senior 7/08 at 101 AAA 975,050
Lien Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25
500,000 Tucson, Arizona, Airport Authority Inc., Revenue Bonds, Series 6/00 at 102 AAA 526,055
1990B, 7.125%, 6/01/15 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 18.5%
300,000 Arizona Health Facilities Authority, Hospital System Revenue Refunding 9/03 at 100 AAA 327,528
Bonds (Phoenix Baptist Hospital and Medical Center, Inc. and Medical
Environments, Inc.), Series 1992, 6.250%, 9/01/11
200,000 Arizona Municipal Financing Program, Certificates of Participation, No Opt. Call AAA 248,170
Series 20, 7.700%, 8/01/10
300,000 Arizona Board of Regents, Arizona State University, System Revenue 7/02 at 101 Aaa 329,904
Bonds, Series 1989, 7.000%, 7/01/15 (Pre-refunded to 7/01/02)
Sedona-Oak Creek Joint Unified School District No. 9 of Coconino and
Yavapai Counties, Arizona, School Improvement Bonds, Project
of 1992, Series 1992A:
250,000 6.700%, 7/01/06 (Pre-refunded to 7/01/01) 7/01 at 101 A-*** 267,085
250,000 6.750%, 7/01/07 (Pre-refunded to 7/01/01) 7/01 at 101 A-*** 267,333
385,000 The Industrial Development Authority of the City of Glendale, 5/06 at 102 AAA 429,622
Arizona, Revenue Bonds, Midwestern University, Series 1996A,
6.000%, 5/15/16 (Pre-refunded to 5/15/06)
345,000 Maricopa County, Arizona, Hospital Revenue Bonds, Series 1980 No Opt. Call AAA 421,649
(St. Luke's Hospital Medical Center), 8.750%, 2/01/10
16,300,000 The Industrial Development Authority of the County of Maricopa, No Opt. Call AAA 6,992,863
Arizona, Single Family Mortgage Revenue Bonds, Series 1984,
0.000%, 2/01/16
270,000 Peoria Unified School District No. 11 of Maricopa County, Arizona, 7/01 at 101 AAA 287,061
School Improvement and Refunding Bonds, Series 1992, 6.400%,
7/01/10 (Pre-refunded to 7/01/01)
265,000 Kyrene Elementary School District No. 28 of Maricopa County, 7/02 at 100 AAA 281,406
Arizona, School Improvement Bonds, Project of 1990, Series 1993E,
6.000%, 7/01/12 (Pre-refunded to 7/01/02)
190,000 Chandler Unified School District No. 80 of Chandler County, Arizona, 7/11 at 100 AAA 217,392
School Improvement and Refunding Bonds, Series 1994, 6.250%,
7/01/11 (Pre-refunded to 7/01/11)
700,000 Peoria Municipal Development Authority, Inc., Municipal Facilities 7/99 at 102 AAA 716,275
Revenue Bonds, Series 1991, 7.000%, 7/01/10 (Pre-refunded to 7/01/99)
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Arizona Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$1,000,000 City of Phoenix, Arizona, Civic Improvement Corporation, Junior 7/06 at 100 Aaa $1,078,380
Lien Water System Revenue Bonds, Series 1996, 5.600%,
7/01/18 (Pre-refunded to 7/01/06)
500,000 City of Phoenix, Arizona, Senior Lien Street and Highway User 7/02 at 102 AA*** 544,780
Revenue Bonds, Series 1992, 6.250%, 7/01/11
460,000 Pima County, Arizona, Sewer Revenue Refunding Bonds, Series 1991, 7/01 at 101 AAA 492,278
6.750%, 7/01/15 (Pre-refunded to 7/01/01)
1,925,000 Tatum Ranch Community Facilities District, Arizona, General 7/02 at 102 A*** 2,124,661
Obligation Bonds, Series 1991A, 6.875%, 7/01/16
(Pre-refunded to 7/01/02)
420,000 Tempe Union High School District No. 213 of Maricopa County, 7/04 at 101 AAA 459,837
Arizona, School Improvement and Refunding Bonds, Series 1994,
6.000%, 7/01/12 (Pre-refunded to 7/01/04)
11,570,000 Tucson and Pima County Industrial Development Authorities, Single No Opt. Call AAA 5,362,926
Family Mortgage Bonds, 0.000%, 12/01/14
500,000 City of Tucson, Arizona, General Obligation Bonds, Series 1984-G, 7/04 at 101 AAA 553,115
6.250%, 7/01/18 (Pre-refunded to 7/01/04)
75,000 Business Development Finance Corporation, Tucson, Arizona, Local 7/02 at 102 AAA 81,518
Development Lease Revenue Refunding Bonds, Series 1992, 6.250%,
7/01/12 (Pre-refunded to 7/01/02)
390,000 City of Tucson, Arizona, Water System Revenue Bonds, Series 7/06 at 101 AAA 432,896
1994-A, 6.000%, 7/01/21 (Pre-refunded to 7/01/06)
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities - 6.4%
500,000 Central Arizona Water Conservation District (Central Arizona No Opt. Call AA- 534,345
Project), Contract Revenue Refunding Bonds, Series 1993A,
5.500%, 11/01/10
5,000 Central Arizona Water Conservation District (Central Arizona 5/01 at 102 AA- 5,320
Project), Contract Revenue Bonds, Series 1991B, 6.500%, 11/01/11
2,000,000 Coconino County, Arizona, Pollution Control Corporation, 10/06 at 102 BBB 2,147,480
Pollution Control Revenue Bonds (Nevada Power Company Project),
Series 1996, 6.375%, 10/01/36 (Alternative Minimum Tax)
500,000 Mohave County, Arizona, Industrial Development Authority, 2/00 at 101 AA- 514,680
Industrial Development Revenue Bonds (Citizens Utilities
Company Project), Series 1991B, 7.150%, 2/01/26 (Alternative
Minimum Tax
500,000 The Industrial Development Authority of the County of Mohave, 11/03 at 101 AA- 536,530
Arizona, Industrial Development Revenue Bonds, 1994 Series
(Citizens Utilities Company Projects), 6.600%, 5/01/29
(Alternative Minimum Tax)
210,000 The Industrial Development Authority of the County of Pima, 1/02 at 103 AAA 230,660
Arizona, Industrial Development Lease Obligation Refunding
Revenue Bonds, 1988 Series A (Irvington Project), 7.250%,
7/15/10
2,000,000 Puerto Rico Electric Power Authority, Power Revenue Refunding 7/08 at 101 1/2 BBB+ 1,857,380
Bonds, Series EE, 4.750%, 7/01/24
200,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 7/07 at 101 1/2 AAA 203,418
AA, 5.375%, 7/01/27
500,000 Salt River Project Agricultural Improvement and Power District, No Opt. Call AA 544,040
Arizona, Electric System Revenue Refunding Bonds, Series 1993A,
5.750%, 1/01/10
1,000,000 The Industrial Development Authority of the County of Yavapai, 6/07 at 101 AA- 1,015,870
Arizona, Industrial Development Revenue Bonds (Citizens Utilities
Company Project), Series 1998, 5.450%, 6/01/33
(Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 4.8%
175,000 Wastewater Management Authority of Arizona, Wastewater Treatment 7/02 at 102 AAA 187,037
Financial Assistance Revenue Bonds, Series 1992A, 5.950%, 7/01/12
250,000 Wastewater Management Authority of Arizona, Wastewater Treatment 7/05 at 102 AAA 264,470
Financial Assistance Revenue Bonds, Series 1995, 5.750%, 7/01/15
1,750,000 City of Chandler, Arizona, Water and Sewer Revenue Refunding 7/01 at 101 AAA 1,868,230
Bonds, Series 1991, 6.750%, 7/01/06
City of Cottonwood, Arizona, Sewer Revenue Refunding Bonds,
Series 1992:
500,000 6.900%, 7/01/03 7/02 at 101 BBB 538,275
100,000 7.000%, 7/01/06 7/02 at 101 BBB 107,512
100,000 7.000%, 7/01/07 7/02 at 101 BBB 107,094
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer (continued)
$ 610,000 The Industrial Development Authority of the County of Maricopa, 12/07 at 102 AAA $ 610,238
Water System Improvement Revenue Bonds (Chaparral City Water
Company Project), Series 1997A, 5.400%, 12/01/22 (Alternative
Minimum Tax)
540,000 Pima County, Arizona, Sewer Revenue Refunding Bonds, Series 1991, 7/01 at 101 AAA 575,018
6.750%, 7/01/15
800,000 Sedona, Arizona, Sewer Revenue Refunding Bonds, Series 1992, 7/04 at 101 BBB+ 869,991
7.000%, 7/01/12
500,000 City of Tucson, Arizona, Water System Revenue Bonds, Series 1991, 7/01 at 102 A+ 536,954
6.700%, 7/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
$135,865,000 Total Investments -- (cost $108,460,415) -- 98.7% 117,028,652
============------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.3% 1,562,695
---------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $118,591,347
=====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices
at later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to
be equivalent to AAA rated securities.
See accompanying notes to financial statements.
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Colorado Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 6.5%
$ 300,000 Colorado Student Obligation Bond Authority, Student Loan 9/00 at 100 A $ 308,865
Revenue Bonds, 1991 Series A3, 7.250%, 9/01/05 (Alternative
Minimum Tax)
240,000 Colorado Student Obligation Bond Authority, Student Loan 9/02 at 102 A 254,640
Revenue Bonds, 1992 Series C, 7.150%, 9/01/06 (Alternative
Minimum Tax)
1,500,000 Hyland Hills Park and Recreation District, Adams County, 12/06 at 101 N/R 1,614,345
Colorado Special Revenue Refunding and Improvement Bonds,
Series 1996A, 6.750%, 12/15/15
900,000 Board of Trustees of the University of Northern Colorado, 6/08 at 100 AAA 876,807
Auxiliary Facilities System Revenue Refunding Bonds,
Series 1998A, 5.000%, 6/01/24
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 12.2%
500,000 Colorado Health Facilities Authority, Revenue Bonds (Catholic 12/07 at 101 AA 480,845
Health Initiatives), Series 1997A, 5.125%, 12/01/22
750,000 Colorado Health Facilities Authority, Hospital Revenue Bonds 9/08 at 100 Baa1 721,170
(Parkview Medical Center, Inc. Project), Series 1998, 5.300%, 9/01/25
2,500,000 Colorado Health Facilities Authority, Revenue Bonds (Steamboat 9/09 at 101 N/R 2,454,625
Springs Health Care Association Project), Series 1999, 5.700%, 9/15/23
Board of Trustees for the Gunnison Valley Hospital, Gunnison County, Colorado,
Hospital Revenue:
325,000 5.300%, 7/01/10 7/08 at 101 N/R 321,389
275,000 5.350%, 7/01/11 7/08 at 101 N/R 270,782
1,250,000 5.625%, 7/01/23 7/08 at 101 N/R 1,212,263
250,000 County of Pueblo, Colorado, Insured Hospital Refunding Revenue 9/01 at 101 AAA 269,320
Bonds (Parkview Episcopal Medical Center, Inc. Project),
Series 1991A, 7.000%, 9/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 23.4%
1,500,000 Colorado Housing and Finance Authority, Multi-Family Housing 10/06 at 102 AA+ 1,590,195
Insured Mortgage Revenue Bonds, 1996 Series C3, 6.250%, 10/01/38
1,150,000 Colorado Housing and Finance Authority, Multi-Family Housing 4/07 at 101 1/2 AA+ 1,208,179
Insured Mortgage Revenue Bonds, 1997 Series B2, 5.900%, 10/01/38
(Alternative Minimum Tax)
460,000 Colorado Housing and Finance Authority, Multi-Family Housing 4/05 at 102 AA+ 493,980
Insured Mortgage Revenue Bonds, 1995 Series A, 6.650%, 10/01/28
(Alternative Minimum Tax)
1,265,000 Colorado Housing and Finance Authority, Multi-Family Housing 10/07 at 102 AA+ 1,309,768
Insured Mortgage Revenue Bonds, 1997 Series C2, 5.750%, 10/01/39
(Alternative Minimum Tax)
1,215,000 Colorado Housing and Finance Authority, Multi-Family Housing 10/08 at 101 AA+ 1,225,425
Insured Mortgage Revenue Bonds, 1998 Series B2, 5.450%, 10/01/28
(Alternative Minimum Tax)
2,000,000 City and County of Denver, Colorado, Multi-Family Housing 10/07 at 102 AAA 2,060,840
Revenue Bonds (FHA-Insured Mortgage Loan - The Boston Lofts Project),
Series 1997A, 5.850%, 10/01/38 (Alternative Minimum Tax)
1,000,000 City and County of Denver, Colorado, Multi-Family Housing 5/07 at 102 AAA 1,022,000
Revenue Bonds (FHA-Insured Mortgage Loan - The Buerger Brothers and
Denver Fire Clay Lofts Project), Series 1997A, 5.700%, 11/01/28
(Alternative Minimum Tax)
1,000,000 City and County of Denver, Colorado, Multi-Family Housing 7/08 at 102 AAA 999,950
Mortgage Revenue Bonds (FHA-Insured Mortgage Loan - Garden Court
Community), Series 1998, 5.300%, 7/01/28
1,000,000 City of Lakewood, Colorado, Multi-Family Housing Mortgage 10/05 at 102 AAA 1,077,740
Revenue Bonds (FHA-Insured Mortgage Loan - The Heights by Marston
Lake Project), Series 1995, 6.650%, 10/01/25 (Alternative Minimum Tax)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family - 2.8%
$ 185,000 Colorado Housing and Finance Authority, Single Family Program 8/01 at 102 AA+ $ 192,783
Senior Bonds, 1991 Issue C-2 (Federally Insured or Guaranteed
Mortgage Loans), 7.375%, 8/01/23 (Alternative Minimum Tax)
850,000 Colorado Housing and Finance Authority, Single Family Housing No Opt. Call Aa1 550,783
Revenue Refunding Bonds, 1991 Series A, 0.000%, 11/01/06
100,000 Commerce City, Colorado, Single Family Mortgage Revenue Refunding 3/02 at 101 Aaa 104,012
Bonds, 1992 Series A, 6.875%, 3/01/12
115,000 Pueblo County, Colorado, Single Family Mortgage Revenue Bonds 6/02 at 102 AA- 121,961
(GNMA and FNMA Mortgage-Backed Securities Program), Series 1994A,
6.850%, 12/01/25
300,000 Pueblo County, Colorado, Single Family Mortgage Revenue Refunding 11/04 at 102 AAA 321,912
Bonds (GNMA and FNMA Mortgage-Backed Securities Program), Series
1994A, 7.050%, 11/01/27
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 2.3%
1,000,000 Colorado Health Facilities Authority, First Mortgage Revenue Bonds 1/07 at 101 N/R 1,071,800
(Christian Living Campus - Johnson Center Nursing Facility Refunding
Project), Series 1997A, 7.050%, 1/01/19
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 4.2%
450,000 Cherry Creek Vista Park and Recreation District, Colorado, General 10/02 at 100 N/R 474,201
Obligation Refunding and Improvement Bonds, Series 1992B,
6.875%, 10/01/11
500,000 El Paso School District No. RJ-1, El Paso and Elbert Counties, 12/04 at 100 AA- 556,815
Colorado, General Obligation Bonds, Series 1995, 6.800%, 12/01/14
250,000 Pitkin County, Colorado, General Obligation Open Space Refunding 12/04 at 102 A2 282,073
and Improvement Bonds, Series 1994, 6.875%, 12/01/24
500,000 Commonwealth of Puerto Rico, General Obligation Public Improvement 7/08 at 101 A 479,640
Bonds, Series 1998, 5.000%, 7/01/28
190,000 Valley Metropolitan District, Colorado, Jefferson County, General 12/00 at 101 Baa2 200,070
Obligation Refunding Bonds, Series 1992, 7.000%, 12/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 3.8%
500,000 City of Fort Collins, Colorado, Lease Certificates of 12/08 at 100 AAA 494,530
Participation (Civic Center Facilities Project), Series 1998,
5.125%, 12/01/18
175,000 Jefferson County, Colorado, Refunding Certificates of 12/02 at 102 AAA 192,903
Participation, 6.650%, 12/01/08
300,000 Puerto Rico Public Buildings Authority, Government Facilities 7/07 at 101 1/2 A 298,239
Revenue Bonds, Series B, Guaranteed by the Commonwealth of
Puerto Rico, 5.250%, 7/01/21
750,000 City of Woodland Park, Colorado, Limited Sales Tax Refunding 12/03 at 101 AA 812,258
Bonds, Series 1994B, 6.400%, 12/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 11.2%
750,000 City and County of Denver, Colorado, Airport System Revenue Bonds, 11/07 at 101 AAA 753,885
Series 1997E, 5.250%, 11/15/17
500,000 City and County of Denver, Colorado, Special Facilities Airport 10/02 at 102 Baa3 531,860
Revenue Bonds (United Air Lines Project), Series 1992A, 6.875%,
10/01/32 (Alternative Minimum Tax)
1,005,000 E-470 Public Highway Authority, Colorado, Senior Revenue Bonds, 9/09 at 100 AAA 935,786
Series 1997A, 4.750%, 9/01/23
6,790,000 E-470 Public Highway Authority, Colorado, Senior Revenue Bonds, No Opt. Call AAA 1,978,334
Series 1997B, 0.000%, 9/01/22
1,000,000 Eagle County Air Terminal Corporation, Airport Terminal Project 5/06 at 101 N/R 1,075,680
Revenue Bonds, Series 1996, 7.500%, 5/01/21 (Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 30.9%
4,300,000 E-470 Public Highway Authority, Capital Improvement Trust Fund 8/05 at 95 29/32 Aaa 3,147,256
Highway Revenue Bonds, Senior Bonds of Arapahoe County, Colorado,
0.000%, 8/31/06 (Pre-refunded to 8/31/05)
6,500,000 Arapahoe County, Colorado, Single Family Mortgage Revenue Bonds, No Opt. Call AAA 3,810,625
Series 1984A, 0.000%, 9/01/10
300,000 Colorado Health Facilities Authority, Revenue Bonds (Rose Medical 8/01 at 102 AAA 326,334
Center), Series 1991, 7.000%, 8/15/21 (Pre-refunded to 8/15/01)
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Colorado Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 500,000 Colorado Housing Finance Authority, Single Family Revenue Bonds, No Opt. Call Aaa $ 233,710
1985 Series A, 0.000%, 9/01/14
3,500,000 Colorado Health Facilities Authority, Retirement Facilities No Opt. Call AAA 863,975
(Liberty Heights), 0.000%, 7/15/24
900,000 City of Colorado Springs, Colorado, Utilities System Revenue No Opt. Call AAA 1,067,760
Bonds, Series 1978B, 6.600%, 11/15/18
250,000 City and County of Denver, Colorado Industrial Development 3/01 at 102 AAA 270,865
Revenue Bonds (University of Denver Project), Series 1991,
7.500%, 3/01/16 (Pre-refunded to 3/01/01)
500,000 School District No. 38, County of El Paso and State of Colorado, 12/01 at 101 AAA 542,490
General Obligation Bonds, Collateralized Project Fixed Rate
Certificates of Participation (Colorado Association of School
Boards Lease Purchase Finance Program), Series 1992A, 6.900%, 12/01/13
(Pre-refunded to 12/01/01)
3,000,000 El Paso County, Colorado, Single Family Mortgage Revenue Bonds, No Opt. Call AAA 1,318,710
1984 Series A, 0.000%, 9/01/15
250,000 Fountain Valley Authority, Colorado, Water Treatment Refunding 6/01 at 100 AA*** 264,878
Revenue Bonds, Series 1991, 6.800%, 12/01/19 (Pre-refunded to 6/01/01)
4,000,000 Mesa County, Colorado, Residual Revenue and Refunding Bonds, No Opt. Call Aaa 2,199,200
Series 1992, 0.000%, 12/01/11
300,000 Town of Parker, Colorado, Sales and Use Tax Revenue Improvement 11/00 at 100 N/R*** 317,535
Bonds, Series 1991B, 7.600%, 11/01/10 (Pre-refunded to 11/01/00)
100,000 Regional Transportation District, Colorado, Sales Tax Revenue 11/00 at 101 AAA 106,082
Bonds, Series 1990, 7.100%, 11/01/10 (Pre-refunded to 11/01/00)
- ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 0.3%
120,000 Colorado Water Resources and Power Development Authority, Small 11/02 at 100 AAA 129,690
Water Resources Revenue Bonds, 1992 Series A, 6.700%, 11/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
$60,110,000 Total Investments - (cost $42,821,034) - 97.6% 45,801,763
===========-------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.4% 1,140,325
---------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $46,942,088
=====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There
may be other call provisions at varying prices at later
dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal and
interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
20
<PAGE>
Portfolio of Investments
Nuveen Flagship New Mexico Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 1.8%
$ 1,000,000 Lordsburg, New Mexico, Pollution Control Revenue Refunding 4/03 at 102 A2 $ 1,086,810
Bonds (Phelps Dodge Corporation Project), Series 1993, 6.500%, 4/01/13
- ------------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 15.0%
1,600,000 New Mexico Educational Assistance Foundation, Student Loan 4/02 at 102 AAA 1,725,984
Revenue Bonds, Series 1992A, 6.850%, 4/01/05 (Alternative Minimum Tax)
400,000 New Mexico Educational Assistance Foundation, Student Loan 12/02 at 101 Aaa 412,608
Revenue Bonds, Senior 1992 Series One-A, 6.550%, 12/01/05
(Alternative Minimum Tax)
185,000 New Mexico Educational Assistance Foundation, Student Loan 12/02 at 101 A 193,928
Revenue Bonds, 1992 Series One, Subordinate 1992 Series One B,
6.850%, 12/01/05 (Alternative Minimum Tax)
810,000 New Mexico Educational Assistance Foundation, Student Loan 6/04 at 102 Aaa 834,899
Purchase Bonds, Senior 1994 Series II-A, 5.500%, 12/01/07
(Alternative Minimum Tax)
750,000 New Mexico Educational Assistance Foundation, Student Loan No Opt. Call Aaa 790,845
Purchase Bonds, Senior 1995 Series IV-A1, 6.500%, 3/01/04
(Alternative Minimum Tax)
435,000 Puerto Rico Industrial, Medical, Educational and Environmental No Opt. Call BBB- 456,902
Pollution Control Facilities Financing Authority, Higher
Education Revenue Refunding Bonds, 1993 Series A (Catholic University
of Puerto Rico Project), 5.600%, 12/01/07
City of Santa Fe, New Mexico, Educational Facilities Revenue
Improvement and Refunding Revenue Bonds (College of Santa Fe Project),
Series 1997:
500,000 6.000%, 10/01/13 10/07 at 100 BBB- 531,095
500,000 5.875%, 10/01/21 10/07 at 100 BBB- 508,855
500,000 City of Santa Fe, New Mexico Educational Facilities 10/07 at 100 BBB- 486,830
Improvement Revenue Bonds (College of Santa Fe Project),
Series 1998A, 5.500%, 10/01/28
3,000,000 Regents of the University of New Mexico, System Revenue No Opt. Call AA 3,327,090
Refunding Bonds, Series 1992A, 6.000%, 6/01/21
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 5.5%
450,000 City of Albuquerque, New Mexico, Hospital System Revenue 8/02 at 102 AAA 488,628
Bonds, 1992 Series A (Presbyterian Healthcare Services),
6.375%, 8/01/07
3,000,000 New Mexico Hospital Equipment Loan Council, Hospital Revenue Bonds, 6/08 at 101 Baa1 2,911,200
Series 1998 (Memorial Medical Center Inc. Project), 5.500%, 6/01/28
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 8.0%
1,000,000 Las Cruces, New Mexico, Housing Development Corporation, 4/02 at 102 A 1,046,900
Multi-family Mortgage Revenue Refunding Bonds, Series 1993A,
6.400%, 10/01/19
500,000 New Mexico Mortgage Finance Authority, Multi-family Housing 7/07 at 102 AAA 514,305
Revenue Bonds (Rio Volcan II Apartments Project), Series 1997,
5.650%, 7/01/18 (Alternative Minimum Tax)
2,340,000 Santa Fe Civic Housing Authority, Inc., Multi-family Housing 8/08 at 100 AAA 2,368,384
Revenue Bonds (The Tuscany at St. Francis Project), Tax-Exempt
Series 1998A, 5.500%, 8/01/30 (Alternative Minimum Tax)
1,000,000 Villa Hermosa Affordable Housing Corporation, New Mexico, 5/07 at 102 AAA 1,046,360
Multi-family Revenue Bonds (Villa Hermosa Apartments Project),
Series 1997, 5.900%, 5/20/27 (Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 16.5%
1,960,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/06 at 102 AAA 2,081,226
Program Bonds, 1996 Series D1, 6.250%, 7/01/22
1,430,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/07 at 102 AAA 1,511,181
Program Bonds, 1996 Series G-2, 6.200%, 7/01/28 (Alternative Minimum Tax)
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship New Mexico Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
$ 1,245,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/05 at 102 AAA $ 1,327,382
Program Bonds, 1995 Series A, Class D, 6.650%, 7/01/26
(Alternative Minimum Tax)
85,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/02 at 102 Aa1 88,293
Purchase Refunding Senior Bonds, 1992 Series A-1, 6.850%, 7/01/10
625,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/02 at 102 Aa1 658,813
Purchase Refunding Senior Bonds, 1992 Series A-2, 6.900%, 7/01/24
1,500,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/07 at 102 AAA 1,536,915
Program Bonds, 1997 Series F-2, 5.700%, 7/01/29 (Alternative
Minimum Tax)
1,000,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/07 at 102 AAA 1,006,910
Program Bonds, 1997 Series G-2, 5.400%, 7/01/29 (Alternative
Minimum Tax)
1,000,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 1/08 at 102 AAA 1,007,950
Program Bonds, 1998 Series A-2, 5.450%, 7/01/28 (Alternative
Minimum Tax)
1,000,000 New Mexico Mortgage Finance Authority, Single Family Mortgage 7/08 at 102 AAA 993,970
Program Bonds, 1998 Series E-2, 5.200%, 7/01/18 (Alternative
Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 5.7%
1,500,000 City of Albuquerque, New Mexico, Revenue Refunding Bonds (The 6/03 at 102 AAA 1,609,170
Evangelical Lutheran Good Samaritan Society), Series 1993,
5.900%, 6/01/13
1,000,000 City of Hobbs, New Mexico, Health Facilities Revenue Bonds, 5/06 at 102 AAA 1,021,520
Series 1996 (The Evangelical Lutheran Good Samaritan Society
Project), 5.500%, 5/01/26
500,000 Las Cruces, New Mexico, Health Facilities Revenue Refunding 12/02 at 102 AAA 544,555
Bonds, Series 1992 (The Evangelical Lutheran Good Samaritan
Society Project), 6.450%, 12/01/17
350,000 City of Socorro, New Mexico, Health Facilities Refunding 5/04 at 102 AAA 381,819
Revenue Bonds (The Evangelical Lutheran Good Samaritan Society
Project), Series 1994, 6.000%, 5/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 3.8%
Grants/Cibola County School District Number One, Cibola County, New Mexico,
General Obligation School Building Bonds, Series 1994:
480,000 6.250%, 5/01/08 5/04 at 100 Baa2 510,187
510,000 6.250%, 5/01/09 5/04 at 100 Baa2 540,926
100,000 Commonwealth of Puerto Rico, General Obligation Public 7/07 at 100 A 100,778
Improvement Bonds of 1997, 5.375%, 7/01/25
1,000,000 Commonwealth of Puerto Rico, General Obligation Public No Opt. Call A 1,021,190
Improvement Bonds of 1998, 5.250%, 7/01/18
200,000 Torrance County, New Mexico, General Obligation Bonds, Series 7/00 at 100 N/R 202,598
1993, 5.500%, 7/01/04
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 24.7%
1,880,000 City of Albuquerque, New Mexico, Gross Receipts/Lodgers Tax No Opt. Call AAA 1,035,936
Refunding and Improvement Revenue Bonds, Series 1991B, 0.000%, 7/01/11
1,000,000 City of Albuquerque, New Mexico, Gross Receipts/Lodgers Tax 7/09 at 100 AA 961,220
Refunding Revenue Bonds, Series 1999B, 5.000%, 7/01/25
1,000,000 City of Albuquerque, New Mexico Gross Receipts Tax Refunding 7/09 at 100 AA 931,600
Revenue Bonds, Series 1999C, 4.750%, 7/01/22
1,000,000 Bernalillo County New Mexico, Gross Receipts Tax Refunding No Opt. Call AA 1,014,860
Revenue Bonds, Series 1998, 5.200%, 4/01/21
1,050,000 Dona Ana County, New Mexico, Gross Receipts Tax Refunding and 6/03 at 102 AA 1,142,726
Improvement Revenue Bonds, Series 1993, 6.000%, 6/01/19
1,000,000 Dona Ana County, New Mexico, Gross Receipts Tax Refunding and No Opt. Call Aaa 1,056,230
Improvement Revenue Bonds, Subordinate Series 1998, 5.500%, 6/01/16
250,000 Las Cruces, New Mexico, Gross Receipts Tax Revenue Refunding 12/02 at 101 A 268,210
Bonds, Series 1992, 6.250%, 12/01/05
Puerto Rico Highway and Transportation Authority, Highway
Revenue Bonds, Series Y of 1996:
3,550,000 5.500%, 7/01/36 7/16 at 100 A 3,651,175
750,000 5.000%, 7/01/36 7/16 at 100 A 723,623
4,000,000 Santa Fe County, New Mexico, Correctional System Revenue No Opt. Call AAA 4,488,640
Bonds, Series 1997, 6.000%, 2/01/27
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation - 1.7%
$1,000,000 City of Albuquerque, New Mexico, Airport Revenue Bonds, Series 7/00 at 105 AAA $ 1,075,060
1995A, 6.600%, 7/01/16 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 7.9%
2,370,000 City of Albuquerque, New Mexico, Gross Receipts/Lodgers Tax No Opt. Call AAA 1,327,698
Refunding and Improvement Revenue Bonds, Series 1991B, 0.000%,
7/01/11
250,000 City of Albuquerque, New Mexico, Joint Water and Sewer System 7/00 at 100 AAA 257,158
Revenue Bonds, Series 1990 A, 6.000%, 7/01/15 (Pre-refunded to
7/01/00)
90,000 Las Cruces, New Mexico, Joint Utility Refunding and Improvement 7/02 at 102 A1*** 98,060
Revenue Bonds, Series 1992, 6.250%, 7/01/12
Rio Grande Natural Gas Association, Dona Ana County, New Mexico, Natural
Gas System Refunding and Improvement Revenue Bonds, Series 1993:
100,000 6.000%, 7/01/07 (Pre-refunded to 7/01/03) 7/03 at 100 A3*** 107,028
1,000,000 6.125%, 7/01/13 (Pre-refunded to 7/01/03) 7/03 at 100 A3*** 1,074,940
Sandoval County, New Mexico, Gross Receipts Tax / Fire District
Revenue Bonds, Series 1993:
225,000 6.600%, 12/01/04 (Pre-refunded to 12/01/99) 12/99 at 100 N/R*** 229,298
200,000 6.900%, 12/01/07 (Pre-refunded to 12/01/99) 12/99 at 100 N/R*** 204,120
375,000 Sandoval County, New Mexico, Gross Receipts Tax Revenue 11/02 at 102 Baa1*** 416,085
Refunding Bonds, Series 1992, 6.900%, 11/01/12 (Pre-refunded
to 11/01/02)
130,000 Sandoval County, New Mexico, Gross Receipts Tax Revenue 12/02 at 102 Baa1*** 142,825
Refunding Bonds, Series 1992A, 6.500%, 12/01/06 (Pre-refunded
to 12/01/02)
500,000 Sandoval County, New Mexico, Gross Receipts Tax Revenue Bonds, 11/05 at 101 N/R*** 586,205
Subordinate Series 1994, 7.150%, 11/01/10 (Pre-refunded to
11/01/05)
327,000 Santa Fe County, New Mexico, Office and Training Facilities No Opt. Call Aaa 427,804
Project Revenue Bonds, Series 1990, 9.000%, 7/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 6.8%
985,000 City of Farmington, New Mexico, Pollution Control Revenue 12/02 at 102 AAA 1,072,754
Refunding Bonds, 1992 Series A (Public Service Company of New
Mexico, San Juan and Four Corners Projects), 6.375%, 12/15/22
1,000,000 City of Farmington, New Mexico, Pollution Control Refunding 4/09 at 102 AAA 976,040
Revenue Bonds (Southern California Edison Company Four Corners
Project), 1999 Series A, 5.125%, 4/01/29
1,000,000 City of Las Cruces, New Mexico, South Central Solid Waste 6/05 at 100 A 1,044,230
Authority, Environmental Services Gross Receipts Tax/Project
Revenue Bonds, Series 1995, 6.000%, 6/01/16
1,000,000 Incorporated County of Los Alamos, New Mexico, Utility System 7/04 at 102 AAA 1,086,100
Revenue Bonds, Series 1994A, 6.000%, 7/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 1.3%
1,000,000 City of Albuquerque, New Mexico, Joint Water and Sewer System No Opt. Call AAA 692,659
Revenue Bonds, Series 1990 A, 0.000%, 7/01/07
100,000 City of Grants, New Mexico, Joint Water and Sewer Utility 7/99 at 106 Baa3 105,897
Refunding and Improvement Revenue Bonds, Series 1993, 5.600%,
1/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
$60,587,000 Total Investments - (cost $57,714,529) - 98.7 61,075,187
=========== --------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.3% 832,741
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $61,907,928
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
23
<PAGE>
Statement of Net Assets
May 31, 1999
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $117,028,652 $45,801,763 $61,075,187
Cash -- 487,653 --
Receivables:
Fund manager (note 6) -- 339 --
Interest 1,931,742 501,732 1,212,942
Investments sold 2,240,817 10,115 --
Shares sold 124,179 189,267 93,601
Other assets 109,083 95,267 105,796
- ----------------------------------------------------------------------------------------------------------------
Total assets 121,434,473 47,086,136 62,487,526
- ----------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 407,546 -- 284,473
Payables:
Investments purchased 1,894,327 -- --
Shares redeemed 278,100 25,995 143,526
Accrued expenses:
Management fees (note 6) 12,864 -- 29,021
12b-1 distribution and service fees (notes 1 and 6) 21,951 11,357 13,284
Other 23,775 34,854 31,504
Dividends payable 204,563 71,842 77,790
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 2,843,126 144,048 579,598
- ----------------------------------------------------------------------------------------------------------------
Net assets (note 7) $118,591,347 $46,942,088 $61,907,928
================================================================================================================
Class A Shares (note 1)
Net assets $ 86,451,615 $39,189,178 $56,314,794
Shares outstanding 7,685,510 3,669,777 5,323,124
Net asset value and redemption price per share $ 11.25 $ 10.68 $ 10.58
Offering price per share (net asset value per share plus maximum
sales charge of 4.20% of offering price) $ 11.74 $ 11.15 $ 11.04
================================================================================================================
Class B Shares (note 1)
Net assets $ 4,180,287 $ 4,424,454 $ 2,721,154
Shares outstanding 371,950 413,680 257,343
Net asset value, offering and redemption price per share $ 11.24 $ 10.70 $ 10.57
================================================================================================================
Class C Shares (note 1)
Net assets $ 6,425,618 $ 2,464,350 $ 2,393,400
Shares outstanding 571,440 230,941 226,284
Net asset value, offering and redemption price per share $ 11.24 $ 10.67 $ 10.58
================================================================================================================
Class R Shares (note 1)
Net assets $ 21,533,827 $ 864,106 $ 478,580
Shares outstanding 1,914,576 80,865 45,146
Net asset value, offering and redemption price per share $ 11.25 $ 10.69 $ 10.60
================================================================================================================
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
Statement of Operations
Year Ended May 31,1999
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (note 1) $ 6,546,903 $2,508,406 $ 3,354,965
- --------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 654,071 247,714 336,445
12b-1 service fees - Class A (notes 1 and 6) 175,649 78,533 113,081
12b-1 distribution and service fees - Class B (notes 1 and 6) 28,034 30,378 20,117
12b-1 distribution and service fees - Class C (notes 1 and 6) 50,336 12,612 15,270
Shareholders' servicing agent fees and expenses 74,585 16,625 22,873
Custodian's fees and expenses 63,163 37,344 44,937
Trustees' fees and expenses (note 6) 2,949 1,331 1,872
Professional fees 12,923 16,207 11,880
Shareholders' reports - printing and mailing expenses 46,862 48,481 42,328
Federal and state registration fees 7,449 4,759 4,954
Other expenses 7,278 2,311 3,414
- --------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,123,299 496,295 617,171
Custodian fee credit (note 1) (825) (1,662) (2,529)
Expense reimbursement (note 6) (113,607) (33,939) (36,645)
- --------------------------------------------------------------------------------------------------------------
Net expenses 1,008,867 460,694 577,997
- --------------------------------------------------------------------------------------------------------------
Net investment income 5,538,036 2,047,712 2,776,968
- --------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain from investment transactions (notes 1 and 4) 935,923 511,179 514,535
Net change in unrealized appreciation or depreciation of investments (1,936,011) (996,714) (1,120,839)
- --------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (1,000,088) (485,535) (606,304)
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 4,537,948 $1,562,177 $ 2,170,664
==============================================================================================================
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
--------------------------- ------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
5/31/99 5/31/98 5/31/99 5/31/98 5/31/99 5/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 5,538,036 $ 5,346,805 $ 2,047,712 $ 1,744,521 $ 2,776,968 $ 2,580,223
Net realized gain from investment
transactions (notes 1 and 4) 935,923 546,400 511,179 231,489 514,535 184,412
Net change in unrealized appreciation
or depreciation of investments (1,936,011) 4,023,073 (996,714) 1,920,494 (1,120,839) 2,447,338
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 4,537,948 9,916,278 1,562,177 3,896,504 2,170,664 5,211,973
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (4,101,755) (4,135,375) (1,812,447) (1,680,403) (2,560,974) (2,506,960)
Class B (114,786) (22,463) (122,188) (41,768) (79,582) (37,062)
Class C (278,780) (172,117) (66,954) (14,892) (81,442) (25,798)
Class R (1,045,871) (1,018,591) (42,768) (33,606) (22,648) (16,170)
From accumulated net realized gains
from investment transactions:
Class A (412,344) (132,275) (108,785) -- -- --
Class B (13,676) (677) (8,851) -- -- --
Class C (32,343) (5,284) (4,777) -- -- --
Class R (101,198) (31,231) (2,536) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from
distributions to shareholders (6,100,753) (5,518,013) (2,169,306) (1,770,669) (2,744,646) (2,585,990)
- --------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 18,304,296 17,232,021 12,388,138 9,498,060 8,678,647 9,586,060
Net proceeds from shares issued to
shareholders due to reinvestment
of distributions 2,660,537 2,750,177 854,120 881,170 1,006,025 1,454,066
- --------------------------------------------------------------------------------------------------------------------------------
20,964,833 19,982,198 13,242,258 10,379,230 9,684,672 11,040,126
Cost of shares redeemed (15,184,364) (15,141,453) (6,264,853) (4,121,233) (5,522,676) (7,327,443)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 5,780,469 4,840,745 6,977,405 6,257,997 4,161,996 3,712,683
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 4,217,664 9,239,010 6,370,276 8,383,832 3,588,014 6,338,666
Net assets at the beginning of year 114,373,683 105,134,673 40,571,812 32,187,980 58,319,914 51,981,248
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $118,591,347 $114,373,683 $46,942,088 $40,571,812 $61,907,928 $58,319,914
================================================================================================================================
Balance of undistributed/(over-distributed)
net investment income at end of year $ 2,794 $ 5,950 $ 649 $ (2,706) $ 36,803 $ 4,481
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Flagship Arizona Municipal Bond Fund ("Arizona"), the
Nuveen Flagship Colorado Municipal Bond Fund ("Colorado") and the Nuveen
Flagship New Mexico Municipal Bond Fund ("New Mexico") (collectively, the
"Funds"), among others. The Trust was organized as a Massachusetts business
trust on July 1, 1996.
The Funds seek to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1999, there were no such outstanding purchase commitments in any of the
Funds.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared monthly as a dividend 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
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Funds
currently consider significant net realized capital gains and/or market discount
as amounts in excess of $.001 per share. Furthermore, the Funds intend to
satisfy conditions which will enable interest from municipal securities, which
is exempt from regular federal and designated state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended May 31, 1999, have
been designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
27
<PAGE>
Notes to Financial Statements (continued)
Flexible Sales Charge Program
Each Fund offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 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 only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended May 31, 1999.
Expense Allocation
Expenses of the Funds that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby the custodian fees
and expenses are reduced by credits earned on each Fund's cash on deposit with
the bank. Such deposit arrangements are an alternative to overnight investments.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Arizona
-----------------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
---------------------------- --------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,012,200 $ 11,573,874 939,381 $ 10,594,838
Class B 263,892 3,014,513 119,506 1,355,584
Class C 128,946 1,472,159 316,012 3,587,493
Class R 196,220 2,243,750 150,054 1,694,106
Shares issued to shareholders due to reinvestment of distributions:
Class A 151,919 1,743,724 175,183 1,969,412
Class B 3,175 36,412 1,093 12,309
Class C 12,655 145,186 10,523 118,375
Class R 64,055 735,215 57,709 650,081
- ----------------------------------------------------------------------------------------------------------------------------------
1,833,062 20,964,833 1,769,461 19,982,198
- ----------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,018,708) (11,664,214) (1,120,408) (12,656,620)
Class B (37,352) (424,518) (10,128) (112,911)
Class C (125,596) (1,433,816) (62,551) (705,918)
Class R (145,051) (1,661,816) (147,567) (1,666,004)
- ----------------------------------------------------------------------------------------------------------------------------------
(1,326,707) (15,184,364) (1,340,654) (15,141,453)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase 506,355 $ 5,780,469 428,807 $ 4,840,745
==================================================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Colorado
-------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
----------------------- -----------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Shares sold:
Class A 671,535 $ 7,279,788 681,355 $ 7,321,628
Class B 267,870 2,914,260 107,622 1,152,203
Class C 181,898 1,970,240 70,146 756,209
Class R 20,587 223,850 25,721 268,020
Shares issued to shareholders due to reinvestment of distributions:
Class A 65,037 707,625 76,970 817,880
Class B 7,439 81,081 2,159 22,985
Class C 2,392 26,018 752 8,060
Class R 3,619 39,396 3,027 32,245
- ------------------------------------------------------------------------------------------------------------------------
1,220,377 13,242,258 967,752 10,379,230
- ------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (516,805) (5,592,710) (385,803) (4,121,180)
Class B (15,048) (162,708) (5) (53)
Class C (34,394) (371,975) -- --
Class R (12,716) (137,460) -- --
- ------------------------------------------------------------------------------------------------------------------------
(578,963) (6,264,853) (385,808) (4,121,233)
- ------------------------------------------------------------------------------------------------------------------------
Net increase 641,414 $ 6,977,405 581,944 $ 6,257,997
========================================================================================================================
New Mexico
-------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
----------------------- -----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 564,095 $ 6,050,839 698,030 $ 7,365,655
Class B 139,498 1,495,072 79,732 842,865
Class C 105,480 1,131,654 123,525 1,304,991
Class R 101 1,082 6,637 72,549
Shares issued to shareholders due to reinvestment of distributions:
Class A 85,290 915,668 136,279 1,420,855
Class B 3,639 39,054 1,262 13,257
Class C 3,293 35,364 525 5,545
Class R 1,481 15,939 1,369 14,409
- ------------------------------------------------------------------------------------------------------------------------
902,877 9,684,672 1,047,359 11,040,126
- ------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (476,600) (5,099,274) (686,757) (7,182,281)
Class B (17,756) (189,721) (13,762) (145,162)
Class C (21,822) (233,573) -- --
Class R (10) (108) -- --
- ------------------------------------------------------------------------------------------------------------------------
(516,188) (5,522,676) (700,519) (7,327,443)
- ------------------------------------------------------------------------------------------------------------------------
Net increase 386,689 $ 4,161,996 346,840 $ 3,712,683
========================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid on July 1, 1999, to shareholders of record on
June 9, 1999, as follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- -----------------------------------------------------------
Dividend per share:
<S> <C> <C> <C>
Class A $ .0445 $ .0410 $ .0395
Class B .0375 .0345 .0330
Class C .0395 .0360 .0350
Class R .0465 .0430 .0415
===========================================================
</TABLE>
29
<PAGE>
Notes to Financial Statements (continued)
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal securities for the fiscal year ended May 31,
1999, were as follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases:
Long-term municipal securities $23,139,895 $15,388,351 $12,267,110
Short-term municipal securities 4,900,000 4,900,000 3,500,000
Sales:
Long-term municipal securities 19,395,213 10,259,898 8,224,180
Short-term municipal securities 5,400,000 4,900,000 3,500,000
==========================================================================================================
</TABLE>
At May 31, 1999, 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, 1999, New Mexico had unused capital loss carryforwards available for
federal income tax purposes to be applied against future capital gains, if any.
If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
New Mexico
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Expiration Year:
2003 $ 296,633
2004 290,586
- -----------------------------------------------------------------------------------------------------------
Total $ 587,219
===========================================================================================================
</TABLE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1999, were as follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
appreciation $8,753,084 $3,169,606 $3,489,342
depreciation (184,847) (188,877) (128,684)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation $8,568,237 $2,980,729 $3,360,658
===========================================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with Nuveen Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net assets of each Fund:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
===========================================================================================================
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser or its affiliates.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1999, John Nuveen & Co. Incorporated (the
"Distributor"), a wholly owned subsidiary of The John Nuveen Company, collected
sales charges on purchases of Class A Shares, the majority of which were paid
out as concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales charges collected $277,951 $187,343 $153,938
Paid to authorized dealers 253,758 159,862 133,432
===========================================================================================================
</TABLE>
30
<PAGE>
The Distributor also received 12b-1 service fees on Class A Shares,
substantially all of which were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 1999, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase as
follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commission advances $144,020 $140,211 $68,466
======================================================================================================================
</TABLE>
To compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase, all
12b-1 distribution fees on Class B Shares, and all 12b-1 service and
distribution fees on Class C Shares during the first year following a purchase
are retained by the Distributor. During the fiscal year ended May 31, 1999, the
Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12b-1 fees retained $54,887 $37,785 $29,757
======================================================================================================================
</TABLE>
The remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained CDSC on share redemptions during the
fiscal year ended May 31, 1999, as follows:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CDSC retained $4,433 $11,541 $4,923
======================================================================================================================
</TABLE>
7. Composition of Net Assets
At May 31, 1999, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Arizona Colorado New Mexico
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital paid-in $109,303,240 $43,845,085 $59,100,970
Balance of undistributed net investment income 2,794 649 36,803
Accumulated net realized gain (loss) from investment transactions 717,076 115,625 (590,503)
Net unrealized appreciation of investments 8,568,237 2,980,729 3,360,658
- ----------------------------------------------------------------------------------------------------------------------
Net assets $118,591,347 $46,942,088 $61,907,928
======================================================================================================================
</TABLE>
31
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ --------------------------
ARIZONA** Net
Realized/
Unrealized
Beginning Net Invest- Net Ending Ending
Net Invest- ment Invest- Net Net
Year Ended Asset ment Gain ment Capital Asset Total Assets
May 31, Value Income (a) (Loss) Total Income Gains Total Value Return (b) Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (10/86)
1999 $11.40 $.53 $(.09) $ .44 $(.54) $(.05) $(.59) $11.25 3.87% $86,452
1998 10.94 .55 .48 1.03 (.55) (.02) (.57) 11.40 9.56 85,922
1997 10.73 .56 .27 .83 (.56) (.06) (.62) 10.94 7.85 82,567
1996 10.85 .57 (.12) .45 (.57) -- (.57) 10.73 4.21 80,094
1995 10.43 .58 .42 1.00 (.58) -- (.58) 10.85 10.03 80,406
Class B (2/97)
1999 11.39 .45 (.10) .35 (.45) (.05) (.50) 11.24 3.12 4,180
1998 10.94 .47 .47 .94 (.47) (.02) (.49) 11.39 8.67 1,620
1997 (c) 10.92 .16 .02 .18 (.16) -- (.16) 10.94 1.64 347
Class C (2/94)
1999 11.39 .47 (.09) .38 (.48) (.05) (.53) 11.24 3.33 6,426
1998 10.94 .49 .47 .96 (.49) (.02) (.51) 11.39 8.89 6,328
1997 10.73 .50 .27 .77 (.50) (.06) (.56) 10.94 7.28 3,189
1996 10.84 .51 (.11) .40 (.51) -- (.51) 10.73 3.75 1,970
1995 10.43 .52 .41 .93 (.52) -- (.52) 10.84 9.32 1,621
Class R (2/97)
1999 11.40 .56 (.10) .46 (.56) (.05) (.61) 11.25 4.09 21,534
1998 10.94 .57 .48 1.05 (.57) (.02) (.59) 11.40 9.79 20,504
1997 (c) 10.92 .19 .02 .21 (.19) -- (.19) 10.94 1.96 19,031
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
ARIZONA** Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Net Assets Net Assets Net Assets Net Assets
Before Credit/ Before Credit/ After Credit/ After Credit/ Portfolio
Year Ended Reimburse- Reimburse- Reimburse- Reimburse- Turnover
May 31, ment ment ment (a) ment (a) Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (10/86)
1999 .93% 4.58% .84% 4.67% 16%
1998 .93 4.77 .83 4.87 16
1997 1.05 4.91 .83 5.13 25
1996 1.07 4.82 .69 5.20 38
1995 1.20 5.21 .82 5.59 27
Class B (2/97)
1999 1.69 3.84 1.58 3.95 16
1998 1.68 3.98 1.51 4.15 16
1997 (c) 1.67* 4.38* 1.62* 4.43* 25
Class C (2/94)
1999 1.48 4.03 1.39 4.12 16
1998 1.48 4.20 1.35 4.33 16
1997 1.59 4.37 1.38 4.58 25
1996 1.63 4.24 1.23 4.64 38
1995 1.75 4.62 1.36 5.01 27
Class R (2/97)
1999 .73 4.77 .63 4.87 16
1998 .73 4.97 .63 5.07 16
1997 (c) .73* 5.32* .67* 5.38* 25
===================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31,
1997, reflects the financial highlights of Flagship Arizona.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
32
<PAGE>
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ --------------------------
COLORADO** Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
May 31, Value Income (a) (Loss) Total Income Gains Total Value Return (b)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (5/87)
1999 $10.81 $.50 $(.10) $ .40 $(.50) $(.03) $(.53) $10.68 3.76%
1998 10.15 .52 .66 1.18 (.52) -- (.52) 10.81 11.85
1997 9.79 .53 .35 .88 (.52) -- (.52) 10.15 9.22
1996 9.93 .54 (.13) .41 (.55) -- (.55) 9.79 4.14
1995 9.62 .57 .30 .87 (.56) -- (.56) 9.93 9.54
Class B (2/97)
1999 10.82 .42 (.08) .34 (.43) (.03) (.46) 10.70 3.11
1998 10.16 .43 .68 1.11 (.45) -- (.45) 10.82 11.03
1997 (c) 10.21 .12 (.06) .06 (.11) -- (.11) 10.16 .61
Class C (2/97)
1999 10.80 .44 (.10) .34 (.44) (.03) (.47) 10.67 3.19
1998 10.15 .46 .66 1.12 (.47) -- (.47) 10.80 11.17
1997 (c) 10.13 .16 .02 .18 (.16) -- (.16) 10.15 1.75
Class R (2/97)
1999 10.81 .52 (.08) .44 (.53) (.03) (.56) 10.69 4.08
1998 10.16 .54 .66 1.20 (.55) -- (.55) 10.81 11.98
1997 (c) 10.21 .15 (.06) .09 (.14) -- (.14) 10.16 .85
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
----------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
COLORADO** Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Credit/ Before Credit/ After Credit/ After Credit/ Portfolio
Year Ended Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
May 31, (000) ment ment ment (a) ment (a) Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (5/87)
1999 $39,189 1.03% 4.55% .96% 4.62% 23%
1998 37,285 1.01 4.83 1.00 4.84 19
1997 31,229 1.18 4.87 .74 5.31 27
1996 33,637 1.27 4.69 .55 5.41 70
1995 34,982 1.27 5.22 .50 5.99 38
Class B (2/97)
1999 4,424 1.79 3.80 1.68 3.91 23
1998 1,661 1.76 4.05 1.75 4.06 19
1997 (c) 444 1.78* 4.35* 1.53* 4.60* 27
Class C (2/97)
1999 2,464 1.58 4.01 1.49 4.10 23
1998 875 1.56 4.24 1.55 4.25 19
1997 (c) 103 1.58* 4.67* 1.31* 4.94* 27
Class R (2/97)
1999 864 .83 4.74 .75 4.82 23
1998 750 .81 5.02 .80 5.03 19
1997 (c) 413 .83* 5.35* .58* 5.60* 27
==========================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Colorado.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
33
<PAGE>
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ --------------------------
NEW MEXICO** Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
May 31, Value Income (a) (Loss) Total Income Gains Total Value Return (b)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/92)
1999 $10.67 $.49 $(.09) $ .40 $(.49) $ -- $(.49) $10.58 3.74%
1998 10.16 .50 .51 1.01 (.50) -- (.50) 10.67 10.17
1997 9.81 .51 .35 .86 (.51) -- (.51) 10.16 8.90
1996 10.01 .51 (.19) .32 (.52) -- (.52) 9.81 3.18
1995 9.68 .52 .33 .85 (.52) -- (.52) 10.01 9.25
Class B (2/97)
1999 10.67 .41 (.10) .31 (.41) -- (.41) 10.57 2.89
1998 10.15 .43 .52 .95 (.43) -- (.43) 10.67 9.46
1997 (c) 10.24 .12 (.10) .02 (.11) -- (.11) 10.15 .18
Class C (2/97)
1999 10.67 .43 (.09) .34 (.43) -- (.43) 10.58 3.22
1998 10.16 .45 .51 .96 (.45) -- (.45) 10.67 9.60
1997 (c) 10.23 .12 (.08) .04 (.11) -- (.11) 10.16 .43
Class R (2/97)
1999 10.70 .51 (.10) .41 (.51) -- (.51) 10.60 3.86
1998 10.17 .53 .53 1.06 (.53) -- (.53) 10.70 10.59
1997 (c) 10.23 .14 (.07) .07 (.13) -- (.13) 10.17 .71
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
----------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
NEW MEXICO** Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Credit/ Before Credit/ After Credit/ After Credit/ Portfolio
Year Ended Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
May 31, (000) ment ment ment (a) ment (a) Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (9/92)
1999 $56,315 .97% 4.51% .90% 4.58% 14%
1998 54,959 .93 4.65 .79 4.79 13
1997 50,807 1.08 4.76 .77 5.07 43
1996 51,173 1.09 4.69 .68 5.10 57
1995 52,150 1.17 4.98 .67 5.48 38
Class B (2/97)
1999 2,721 1.72 3.78 1.67 3.83 14
1998 1,408 1.68 3.88 1.53 4.03 13
1997 (c) 657 1.68* 4.05* 1.54* 4.19* 43
Class C (2/97)
1999 2,393 1.52 3.97 1.46 4.03 14
1998 1,487 1.48 4.06 1.31 4.23 13
1997 (c) 155 1.48* 4.26* 1.34* 4.40* 43
Class R (2/97)
1999 479 .77 4.71 .70 4.78 14
1998 466 .73 4.86 .58 5.01 13
1997 (c) 362 .73* 5.04* .59* 5.18* 43
==========================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship New Mexico.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
34
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust I:
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Flagship Arizona Municipal Bond Fund,
Nuveen Flagship Colorado Municipal Bond Fund and Nuveen Flagship New Mexico
Municipal Bond Fund (collectively, the "Funds") (three of the portfolios
constituting the Nuveen Flagship Multistate Trust I (a Massachusetts business
trust)), as of May 31, 1999, the related statements of operations for the year
then ended, and the statements of changes in net assets and the financial
highlights for each of the two years then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1999, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers, and when
replies were not received, we carried out alternative auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Flagship Arizona Municipal Bond Fund, Nuveen Flagship Colorado Municipal Bond
Fund, and Nuveen Flagship New Mexico Municipal Bond Fund of the Nuveen Flagship
Multistate Trust I as of May 31, 1999, and the results of their operations for
the year then ended, and the changes in their net assets and the financial
highlights for each of the two years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 20, 1999
35
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Dividend and Growth Fund
Income
Income Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Arizona
California
Colorado
Connecticut
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Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Successful investors know that a well-diversified portfolio -- one that balances
different types of investments, levels of risk and tax management -- can be the
foundation for building and sustaining wealth. That's why Nuveen offers you and
your financial adviser a wide range of quality investments that can help you
build a better portfolio in the pursuit of your financial goals.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
Premier Advisers/SM/ including Institutional Capital Corporation, Rittenhouse
Financial Services, and Nuveen Advisory Corp. Each brings a specialized
expertise in a particular investment style or asset class, time-tested
investment strategies and a focus on consistent, long-term performance. With
Nuveen's Premier Adviser funds, you have all the advantages of a family of funds
plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, while also offering
experienced, professional security selection and surveillance. In addition,
Nuveen Defined Portfolios provide daily liquidity at that day's net asset value
for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
quality municipal bonds. The fund shares are listed and traded on the New York
and American stock exchanges. Exchange-traded funds provide the investment
convenience, price visibility and liquidity of common stocks.
MuniPreferred(R)
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
36
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
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
Chase Global Fund Services Company
P.O. Box 5186
New York, NY 10274
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
37
<PAGE>
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
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to
disciplined long-term investment strategies whose aim is to provide consistent,
competitive 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 income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our growth,
growth and income, income, and tax-free funds, along with our defined portfolios
and private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
[Photo of John Nuveen, Sr. Appears Here]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
VAN-3-5-99
<PAGE>
May 31, 1999 Annual Report
NUVEEN
Mutual Funds
Extraordinary Talent. Masterful Performance.
Nuveen Municipal Bond Funds
Dependable, tax-free
[PHOTO APPEARS HERE] income to help
you keep more
of what you earn.
Florida
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser(SM) for Income Investing
<PAGE>
Contents
1 Dear Shareholder
3 Nuveen Flagship Florida Municipal Bond Fund
6 Portfolio of Investments
14 Statement of Net Assets
15 Statement of Operations
15 Statement of Changes in Net Assets
16 Notes to Financial Statements
19 Financial Highlights
20 Report of Independent Public Accountants
21 Fund Information
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
DEAR
Shareholder
I invite you to take a few minutes to read the annual report we've prepared for
you on the performance of your Nuveen state municipal bond fund for the fiscal
year ended May 31, 1999. You, along with your financial adviser, have made a
sound choice in choosing Nuveen to manage this portion of your assets. Since
1898, more than 1.3 million investors have trusted us to help them build and
sustain the wealth of a lifetime.
I'm pleased to report your fund continued to meet its primary objective of
providing you with dependable tax-free income and attractive after-tax total
returns. I will briefly describe the national economic environment during the
past 12 months. My discussion is followed by comments from the portfolio manager
about the strategies employed in managing your fund.
The Year In Review. The Federal Reserve eased short-term rates for the first
time in almost three years by cutting the federal funds rate in the fall of 1998
three times, bringing it to 4.75%. A month after the close of your fund's fiscal
year, the Fed raised its target by 25 basis points to 5%. (Be sure to read your
fund manager's comments about managing your fund in a rising interest rate
environment.)
The fed funds rate is the rate that banks charge each other for overnight
loans and serves as the basis many financial institutions use for setting
interest charges on a variety of products, from mortgage and car loans to
credit cards.
The Fed's rate cuts were made to avert a potential domestic credit crunch
and restore some stability to global markets. The moves seemed to have worked,
as the U.S. economy since has continued its pattern of non-inflationary growth,
accompanied by low interest rates and unemployment levels that remain among the
lowest in three decades, prompting the late June reversal by the Fed.
All indications point to a confident U.S. consumer who is comfortable with
the current state of the economy, especially the performance of the housing,
stock and job markets. This confidence is reflected in the most recent Consumer
Confidence Index report, issued by the Conference Board Inc., which showed a
record-setting eighth consecutive month of gains in June.
On the global front, the turmoil of the past two years appears to be fading
somewhat, as international financial markets have begun to send recovery
signals.
Domestic inflation continues to be benign, with an increase of 2.1% for the
12 months ended May 31, 1999. The general backdrop of inflation indicators
continued to be mild, with the employment cost index, average hourly earnings,
and import and producer price trends all remaining favorable.
Federal Reserve Chairman Alan Greenspan recently stated that a key factor
in achieving today's peaceful coexistence of economic growth and low inflation
has been increased productivity. Improvements in productivity, spurred by
technological advances, have been responsible for
1
<PAGE>
offsetting wage and other inflationary pressures that we would normally expect
to see as part of a growing economy.
Why Municipal Bonds? Our municipal bond funds continued to offer attractive,
stable income in a market that places a high premium on yield. In 1998,
municipal bonds represented a reasonably insulated haven in an otherwise
turbulent market, with lower volatility relative to Treasury bonds and other
fixed-income investments. Even in 1999, with interest rates rising again,
municipals outperformed Treasuries through the end of May.
The high ratio of tax-exempt municipal yields to Treasury yields sheltered
municipal bonds, to some extent, from the price decline that occurred in the
Treasury market during the first part of the year. While the yield on 30-year
Treasury bonds, rose from 5.10% at the end of December to 5.83% as of May 31,
1999, the yield on the Bond Buyer Revenue Bond Index, an unmanaged index of
long-term municipal revenue bonds, gained 15 basis points--from 5.26% to 5.41%.
Given the inverse relationship between interest rates and bond prices, we saw
bond prices fall as rates rose over this period.
Though municipal bond prices did decrease, the decline was not as dramatic
as the drop in Treasuries.
This performance differential reflects the fact that Treasuries had become
relatively expensive as the result of safe-haven buying during the international
economic crises in 1998. As the financial turmoil subsided, however, foreign
investors returned to investing in their own countries rather than in U.S.
dollar-denominated securities, and the decline in demand caused U.S. Treasuries
to drop in price.
At the end of May 1999, the ratio between long-term municipal yields and
30-year Treasury yields stood at 93%, compared with the historical average of
86% for the period of 1986-1999. For investors, this meant that quality long-
term municipal bonds offered yields comparable to those of long Treasury bonds--
even before the tax advantages of municipal bonds were taken into account.
During the fund's fiscal year, that ratio hit a high of 104% in December.
On an after-tax basis in today's market, municipal bonds continue to
present an exceptionally attractive investment option relative to Treasuries.
During 1998, lower interest rates and the strong economy combined to
generate high levels of new municipal issuance and a significant increase in the
refinancing of existing bonds. Municipal issuance in 1998 reached $284 billion,
up 29% over 1997.
In the first part of 1999, however, as the market settled into a more
stable interest rate environment, refunding activity has dropped off
dramatically, resulting in a drop in municipal supply. This, in turn, has
enhanced the attractiveness of the municipal bonds that were brought to market,
as demand--especially from individual investors--remained relatively strong.
The Value of Nuveen Expertise. Nuveen Mutual Funds are a diverse collection of
investments featuring highly regarded asset management firms--Premier Advisers
(SM)--who direct the investment activities of each portfolio.
The Premier Advisers are firms that have earned a reputation for excellence
in their field of expertise--including Nuveen Investment Advisory Services for
income investing, Rittenhouse Financial Services for growth investing and
Institutional Capital Corporation for value investing.
For more information on our funds, contact your financial adviser for a
prospectus, or call Nuveen at (800) 621-7227, or download one from our Web site
www.nuveen.com. Please read the prospectus carefully before you invest or send
money.
We encourage you to talk with your financial adviser about Nuveen's
expanding array of investments and the ways they can help you establish a
diversified portfolio designed to build and sustain long-term financial
security.
We are grateful for the confidence you have placed in us and are dedicated
to maintaining your trust in the years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1999
2
<PAGE>
NUVEEN FLAGSHIP FLORIDA MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Tom O'Shaughnessy discusses fund performance, the municipal
market and key investment strategies for the Florida fund for the fiscal year
ended May 31, 1999.
How strong is Florida's economy? Florida is one of the fastest growing states in
the U.S. Both employment and income growth have outpaced the region and the
nation. The economy increasingly centers on growing trade and service
industries, while tourism and agriculture remain important sectors. In May, the
state's unemployment rate was 4.1%, down from 4.3% a year ago.
Florida's expanding economy has led to growing infrastructure and school
financing needs. Issuers in the state took advantage of low interest rates in
late 1998 and early 1999, bringing many sizable bond issues to market. The
market had some difficulty absorbing the new bonds on top of the plentiful
supply in late 1998, providing attractive opportunities to buy Florida bonds.
For instance, a temporary oversupply made Florida Board of Education bonds
particularly attractive, and we took advantage of low prices by purchasing these
high quality bonds for the fund.
As was the case on the national level, increasing concerns about rising
economic growth and potential inflation caused bond yields to rise and prices to
fall. However, municipal bonds held their values quite well compared to U.S.
Treasury bonds.
How did Nuveen Flagship Florida Municipal Bond Fund perform during its fiscal
year? Nuveen Flagship Florida Municipal Bond Fund generated a total return on
net asset value of 3.78%, which compares to the 3.33% average annual total
return posted by the Lipper Florida Municipal Debt Peer Group.* The fund ranked
17th out of 64 municipal bond funds for the fiscal year period in its Lipper
peer group. The fund's taxable equivalent total return, for investors in the 31%
federal income tax bracket, was 6.09%.** Total return equals a fund's income
plus capital gains distributions, if any, plus or minus changes in net asset
value.
As of May 31, 1999, the fund's SEC 30-day yield was 4.11%. For investors in
the 31% federal income tax bracket, that is equivalent to a yield of 5.96% on a
taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates decline. To protect the fund's income
stream, we looked for bonds with call dates far in the future--or better yet,
that are noncallable.
In addition to good call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality. Nuveen Research
assists us with those tasks, as well as helps us monitor events in the municipal
market and analyze how those events affect individual state and national
municipal markets.
For example, during spring 1998, a major not-for-profit healthcare provider
in Philadelphia declared bankruptcy. While the impact of this bankruptcy was
most pronounced in the healthcare sector of the Pennsylvania municipal market,
it was felt to a lesser extent throughout the municipal market.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
** The Lipper Peer Group return represents the average annual-ized total return
of the 64 funds in the Lipper Florida Municipal Debt category. The return
assumes reinvestment of divi-dends and does not reflect any applicable sales
charges.
** Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
3
<PAGE>
Uncertainty created by the Philadelphia health-care situation prompted
investors to demand higher yields for lower-rated issues across the country,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen. Prior to the bankruptcy,
this spread had been relatively narrow, suggesting that investors were not being
compensated adequately for taking on additional credit risk. With spreads having
widened, lower-rated securities have become more attractive on a risk-adjusted
basis.
With interest rates at a higher level, and the widening differential
between low-rated and high-rated credits, we took the opportunity to investigate
lower-rated issues. Using the expertise of Nuveen Research, we considered only
those bonds that offered adequate compensation for the level of risk.
For instance, we added a sizable block of non-rated multi-family housing
bonds for a project in Naples. The bonds offered significantly higher yield than
similar insured bonds at the time, which provided adequate compensation for the
higher credit risk. This transaction represents added value to investors. Our
team's expertise and resources make us particularly qualified to analyze,
negotiate and price these bonds correctly.
In recent months, we have taken advantage of rising interest rates by
selling some bonds at a loss--because as interest rates rose, prices of the
bonds fell--and subsequently buying similar securities, whose yield reflected
the higher interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income. Tax losses were
created by the swaps, which will benefit the fund and are used to offset capital
gains for up to eight years. The higher yield of the new bonds should boost the
fund's income as well.
What is your outlook for Nuveen Flagship Florida Municipal Bond Fund? Rising
interest rates in 1999 have made it advantageous for us to lock in higher yields
by extending the portfolio's maturity beyond that of our Lipper peer group. We
believe that bond yields are currently attractive relative to inflation. Should
interest rates fall or remain stable, the portfolio's longer maturity would be
beneficial.
With Florida's strong economy and influx of population, there will continue
to be a healthy supply and demand for municipal bonds in areas such as housing,
healthcare, education and utilities. We will continue to seek out undervalued
securities that provide income and the opportunity for price appreciation
through credit rating upgrades.
"We added a sizable block of non-rated multi-family housing bonds for a project
in Naples... Our team's expertise and resources make us particularly qualified
to analyze, negotiate and price these bonds correctly."
4
<PAGE>
NUVEEN FLAGSHIP FLORIDA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
NAV $ 10.76 $ 10.77 $ 10.77 $ 10.76
- -----------------------------------------------------------------------------
May's Declared Dividend* $0.0455 $0.0390 $0.0405 $0.0475
- -----------------------------------------------------------------------------
Fund Symbol FLOTX N/A FLCTX NMFLX
- -----------------------------------------------------------------------------
CUSIP 67065L708 67065L658 67065L641 67065L872
- -----------------------------------------------------------------------------
Inception Date 6/90 2/97 9/95 2/97
- -----------------------------------------------------------------------------
* Paid June 1, 1999
Total Returns (Annualized)/+/
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.78% -0.58% 3.05% 3.22% 4.01%
- -----------------------------------------------------------------------------
1-Year TER** 6.09% 1.64% 5.02% 5.27% 6.43%
- -----------------------------------------------------------------------------
5-Year 6.30% 5.38% 5.65% 5.74% 6.40%
- -----------------------------------------------------------------------------
Since Inception 7.31% 6.80% 6.77% 6.73% 7.37%
+ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A shares have a 4.2% maximum sales charge. Class B shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate of
31%).
Index Comparison/./
[LINE CHART APPEARS HERE]
Nuveen Flagship Nuveen Flagship Lehman Brothers
Florida Municipal Florida Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
1990 9,580 10,000 10,000
1991 10,426 10,883 10,901
1992 11,818 12,336 12,186
1993 13,252 13,833 13,642
1994 13,192 13,771 13,665
1995 14,254 14,879 14,871
1996 14,984 15,641 15,858
1997 16,132 16,839 17,170
1998 17,449 18,241 18,655
1999 18,033 18,823 19,451
Nuveen Flagship Florida Municipal Bond Fund (Offer) $18,033
Nuveen Flagship Florida Municipal Bond Fund (NAV) $18,823
Lehman Brothers Municipal Bond Index $19,451
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
Monthly Tax-Free Dividends (Class A Shares)*
[BAR CHART APPEARS HERE]
Month
- -----
June .0460
July .0460
August .0460
September .0460
October .0460
November .0460
December .0460
January .0455
February .0455
March .0455
April .0455
May .0455
* The fund also paid shareholders capital gains and net ordinary income
distributions in December of $0.0404 per share.
Portfolio Statistics
Fund Net Assets $390.8 million
- --------------------------------------------------------
Effective Maturity 19.76 years
- --------------------------------------------------------
Average
Effective Duration 7.08
- --------------------------------------------------------
Top Five Sectors/1/
U.S. Guaranteed 14%
- --------------------------------------------------------
Tax Obligation (General) 12%
- --------------------------------------------------------
Housing (Multifamily) 12%
- --------------------------------------------------------
Health Care 11%
- --------------------------------------------------------
Utilities 11%
- --------------------------------------------------------
Bond Credit Quality/1/
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed.... 65%
AA............ 11%
A............. 11%
BBB/NR........ 13%
/1/ as a percentage of total bond holdings
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
5
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 0.4%
$ 750,000 Clay County Development Authority, Industrial Development 7/02 at 102 AA- $ 803,288
Revenue Refunding Bonds (Cargill, Incorporated Project),
Series 1992, 6.400%, 3/01/11
600,000 City of Jacksonville, Florida, Industrial Development 3/02 at 102 AA- 635,610
Revenue Refunding Bonds (Carroll Incorporated Project),
Series 1992, 6.400%, 3/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 0.1%
300,000 Brevard County Educational Facilities Authority (Florida), 11/02 at 102 BBB- 318,216
Educational Facilities Refunding and Improvement Revenue
Bonds, Series 1992, 6.875%, 11/01/22
----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 4.2%
5,500,000 Escambia County, Florida, Pollution Control Revenue Bonds 8/04 at 102 Baa1 6,057,315
(Champion International Project), Series 1994, 6.900%,
8/01/22 (Alternative Minimum Tax)
8,350,000 Escambia County, Florida, Pollution Control Revenue Bonds 9/06 at 102 Baa1 8,922,977
(Champion International Project), Series 1996, 6.400%,
9/01/30 (Alternative Minimum Tax)
1,500,000 Nassau County, Florida, Pollution Control Revenue Refunding 7/03 at 102 BBB+ 1,578,570
Bonds (ITT Rayonier Inc. Project), Series 1993, 6.200%,
7/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 10.9%
3,000,000 Jacksonville Health Facilities Authority, Florida, Hospital 11/01 at 102 AA+ 3,237,240
Facilities Refunding Revenue Bonds, Series 1991 (St. Luke's
Hospital Association Project), 7.125%, 11/15/20
6,000,000 City of Lakeland, Florida, Hospital Revenue Refunding Bonds 11/06 at 102 AAA 5,987,100
(Lakeland Regional Medical Center Project), Series 1996,
5.250%, 11/15/25
2,100,000 Hospital Board of Directors of Lee County, Florida, Hospital 4/07 at 102 AAA 2,198,385
Revenue Bonds (Lee Memorial Health System), Fixed Rate
Hospital Revenue Bonds, 1997 Series A, 5.625%, 4/01/16
2,320,000 Martin County Health Facilities Authority, Florida, Hospital 11/00 at 102 AAA 2,480,382
Revenue Refunding Bonds, Series 1990A (Martin Memorial
Hospital), 7.125%, 11/15/04
North Broward Hospital District, Florida, Refunding and
Improvement Revenue Bonds, Series 1997:
1,000,000 5.250%, 1/15/17 1/07 at 101 AAA 1,000,310
3,000,000 5.375%, 1/15/24 1/07 at 101 AAA 3,019,980
1,230,000 City of North Miami, Florida, Health Facilities Authority, 8/00 at 102 A+ 1,300,331
Health Facility Revenue Bonds (Villa Maria Nursing and
Rehabilitation Center Project), Series 1985B, Remarketed
(Bon Secours Health System), 7.500%, 9/01/12
Health System), 7.500%, 9/01/12
2,500,000 Orange County, Florida, Health Facilities Authority, Hospital 11/01 at 102 AAA 2,711,175
Revenue Bonds (Adventist Health System/Sunbelt, Inc.), Series
1991 A, 6.875%, 11/15/15
2,500,000 Orange County, Florida, Health Facilities Authority, Hospital 11/01 at 102 AAA 2,703,925
Revenue Bonds (Adventist Health System/Sunbelt, Inc.), Series
1991 B, 6.750%, 11/15/21
10,645,000 Orange County, Florida, Health Facilities Authority, Hospital 11/05 at 102 AAA 10,624,349
Revenue Bonds (Adventist Health System/Sunbelt, Inc.), Series
1995, 5.250%, 11/15/20
5,455,000 Orange County, Florida, Health Facilities Authority, Hospital No Opt. Call AAA 6,241,611
Revenue Bonds (Orlando Regional Healthcare System), Series 1996C,
6.250%, 10/01/21
1,000,000 St. John's County Industrial Development Authority, Hospital 8/02 at 102 A2 1,035,120
Revenue Bonds, (Flagler Hospital Project), Series 1992, 6.000%,
8/01/22
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 12.0%
600,000 Housing Finance Authority of Broward County, Florida, Multifamily 2/05 at 102 AAA 663,894
Housing Revenue Refunding Bonds (Lakeside Apartments Project),
Series 1995, 7.000%, 2/01/25
250,000 Housing Finance Authority of Broward County, Florida, Multifamily 8/06 at 102 AAA 288,793
Housing Revenue Refunding Bonds (Boardwalk Apartments Project),
Series 1996, 6.200%, 8/01/16
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 940,000 Housing Finance Authority of Broward County, Florida, 10/08 at 102 N/R $ 977,139
Multifamily Housing Revenue Bonds (Stirling Apartments
Project), Series 1998, 5.400%, 10/01/11 (Alternative
Minimum Tax)
2,700,000 Duval County Housing Finance Authority, Florida, 4/05 at 102 BBB+ 2,917,026
Multifamily Housing Revenue Refunding Bonds
(Greentree Place Project), Series 1995, 6.750%, 4/01/25
710,000 Florida Housing Finance Agency, General Mortgage 6/02 at 103 AAA 752,721
Revenue Refunding Bonds, 1992 Series A, 6.400%, 6/01/24
Florida Housing Finance Agency, Housing Revenue Bonds
(Antigua Club Apartments Project), 1995 Series A1:
1,000,000 6.750%, 8/01/14 (Alternative Minimum Tax) 2/05 at 102 AAA 1,088,630
5,000,000 6.875%, 8/01/26 (Alternative Minimum Tax) 2/05 at 102 AAA 5,460,600
1,115,000 Florida Housing Finance Agency, Housing Revenue 2/05 at 102 AAA 1,217,714
Bonds (Brittany of Rosemont Apartments Project),
1995 Series C1, 6.875%, 8/01/26 (Alternative Minimum Tax)
2,250,000 Florida Housing Finance Agency, Housing Revenue 6/07 at 102 AAA 2,366,303
Bonds, 1997 Series C (Windchase Apartments
Project), 5.900%, 12/01/27
Florida Housing Finance Agency, Housing Revenue
Bonds, 1995 Series H (The Vineyards Project):
1,260,000 6.400%, 11/01/15 11/05 at 102 BBB+ 1,346,965
1,660,000 6.500%, 11/01/25 11/05 at 102 BBB+ 1,774,108
2,000,000 Florida Housing Finance Agency, Multifamily Housing 8/06 at 102 AAA 2,145,800
Revenue Refunding Bonds, 1991 Series C, 6.200%, 8/01/16
3,500,000 Florida Housing Finance Agency, Housing Revenue 10/06 at 102 AAA 3,727,815
Bonds, 1996 Series H (Villas of Capri Project),
6.100%, 4/01/17 (Alternative Minimum Tax)
1,000,000 Florida Housing Finance Agency, Housing Revenue Bonds, 9/06 at 102 AAA 1,070,060
1996 Series N (Leigh Meadows Apartments Project),
6.300%, 9/01/36 (Alternative Minimum Tax)
1,000,000 Florida Housing Finance Agency, Housing Revenue Bonds, 9/06 at 102 AAA 1,070,060
1996 Series O (Stoddert Arms Apartments Project), 6.300%,
9/01/36 (Alternative Minimum Tax)
700,000 Florida Housing Finance Agency, Housing Revenue Bonds, 12/06 at 102 AAA 737,219
1996 Series T (The Landings at Sea Front Apartments Project),
6.050%, 12/01/36 (Alternative Minimum Tax)
1,440,000 Florida Housing Finance Agency, Multifamily Housing Revenue 6/99 at 103 AAA 1,485,965
Bond, 1989 Series I (GNMA Collateralized-Driftwood
Terrace Apartments Project), 7.650%, 12/20/31 (Alternative
Minimum Tax)
2,500,000 Florida Housing Finance Agency, Housing Revenue Bonds, 5/08 at 102 AAA 2,524,550
1997 Series L (Sarah's Place Apartments Project), 5.400%,
11/01/32 (Alternative Minimum Tax)
10,000,000 Florida Housing Finance Agency, Housing Revenue Bonds, 7/08 at 102 N/R 9,845,500
Series 1998 T1 (Whistlers Cove Apartment Project), 6.500%,
1/01/39 (Alternative Minimum Tax) (Mandatory put 1/01/28)
1,670,000 Florida Housing Finance Corporation, Housing Revenue 12/08 at 102 A+ 1,672,856
Refunding Bonds, 1998 Series O (Hunters Ridge at Deerwood
Apartments), 5.250%, 12/01/18
1,000,000 Orange County, Florida, Housing Finance Authority, 10/01 at 101 BBB+ 1,032,070
Multifamily Housing Revenue Bonds (Ashley
Point Apartments Project), 1994 Series A, 7.100%,
10/01/24 (Alternative Minimum Tax)
1,925,000 Osceola County, Florida, Housing Finance Authority, 6/07 at 100 AAA 1,980,825
Multifamily Housing Revenue Bonds (Tierra Vista
Apartments Project), Series 1997A, 5.800%, 12/01/29
(Alternative Minimum Tax)
750,000 Palm Beach County, Florida, Housing Finance Authority, 6/08 at 102 N/R 781,448
Multifamily Housing Revenue Bonds (Windsor Park Apartments
Project), Series 1998, 5.900%, 6/01/38 (Alternative Minimum
Tax)
------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 7.7%
2,920,000 Housing Finance Authority of Broward County, Florida, Home No Opt. Call AAA 541,806
Mortgage Revenue Bonds, 1985 Series A, 0.000%, 4/01/16
1,225,000 Housing Finance Authority of Broward County, Florida, 3/00 at 102 AA+ 1,263,416
GNMA Collateralized Home Mortgage Revenue Bonds, 1990
Series A, 7.900%, 3/01/23 (Alternative Minimum Tax)
1,825,000 Housing Finance Authority of Clay County, Florida, 3/05 at 102 Aaa 1,942,129
Single Family Mortgage Revenue Bonds
(Multi-County Program), Series 1995, 6.550%,
3/01/28 (Alternative Minimum Tax)
2,000,000 Housing Finance Authority of Clay County, Florida, 4/07 at 102 Aaa 2,015,000
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1998, 5.450%, 4/01/31 (Alternative Minimum Tax)
</TABLE>
_____
7
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
$ 205,000 Housing Finance Authority of Dade County, Florida, 9/00 at 102 Aaa $ 213,241
Single Family Mortgage Revenue Bonds, 1990 Series B,
7.750%, 3/01/17 (Alternative Minimum Tax)
685,000 Housing Finance Authority of Dade County, Florida, 3/01 at 102 Aaa 714,736
Single Family Mortgage Revenue Bonds, Series B,
7.250%, 9/01/23 (Alternative Minimum Tax)
461,000 Housing Finance Authority of Dade County, Florida, 12/01 at 102 AAA 485,599
Single Family Mortgage Revenue Refunding Bonds,
1991 Series D, 6.950%, 12/15/12
40,000 Housing Finance Authority of Dade County, Florida, 3/01 at 102 Aaa 41,702
Single Family Mortgage Revenue Bonds, 1991 Series E,
7.000%, 3/01/24
1,000,000 Housing Finance Authority of Dade County, Florida, 4/05 at 102 AAA 1,064,830
Single Family Mortgage Revenue Bonds, Series 1995,
6.700%, 4/01/28 (Alternative Minimum Tax)
285,000 Duval County Housing Finance Authority, Single Family 6/00 at 102 Aaa 295,357
Mortgage Revenue Bonds (GNMA Mortgage Backed Securities
Program), Series 1990B, 7.500%, 6/01/15
Duval County Housing Finance Authority Single Family Mortgage
Revenue Bonds (GNMA Mortgage Backed Securities Program),
Series 1990A:
305,000 7.650%, 9/01/10 9/00 at 103 AAA 319,732
140,000 7.850%, 12/01/22 (Alternative Minimum Tax) 6/00 at 102 Aaa 145,104
655,000 Duval County Housing Finance Authority, Single Family 10/04 at 102 Aaa 695,210
Mortgage Revenue Bonds, (GNMA Mortgage-Backed Securities
Program), Series 1994, 6.550%, 10/01/15 (Alternative
Minimum Tax)
1,570,000 Escambia County Housing Finance Authority, Florida, 4/01 at 102 Aaa 1,639,692
Single Family Mortgage Revenue Bonds, Series 1991A
(Multi-County Program), 7.400%, 10/01/23
(Alternative Minimum Tax)
275,000 Escambia County Housing Finance Authority, Florida, 4/02 at 102 Aaa 288,797
Single Family Mortgage Revenue Bonds, Series 1992A
(Multi-County Program), 6.900%, 4/01/20
(Alternative Minimum Tax)
565,000 Escambia County Housing Finance Authority, Florida, 4/05 at 102 AAA 608,047
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1995, 6.950%, 10/01/27 (Alternative Minimum Tax)
1,165,000 Florida Housing Finance Agency, Single Family Mortgage 7/04 at 102 AAA 1,236,717
Revenue Refunding Bonds, Series A, 6.250%, 7/01/11
705,000 Florida Housing Finance Agency, Single Family Mortgage 1/05 at 102 AAA 752,693
Revenue Refunding Bonds, Series 1995A, 6.550%, 7/01/14
(Alternative Minimum Tax)
705,000 Florida Housing Finance Agency, Single Family Mortgage 1/05 at 102 AAA 756,409
Revenue Refunding Bonds, Series 1995A, 6.650%, 1/01/24
(Alternative Minimum Tax)
970,000 Housing Finance Authority of Lee County, Florida, 3/08 at 105 Aaa 1,072,122
Single Family Mortgage Revenue Bonds, Series 1998A,
Subseries 1,2,3,4, 6.300%, 3/01/29 (Alternative
Minimum Tax)
305,000 Housing Finance Authority of Leon County, Florida, 4/01 at 102 Aaa 318,066
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1991A, 7.300%, 4/01/21 (Alternative Minimum Tax)
1,945,000 Housing Finance Authority of Leon County, Florida, No Opt. Call AAA 2,212,515
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1995B, 7.300%, 1/01/28 (Alternative Minimum Tax)
640,000 Housing Finance Authority of Manatee County, Florida, 11/05 at 102 Aaa 712,403
Single Family Mortgage Revenue Bonds, Series 1994,
Sub Series 3, 7.600%, 11/01/26 (Alternative Minimum Tax)
275,000 Orange County Housing Finance Authority, GNMA Collateralized 7/00 at 103 AAA 288,819
Mortgage Revenue Refunding Bonds, 1990 Series A, 7.600%,
1/01/24
2,740,000 Orange County Housing Finance Authority, Homeowner Revenue 9/07 at 102 Aaa 2,717,395
Bonds, 1998 Series A-1, 5.200%, 9/01/23 (Alternative
Minimum Tax)
820,000 Housing Finance Authority of Palm Beach County, Florida, 9/00 at 103 Aaa 859,122
Single Family Mortgage Revenue Bonds, 1990 Series B, 7.600%,
3/01/23
1,595,000 Housing Finance Authority of Pinellas County, Florida, 2/05 at 102 AAA 1,709,728
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1995A, 6.650%, 8/01/21 (Alternative Minimum Tax)
2,530,000 Housing Finance Authority of Pinellas County, Florida, 3/07 at 102 Aaa 2,720,863
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1998A, 6.850%, 3/01/29 (Alternative Minimum Tax)
1,050,000 Housing Finance Authority of Pinellas County, Florida, 3/07 at 102 Aaa 1,079,033
Single Family Mortgage Revenue Bonds (Multi-County Program),
Series 1997C, 5.800%, 3/01/29 (Alternative Minimum Tax)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
$ 1,160,000 Housing Finance Authority of Polk County, Florida, 3/01 at 102 Aaa $ 1,209,428
Single Family Mortgage Revenue Refunding
Bonds, Series 1991A, 7.150%, 9/01/23
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 6.4%
2,735,000 Dade County Health Facilities 8/00 at 102 A1 2,865,405
Authority, Revenue and Revenue Refunding Bonds
(Catholic Health and Rehabilitation Services, Inc.
Project), Series 1990, 7.125%, 8/15/09
Escambia County Health Facilities Authority
(Florida), Health Facilities Revenue Bonds
(Azalea Trace, Inc.), Series 1997:
1,000,000 6.000%, 1/01/15 1/07 at 102 N/R 1,024,100
1,595,000 6.100%, 1/01/19 1/07 at 102 N/R 1,645,099
Jacksonville Health Facilities Authority
(Florida), Tax Exempt Industrial Development
Revenue Bonds (National Benevolent Association
- Cypress Village Florida Project), Series 1996A:
690,000 6.125%, 12/01/16 12/06 at 102 Baa1 721,595
1,000,000 6.250%, 12/01/26 12/06 at 102 Baa1 1,051,930
1,550,000 Osceola County Industrial Development Authority 5/01 at 102 AAA 1,657,152
(Florida), Revenue Bonds (The Evangelical
Lutheran Good Samaritan Society Project),
Series 1991, 6.750%, 5/01/16
8,000,000 Palm Beach County (Florida), Health Facilities 11/06 at 102 A- 8,117,040
Authority, Retirement Community Revenue Bonds
(Adult Communities Total Services, Inc. Obligated
Group), Series 1996, 5.625%, 11/15/20
4,000,000 Palm Beach County (Florida), 12/06 at 102 A+ 4,318,000
Industrial Development Revenue Bonds (Lourdes-Noreen
McKeen Residence for Geriatric Care, Inc. Project),
Series 1996, 6.625%, 12/01/26
Sarasota County (Florida), Health Facilities
Authority, Health Facilities Revenue Refunding Bonds,
Series 1995 (Sunnyside Properties Project):
585,000 5.500%, 5/15/01 No Opt. Call N/R 597,999
540,000 5.500%, 5/15/02 No Opt. Call N/R 556,659
570,000 5.500%, 5/15/03 No Opt. Call N/R 589,238
600,000 5.500%, 5/15/04 No Opt. Call N/R 621,828
170,000 5.500%, 5/15/05 No Opt. Call N/R 176,113
1,000,000 6.000%, 5/15/10 5/06 at 102 N/R 1,024,330
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 12.2%
Village of Bolingbrook, Illinois, General Obligation
Bonds, Series 1999C Refunding:
2,540,000 0.000%, 1/01/29 1/09 at 33 7/8 AAA 484,505
3,750,000 0.000%, 1/01/30 1/09 at 32 1/32 AAA 675,938
4,000,000 0.000%, 1/01/31 1/09 at 30 5/16 AAA 681,120
3,750,000 0.000%, 1/01/32 1/09 at 28 5/8 AAA 603,375
4,000,000 0.000%, 1/01/33 1/09 at 27 3/32 AAA 607,920
1,325,000 0.000%, 1/01/34 1/09 at 25 21/32 AAA 190,257
4,000,000 State of Florida, Full Faith No Opt. Call AA+ 5,508,320
and Credit, Broward County Expressway Authority
Bonds, Series of 1984, 9.875%, 7/01/09
1,000,000 State of Florida, Full Faith No Opt. Call AA+ 1,489,290
and Credit, Broward County Expressway Authority
Bonds, Series of 1984, (General Obligation Bonds.),
10.000%, 7/01/14
10,000,000 State of Florida, Full Faith and Credit, 7/09 at 101 AA+ 9,621,600
Department of Transportation, Right-of-Way
Acquisition and Bridge Construction Bonds,
Series 1999A, 5.000%, 7/01/28
2,165,000 State of Florida, Full Faith and Credit, State No Opt. Call AA+ 3,034,139
Board of Education, Public Education Capital Outlay
Bonds, Series 1985, 9.125%, 6/01/14
State of Florida, Full Faith and Credit, State
Board of Education, Public Education Capital Outlay
Bonds, 1996 Series B:
2,220,000 4.750%, 6/01/21 6/07 at 101 AA+ 2,072,037
4,120,000 4.500%, 6/01/27 6/07 at 101 AA+ 3,639,031
5,000,000 State of Florida, Full Faith and Credit, State 6/08 at 101 AAA 4,657,800
Board of Education, Public Education Capital Outlay
1997 Series B, 4.750%, 6/01/23
10,000,000 State of Florida, Full Faith and Credit, State 6/09 at 101 AAA 8,951,700
Board of Education, Public Education Capital Outlay
Refunding Bonds, 1999 Series A, 4.500%, 6/01/23
3,000,000 State of Florida, Full Faith and Credit, State 6/09 at 101 AAA 2,679,090
Board of Education, Public Education Capital Outlay
Refunding Bonds, 1999 Series B, 4.500%, 6/01/24
</TABLE>
________
9
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General (continued)
$ 2,000,000 Commonwealth of Puerto Rico, Public Improvement Bonds No Opt. Call AAA $ 2,359,440
(General Obligation Bonds), Series 1997, 6.500%, 7/01/15
700,000 Commonwealth of Puerto Rico, Public Improvement Bonds, 7/07 at 100 A 705,446
Series 1997, 5.375%, 7/01/25
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 9.8%
The School Board of Brevard County, Florida, Certificates
of Participation, Series 1996A:
500,000 5.400%, 7/01/11 No Opt. Call AAA 526,080
500,000 5.400%, 7/01/12 No Opt. Call AAA 525,160
3,100,000 5.500%, 7/01/21 7/06 at 102 AAA 3,190,303
Dade County, Florida, Special Obligation and Refunding Bonds,
Series 1996B:
4,835,000 0.000%, 10/01/07 No Opt. Call AAA 3,330,203
3,585,000 5.000%, 10/01/35 10/06 at 102 AAA 3,431,598
190,000 The School Board of Escambia County, Florida, Certificates 2/02 at 100 AAA 200,365
of Participation, Series 1992, 6.375%, 2/01/12
1,500,000 The Department of Corrections, Florida, Certificates of 3/04 at 102 A+ 1,599,240
Participation, Series 1994, 6.000%, 3/01/14
3,105,000 City of Gulf Breeze, Florida, Local Government Loan Program, 12/99 at 102 AAA 3,232,243
Floating Rate Demand Revenue Bonds, Boca Raton Projects,
Series 1985E, 7.750%, 12/01/15
1,000,000 City of Gulf Breeze, Florida, Local Government Loan Program, No Opt. Call AAA 1,087,320
Floating Rate Demand Revenue Bonds, Series 1985B Remarketed,
5.900%, 12/01/15 (Mandatory put 12/01/11)
5,000,000 The County of Hernando, Florida, Criminal Justice Complex No Opt. Call AAA 6,506,850
Financing Program, 1986 Series, 7.650%, 7/01/16
250,000 City of Jacksonville, Florida, Excise Taxes Revenue Refunding 10/02 at 102 AAA 272,703
Bonds, Series 1992, 6.500%, 10/01/13
1,010,000 Martin County, Florida, Tropical Farms Water and Sewer Special 11/05 at 100 A2 1,065,338
Assessment District, Special Assessment Bonds, Series 1995,
5.900%, 11/01/11
1,000,000 Miami Beach Redevelopment Agency, Florida, Tax Increment 12/04 at 102 BBB 1,013,910
Revenue Bonds Series 1993 (City Center/Historic Convention
Village), 5.875%, 12/01/22 (Alternative Minimum Tax)
4,115,000 The School Board of Orange County, Florida, Master Lease Program, 8/07 at 101 Aaa 4,159,195
Certificates of Participation, Series 1997A, 5.375%, 8/01/22
1,000,000 The School Board of Palm Beach County, Florida, Certificates 8/04 at 101 AAA 1,115,380
of Participation, Series 1994A, 6.375%, 8/01/15
1,000,000 City of Palm Beach Gardens, Florida, Special Obligation 7/99 at 102 AAA 1,023,370
Revenue Bonds, Series 1990, 7.250%, 7/01/15
4,500,000 Puerto Rico Highway and Transportation Authority, Highway 7/16 at 100 A4 4,628,250
Revenue Bonds, Series 1996Y, 5.500%, 7/01/36
3,300,000 City of Tampa, Florida, Utilities Tax Improvement Bonds, No Opt. Call AAA 1,309,077
Series 1996, 0.000%, 4/01/17
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 3.1%
1,000,000 Dade County, Florida, Aviation Facilities Revenue Bonds, 10/02 at 102 AAA 1,087,440
1992 Series B, 6.550%, 10/01/13 (Alternative Minimum Tax)
1,250,000 City of Orlando, Florida, Greater Orlando Aviation Authority, 10/07 at 101 AAA 1,237,200
Airport Facilities Revenue Bonds, Series 1997, 5.250%,
10/01/23 (Alternative Minimum Tax)
1,000,000 Hillsborough County Aviation Authority, Florida,Tampa 10/06 at 102 AAA 1,068,060
International Airport Revenue Bonds, Series 1996B,
5.875%, 10/01/23
2,020,000 Palm Beach County, Florida, Airport System Revenue No Opt. Call AAA 2,117,889
Refunding Bonds, Series 1991, 7.500%, 10/01/00
Sanford Airport Authority, Florida, Industrial
Development Revenue Bonds (Central Florida Terminals
Inc. Project), Series 1995A:
3,000,000 7.500%, 5/01/15 (Alternative Minimum Tax) 5/06 at 102 N/R 3,170,790
3,270,000 7.750%, 5/01/21 (Alternative Minimum Tax) 5/06 at 102 N/R 3,517,801
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed - 14.0%
$ 1,925,000 City of Boynton Beach, Florida, Water and Sewer Utility Revenue 11/00 at 102 AAA $ 2,068,066
Bonds, Series 1990, 7.400%, 11/01/15 (Pre-refunded to 11/01/00)
1,500,000 The School Board of Broward County, Florida, Certificates of 7/00 at 102 AAA 1,589,985
Participation, Series 1990A, 7.125%, 7/01/10 (Pre-refunded to
7/01/00)
255,000 Dade County, Florida, Special Obligation Bonds (Courthouse Center 4/04 at 102 A3*** 283,047
Project), Series 1994, 6.300%, 4/01/14 (Pre-refunded to 4/01/04)
250,000 Dade County Health Facilities Authority, Florida, Hospital 10/99 at 102 AAA 258,078
Revenue Refunding Bonds (South Miami Hospital Project),
Series 1989, 7.000%, 10/01/18 (Pre-refunded to 10/01/99)
1,500,000 Dade County Health Facilities Authority, Florida, Hospital No Opt. Call AAA 1,616,610
Revenue Bonds (Baptist Hospital of Miami Project), Series
1991A, 5.750%, 5/01/21
300,000 Dade County Health Facilities Authority, Florida, Hospital 8/02 at 102 AAA 328,959
Revenue Refunding Bonds (North Shore Medical Center Project),
Series 1992, 6.500%, 8/15/15 (Pre-refunded to 8/15/02)
310,000 The School Board of Escambia County, Florida, Certificates of 2/02 at 100 AAA 329,899
Participation, Series 1992, 6.375%, 2/01/12 (Pre-refunded to
2/01/02)
300,000 State of Florida, Full Faith and Credit, Division of Bond Finance 7/02 at 101 AA+*** 326,346
of the Department of General Services, Pollution Control
Bonds, Series Y, 6.600%, 7/01/17 (Pre-refunded to 7/01/02)
335,000 State of Florida, Full Faith and Credit, State Board of Education, No Opt. Call AAA 466,615
Public Education Capital Outlay Bonds, Series 1985, 9.125%,
6/01/14
5,000,000 State of Florida, Full Faith and Credit, State Board of 6/01 at 101 AAA 5,338,400
Education, Public Education Capital Outlay Bonds, Series
1991B, 6.700%, 6/01/22 (Pre-refunded to 6/01/01)
2,000,000 State Board of Education of Florida, Public Education Capital 6/02 at 101 Aaa 2,175,560
Outlay Bonds, Series 1991C, 6.625%, 6/01/17 (Pre-refunded to
6/01/02)
2,990,000 Hillsborough County, Florida, Environmentally Sensitive Land 7/02 at 102 Aa3*** 3,248,934
Acquisition and Protection Program Bonds, Series 1992, 6.250%,
7/01/08 (Pre-refunded to 7/01/02)
1,000,000 Hillsborough County Port District, Florida (Tampa Port 12/00 at 102 Baa1*** 1,087,150
Authority), Revenue Bonds, Series 1990, 8.250%, 6/01/09
(Pre-refunded to 12/01/00)
250,000 Hillsborough County, Florida, Capital Improvement, Non-Ad Valorem 1/00 at 102 A*** 259,483
Revenue Bonds (Museum of Science and Industry Project),
Series 1992, 6.400%, 1/01/12 (Pre-refunded to 1/01/00)
1,635,000 Hillsborough County, Florida, Refunding Utility Revenue Bonds, 8/01 at 102 BBB+*** 1,772,700
Series 1991A, 7.000%, 8/01/14 (Pre-refunded to 8/01/01)
250,000 City of Hollywood, Florida, Water and Sewer Revenue Bonds, 10/01 at 102 AAA 272,428
Series 1991, 6.875%, 10/01/21 (Pre-refunded to 10/01/01)
1,810,000 Jacksonville Electric Authority, Jacksonville, Florida, 10/00 at 101 1/2 Aaa 1,921,822
Bulk Power Supply System Revenue Bonds (Scherer 4 Project,
Issue One), Series 1991A, 7.000%, 10/01/12 (Pre-refunded to
10/01/00)
1,500,000 Town of Lady Lake, Florida, Industrial Development Revenue 7/00 at 102 N/R*** 1,626,630
Bonds (Sunbelt Utilities, Inc. Project), Series 1990, 9.625%,
7/01/15 (Alternative Minimum Tax) (Pre-refunded to 7/01/00)
1,000,000 Martin County Health Facilities Authority, Florida, Hospital 11/00 at 102 AAA 1,070,970
Revenue Bonds (Martin Memorial Hospital South Project),
Series 1990B, 7.100%, 11/15/20 (Pre-refunded to 11/15/00)
1,050,000 City of Naples, Florida, Hospital Revenue Bonds (Naples Community 10/00 at 102 AAA 1,121,820
Hospital, Inc. Project), Series 1990, 7.200%, 10/01/19
(Pre-refunded to 10/01/00)
3,400,000 North Springs Improvement District, Florida, Water and 10/01 at 102 N/R*** 3,790,048
Sewer Revenue Bonds, Series 1991, 8.000%, 10/01/16
(Pre-refunded to 10/01/01)
145,000 Orange County, Florida, Sales Tax Revenue Bonds, Series 1/00 at 102 AAA 150,337
1989, 6.125%, 1/01/19 (Pre-refunded to 1/01/00)
1,750,000 Orange County, Florida, Tourist Development Tax 10/00 at 102 AAA 1,871,695
Revenue Bonds, Series 1990, 7.250%, 10/01/10
(Pre-refunded to 10/01/00)
235,000 Orange County, Florida, Water Utilities System Revenue Bonds, 4/02 at 102 AAA 254,413
Series 1992, 6.250%, 10/01/17 (Pre-refunded to 4/01/02)
1,750,000 Palm Beach County, Florida, Criminal Justice Facilities 6/00 at 102 AAA 1,852,235
Revenue Bonds, Series 1990, 7.250%, 6/01/11 (Pre-refunded to
6/01/00)
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Florida Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 1,425,000 Puerto Rico Electric Power Authority, Power Revenue 7/01 at 102 Aaa $ 1,548,320
Bonds, Series P, 7.000%, 7/01/21 (Pre-refunded to 7/01/01)
500,000 City of St. Petersburg Health Facilities Authority, Florida 12/01 at 102 AAA 546,845
(Allegheny Health System Loan Program), Revenue Bonds,
Series 1985 A, 7.000%, 12/01/15 (Pre-refunded to 12/01/01)
2,000,000 City of St. Petersburg Health Facilities Authority, Florida, 12/03 at 100 AAA 2,227,000
Allegheny Health System Revenue Bonds (St. Anthony's Health
Care Center, Inc.), Series 1991, 6.750%, 12/01/21
(Pre-refunded to 12/01/03)
1,610,000 City of St. Petersburg Health Facilities Authority, Florida, 12/01 at 102 AAA 1,765,317
Allegheny Health System Revenue Bonds (St. Mary's Hospital,
Inc.), Series 1991, 7.000%, 12/01/21 (Pre-refunded to
12/01/01)
2,500,000 The School Board of Seminole County, Florida, Certificates 7/04 at 101 AAA 2,827,400
of Participation, Series 1994B, 6.750%, 7/01/14 (Pre-refunded
to 7/01/04)
5,000,000 Sunrise Lakes Phase 4 Recreation District, Florida, General 8/05 at 102 BBB-*** 5,730,250
Obligation and Revenue Bonds, Series 1995A, 6.750%, 8/01/24
(Pre-refunded to 8/01/05)
1,000,000 City of Tampa, Florida, Allegheny Health System Revenue Bonds 12/01 at 102 AAA 1,089,270
(St. Joseph's Hospital, Inc.), Series 1991, 6.750%, 12/01/17
(Pre-refunded to 12/01/01)
2,000,000 City of Tampa, Florida, Allegheny Health System Revenue 12/04 at 102 AAA 2,261,740
Bonds, St. Joseph's Hospital, Inc. Issue, Series 1994, 6.500%,
12/01/23 (Pre-refunded to 12/01/04)
335,000 City of Tampa, Florida, Water and Sewer Systems Revenue 10/02 at 101 AAA 360,584
Bonds, Series 1992, 6.000%, 10/01/17 (Pre-refunded to
10/01/02)
1,000,000 Coral Springs, Florida, Turtle Run Community Development 5/03 at 100 BBB+*** 1,083,130
District, Water Management Benefit Tax Refunding Bonds,
Series 1993, 6.400%, 5/01/11 (Pre-refunded to 5/01/03)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 10.8%
4,005,000 Broward County, Florida Resource Recovery Revenue Bonds 12/99 at 103 A- 4,197,560
(SES Broward Company, L.P. South Project), Series 1984,
7.950%, 12/01/08
6,000,000 Citrus County, Florida, Pollution Control Refunding Revenue 1/02 at 102 A+ 6,412,920
Bonds (Florida Power Corporation Crystal River Power Plant
Project), Series 1992A, 6.625%, 1/01/27
2,500,000 Hillsborough County Industrial Development Authority, Florida, 8/01 at 103 AA 2,758,750
Pollution Control Revenue Bonds (Tampa Electric Company
Project), Series 1991, 7.875%, 8/01/21
5,000,000 Indiana Municipal Power Agency, Power Supply System 1/01 at 100 AAA 4,910,600
Refunding Revenue Bonds, 1999 Series A, 5.300%, 1/01/23
1,000,000 City of Lakeland, Florida, Electric and Water Revenue Bonds No Opt. Call AAA 1,116,630
(Junior Subordinate Lien), Refunding and Improvement Bonds, Series
1996B, 6.000%, 10/01/12
2,125,000 Lee County, Florida, Solid Waste System Revenue Bonds, 10/01 at 102 AAA 2,292,790
Series 1991A, 7.000%, 10/01/11 (Alternative Minimum Tax)
2,000,000 Martin County, Florida, Pollution Control Revenue Refunding 7/00 at 102 AAA 2,112,520
Bonds (Florida Power and Light Company Project), Series 1990,
7.300%, 7/01/20
1,000,000 Orlando Utilities Commission, Water and Electric No Opt. Call Aa2 1,196,050
Subordinated Revenue Bonds, Series 1989D, 6.750%, 10/01/17
1,250,000 Orlando Utilities Commission, Water and Electric Subordinated 10/02 at 102 Aa2 1,323,625
Revenue Bonds, Series 1992A, 6.000%, 10/01/20
4,000,000 Pinellas County, Florida, Pollution Control Refunding Revenue 6/01 at 102 A+ 4,311,680
Bonds (Florida Power Corporation Anclote and Bartow Power
Plants Project), Series 1991, 7.200%, 12/01/14
6,000,000 Polk County Industrial Development Authority, Florida, Solid 12/06 at 102 A-1+ 6,301,080
Waste Disposal Facility Revenue Bonds (Tampa Electric Company
Project), Series 1996, 5.850%, 12/01/30 (Alternative Minimum Tax)
3,000,000 St. Lucie County, Florida, Solid Waste Disposal Revenue Bonds 2/01 at 102 AA- 3,196,170
(Florida Power and Light Company Project), Series 1991, 7.150%,
2/01/23 (Alternative Minimum Tax)
2,000,000 St. Lucie County, Florida, Solid Waste Disposal Revenue Bonds 5/02 at 102 AA- 2,150,360
(Florida Power and Light Company Project), Series 1992, 6.700%,
5/01/27 (Alternative Minimum Tax)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Option Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - 7.2%
$ 1,000,000 City of Callaway, Bay County, Florida, Wastewater System 9/06 at 102 AAA $ 1,073,680
Revenue Bonds, Series 1996A, 6.000%, 9/01/26
City of Clearwater, Florida, Water and Sewer Revenue
Refunding Bonds, Series 1998:
2,155,000 0.000%, 12/01/12 12/08 at 85 7/16 AAA 1,084,999
1,000,000 0.000%, 12/01/13 12/08 at 80 15/16 AAA 475,170
1,000,000 0.000%, 12/01/18 12/08 at 62 1/8 AAA 347,320
Dade County, Florida, Water and Sewer System Revenue
Bonds, Series 1997:
3,000,000 5.250%, 10/01/21 10/07 at 101 AAA 3,015,240
7,500,000 5.250%, 10/01/26 10/07 at 101 AAA 7,532,175
1,000,000 Town of Davie, Florida, Water and Sewer Improvement and 10/02 at 102 AAA 1,083,080
Refunding, Revenue Bonds, Series 1992, 6.250%, 10/01/17
600,000 The City of Daytona Beach, Florida, Water and Sewer 11/02 at 102 AAA 643,752
Revenue Bonds, Series 1992, 6.000%, 11/15/14
2,000,000 Escambia County Utilities Authority, Florida, Utility No Opt. Call AAA 903,780
System Revenue Bonds, Series 1992B, 0.000%, 1/01/15
5,750,000 Hillsborough County, Florida, Refunding Utility 8/01 at 102 AAA 6,157,445
Revenue Bonds, Series 1991A, 6.500%, 8/01/16
375,000 City of Jacksonville, Florida, Water and Sewer Development 6/02 at 102 A 403,016
Revenue Bonds (Jacksonville Suburban Utilities Corporation
Project), Series 1992, 6.750%, 6/01/22 (Alternative Minimum
Tax)
250,000 Town of Jupiter, Florida, Water Revenue Bonds, Series 10/01 at 102 AAA 268,953
1992B, 6.250%, 10/01/18
2,000,000 Town of Jupiter Island, Florida, Utility System 10/08 at 101 AAA 1,926,880
Revenue Bonds (South Martin Regional Utility),
Series 1998, 5.000%, 10/01/28
Manatee County, Florida, Public Utilities Revenue
Refunding and Improvement Bonds, Series 1991 C:
1,850,000 0.000%, 10/01/08 No Opt. Call AAA 1,207,457
2,800,000 0.000%, 10/01/09 No Opt. Call AAA 1,731,825
265,000 Orange County, Florida, Water Utilities System 4/02 at 102 AAA 284,655
Revenue Bonds, Series 1992, 6.250%, 10/01/17
165,000 City of Tampa, Florida, Water and Sewer Systems 10/02 at 101 AAA 175,725
Revenue Bonds, Series 1992, 6.000%, 10/01/17
- ---------------------------------------------------------------------------------------------------------------------------
$394,516,000 Total Investments - (cost $362,304,047) - 98.8% 386,144,890
- ---------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -1.2% 4,658,111
--------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 390,803,001
--------------------------------------------------------------------------------------------------------
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year)
and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements
_____
13
<PAGE>
Statement of Net Assets
Nuveen Flagship Florida Municipal Bond Fund
May 31, 1999
<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $386,144,890
Receivables:
Interest 6,648,081
Investments sold 4,694,954
Shares sold 1,284,453
Other assets 265,423
- -----------------------------------------------------------------------------
Total assets 399,037,801
- -----------------------------------------------------------------------------
Liabilities
Cash overdraft 1,242,370
Payables:
Investments purchased 4,622,550
Shares redeemed 654,858
Accrued expenses:
Management fees (note 6) 178,146
12b-1 distribution and service fees (notes 1 and 6) 72,585
Other 27,548
Dividends payable 1,436,743
- -----------------------------------------------------------------------------
Total liabilities 8,234,800
- -----------------------------------------------------------------------------
Net assets (note 7) $390,803,001
- -----------------------------------------------------------------------------
Class A Shares (note 1)
Net assets $297,505,380
Shares outstanding 27,642,746
Net asset value and redemption price per share $ 10.76
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.23
- -----------------------------------------------------------------------------
Class B Shares (note 1)
Net assets $ 15,767,619
Shares outstanding 1,464,572
Net asset value, offering and redemption price per share $ 10.77
- -----------------------------------------------------------------------------
Class C Shares (note 1)
Net assets $ 16,033,511
Shares outstanding 1,489,375
Net asset value, offering and redemption price per share $ 10.77
- -----------------------------------------------------------------------------
Class R Shares (note 1)
Net assets $ 61,496,491
Shares outstanding 5,717,077
Net asset value, offering and redemption price per share $ 10.76
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
______
14
<PAGE>
Statement of Net Assets
Nuveen Flagship Florida Municipal Bond Fund
Year Ended May 31, 1999
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income (note 1) $ 22,034,764
- -----------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 2,027,580
12b-1 service fees - Class A (notes 1 and 6) 593,582
12b-1 distribution and service fees - Class B (notes 1 and 6) 99,243
12b-1 distribution and service fees - Class C (notes 1 and 6) 86,121
Shareholders' servicing agent fees and expenses 154,513
Custodian's fees and expenses 91,188
Trustees' fees and expenses (note 6) 6,479
Professional fees 19,856
Shareholders' reports - printing and mailing expenses 84,237
Federal and state registration fees 5,370
Other expenses 32,572
- -----------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit 3,200,741
Custodian fee credit (note 1) (912)
- -----------------------------------------------------------------------------------------------------------
Net expenses 3,199,829
- -----------------------------------------------------------------------------------------------------------
Net investment income 18,834,935
- -----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain from investment transactions (notes 1 and 4) 759,812
Net change in unrealized appreciation or depreciation of investments (5,925,814)
- -----------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (5,166,002)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 13,668,933
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year Ended Year Ended
5/31/99 5/31/98
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 18,834,935 $ 18,535,807
Net realized gain from investment transactions (notes 1 and 4) 759,812 1,741,055
Net change in unrealized appreciation or depreciation of investments (5,925,814) 9,935,425
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 13,668,933 30,212,287
- -----------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (14,921,960) (15,043,556)
Class B (442,577) (111,486)
Class C (508,583) (298,769)
Class R (3,072,260) (2,978,766)
From accumulated net realized gains from investment transactions:
Class A (1,072,990) (232,327)
Class B (39,163) (2,178)
Class C (40,494) (5,383)
Class R (204,848) (44,456)
- -----------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (20,302,875) (18,716,921)
- -----------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 77,448,397 40,781,150
Net proceeds from shares issued to shareholders due to reinvestment of
distributions 8,202,477 8,503,896
- -----------------------------------------------------------------------------------------------------------
85,650,874 49,285,046
Cost of shares redeemed (49,952,837) (56,173,488)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions 35,698,037 (6,888,442)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets 29,064,095 4,606,924
Net assets at the beginning of year 361,738,906 357,131,982
- -----------------------------------------------------------------------------------------------------------
Net assets at the end of year $390,803,001 $361,738,906
- -----------------------------------------------------------------------------------------------------------
Balance of undistributed net investment income at the end of year $ 13,914 $ 124,359
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
______
15
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Flagship Florida Municipal Bond Fund (the "Fund"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The Fund seeks to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1999, there were no such outstanding purchase commitments in the Fund.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared monthly as a dividend and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions are distributed to shareholders not less frequently
than annually. Furthermore, capital gains are distributed only to the extent
they exceed available capital loss 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 intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its tax-
exempt net investment income, in addition to any significant amounts of net
realized capital gains and/or market discount from investment transactions. The
Fund currently considers significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, the Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal income taxes, to retain such tax-exempt
status when distributed to the shareholders of the Fund. All monthly tax-exempt
income dividends paid during the fiscal year ended May 31, 1999, have been
designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class 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 any up-front sales charge
but may be subject to a 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
_____
16
<PAGE>
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 only under limited circumstances or by specified classes of
shareholders.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during fiscal year ended May 31, 1999.
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. Actual results may differ
from those estimates.
Custodian Fee Credit
The Fund has an agreement with the custodian bank whereby the custodian fees and
expenses are reduced by credits earned on each Fund's cash on deposit with the
bank. Such deposit arrangements are an alternative to overnight investments.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
5/31/99 5/31/98
---------------------------- ---------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 4,391,925 $ 48,059,545 2,575,627 $ 28,008,973
Class B 1,052,216 11,537,205 420,285 4,565,047
Class C 889,995 9,754,281 328,848 3,571,148
Class R 740,527 8,097,366 428,140 4,635,982
Shares issued to shareholders due to reinvestment of distributions:
Class A 550,411 6,036,519 606,794 6,557,242
Class B 9,759 107,077 3,957 43,099
Class C 14,513 159,110 14,699 159,154
Class R 173,280 1,899,771 160,928 1,744,401
- ------------------------------------------------------------------------------------------------------------------------------
7,822,626 85,650,874 4,539,278 49,285,046
- ------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (4,017,386) (43,978,264) (4,482,418) (48,620,708)
Class B (78,240) (856,729) (17,384) (188,950)
Class C (113,554) (1,243,022) (128,897) (1,402,431)
Class R (354,310) (3,874,822) (548,970) (5,961,399)
- ------------------------------------------------------------------------------------------------------------------------------
(4,563,490) (49,952,837) (5,177,669) (56,173,488)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 3,259,136 $ 35,698,037 (638,391) $ (6,888,442)
==============================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Fund declared dividend distributions from its tax-exempt net investment
income which were paid on July 1, 1999, to shareholders of record on June 9,
1999, as follows:
- --------------------------------------------------------------------------------
Dividend per share:
Class A $.0455
Class B .0390
Class C .0405
Class R .0475
================================================================================
______
17
<PAGE>
Notes to Financial Statements (continued)
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities for the fiscal year ended May 31, 1999, aggregated $104,941,965 and
$71,839,135, respectively. Purchases and sales (including maturities) of
investments in short-term municipal securities for the fiscal year ended May 31,
1999, aggregated $31,200,000 and $31,200,000, respectively.
At May 31, 1999, the identified cost of investments owned for federal income tax
purposes was the same as the cost for financial reporting purposes.
5. Unrealized Appreciation (Depreciation)
At May 31, 1999, net unrealized appreciation of investments aggregated
$23,840,843 of which $24,825,083, related to appreciated securities and $984,240
related to depreciated securities.
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with Nuveen Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net assets of the Fund as follows:
Average Daily Net Assets Management Fee
- --------------------------------------------------------------------------------
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
================================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser or its affiliates.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended May 31, 1999, John Nuveen & Co., Incorporated (the
"Distributor"), a wholly owned subsidiary of The John Nuveen Company, collected
sales charges on purchases of Class A Shares of approximately $730,000, of which
approximately $640,300 were paid out as concessions to authorized dealers. The
Distributor also received 12b-1 service fees on Class A Shares, substantially
all of which were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the fiscal year ended May 31, 1999, the Distributor compensated
authorized dealers directly with approximately $579,900 in commission advances
at the time of purchase. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees on Class B Shares, and
all 12b-1 service and distribution fees on Class C Shares during the first year
following a purchase are retained by the Distributor. During the fiscal year
ended May 31, 1999, the Distributor retained approximately $140,800 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 $18,300
of CDSC on share redemptions during the fiscal year ended May 31, 1999.
7. Composition of Net Assets
At May 31, 1999, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
- --------------------------------------------------------------------------------
Capital paid-in $366,701,424
Balance of undistributed net investment income 13,914
Accumulated net realized gain from investment transactions 246,820
Net unrealized appreciation of investments 23,840,843
- --------------------------------------------------------------------------------
Net assets $390,803,001
================================================================================
_____
18
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
Class (Inception Date)
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------- --------------------------
Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
May 31, Value Income (a) (Loss) Total Income Gains Total Value Return (b)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (6/90)**
1999 $10.94 $.55 $(.14) $.41 $(.55) $(.04) $(.59) $10.76 3.78%
1998 10.60 .56 .34 .90 (.55) (.01) (.56) 10.94 8.67
1997 10.39 .56 .21 .77 (.56) -- (.56) 10.60 7.59
1996 10.63 .57 (.24) .33 (.57) -- (.57) 10.39 3.14
1995 10.38 .58 .26 .84 (.59) -- (.59) 10.63 8.43
Class B (2/97)
1999 10.95 .47 (.14) .33 (.47) (.04) (.51) 10.77 3.05
1998 10.61 .48 .35 .83 (.48) (.01) (.49) 10.95 7.89
1997 (c) 10.59 .16 .02 .18 (.16) -- (.16) 10.61 1.70
Class C (9/95)**
1999 10.95 .49 (.14) .35 (.49) (.04) (.53) 10.77 3.22
1998 10.60 .50 .36 .86 (.50) (.01) (.51) 10.95 8.20
1997 10.39 .50 .21 .71 (.50) -- (.50) 10.60 7.00
1996 (c) 10.65 .35 (.26) .09 (.35) -- (.35) 10.39 1.30*
Class R (2/97)
1999 10.94 .57 (.14) .43 (.57) (.04) (.61) 10.76 4.01
1998 10.60 .58 .35 .93 (.58) (.01) (.59) 10.94 8.91
1997 (c) 10.59 .19 .01 .20 (.19) -- (.19) 10.60 1.93
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
-----------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Credit/ Before Credit/ After Credit/ After Credit/ Portfolio
Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
(000) ment ment ment (a) ment (a) Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (6/90)**
1999 $297,505 .84% 5.00% .84% 5.00% 19%
1998 292,399 .84 5.13 .84 5.13 14
1997 296,970 .96 5.20 .82 5.34 54
1996 318,456 1.02 5.17 .83 5.36 94
1995 341,374 1.04 5.40 .73 5.71 53
Class B (2/97)
1999 15,768 1.59 4.25 1.59 4.25 19
1998 5,266 1.59 4.35 1.59 4.35 14
1997 (c) 785 1.58* 4.52* 1.58* 4.52* 54
Class C (9/95)**
1999 16,034 1.39 4.45 1.39 4.45 19
1998 7,646 1.39 4.58 1.39 4.58 14
1997 5,130 1.46 4.64 1.35 4.75 54
1996 (c) 1,175 1.55* 4.42* 1.38* 4.59* 94
Class R (2/97)
1999 61,496 .64 5.20 .64 5.20 19
1998 56,428 .64 5.33 .64 5.33 14
1997 (c) 54,247 .64* 5.55* .64* 5.55* 54
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Florida.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(c) From commencement of class operations as noted.
____
19
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust I:
We have audited the accompanying statement of net assets, including the
portfolio of investments, of Nuveen Flagship Florida Municipal Bond Fund (the
"Fund") (one of the portfolios constituting the Nuveen Flagship Multistate Trust
I (a Massachusetts business trust)), as of May 31, 1999, the related statement
of operations for the year then ended, and the statements of changes in net
assets and the financial highlights for each of the two years then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1999, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers and, when
replies were not received, we carried out alternative auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Flagship Florida Municipal Bond Fund of the Nuveen Flagship Multistate Trust I
as of May 31, 1999, and the results of its operations for the year then ended,
and the changes in its net assets and the financial highlights for each of the
two years then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 20, 1999
____
20
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
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
Chase Global Fund Services Company
P.O. Box 5186
New York, NY 10274
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
<PAGE>
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
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to
disciplined long-term investment strategies whose aim is to provide consistent,
competitive 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 income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our growth,
growth and income, income, and tax-free funds, along with our defined portfolios
and private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
May 31, 1999 Annual Report
NUVEEN
Mutual Funds
Extraordinary Talent. Masterful Performance.
Nuveen Municipal Bond Funds
Dependable, tax-free
income to help
you keep more
[Photo appears here]
of what you earn.
Maryland
Pennsylvania
Virginia
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
<PAGE>
<TABLE>
<CAPTION>
Contents
<C> <S>
1 Dear Shareholder
3 Nuveen Maryland Municipal Bond Fund
6 Nuveen Flagship Pennsylvania Municipal Bond Fund
9 Nuveen Flagship Virginia Municipal Bond Fund
12 Portfolio of Investments
26 Statement of Net Assets
27 Statement of Operations
28 Statement of Changes in Net Assets
30 Notes to Financial Statements
35 Financial Highlights
39 Report of Independent Public Accountants
40 Building a Better Portfolio
41 Fund Information
</TABLE>
<PAGE>
[Photo of Timothy R. Schwertfeger Appears Here]
Timothy R. Schwertfeger
Chairman of the Board
DEAR
Shareholder
I invite you to take a few minutes to read the annual report we've prepared for
you on the performance of your Nuveen state municipal bond fund for the fiscal
year ended May 31, 1999. You, along with your financial adviser, have made a
sound choice in choosing Nuveen to manage this portion of your assets. Since
1898, more than 1.3 million investors have trusted us to help them build and
sustain the wealth of a lifetime.
I'm pleased to report your fund continued to meet its primary objective of
providing you with dependable tax-free income and attractive after-tax total
returns. I will briefly describe the national economic environment during the
past 12 months. My discussion is followed by comments about the strategies
employed in managing your fund from the portfolio manager of each fund
represented in this report.
The Year In Review. The Federal Reserve eased short-term rates for the first
time in almost three years by cutting the federal funds rate in the fall of 1998
three times, bringing it to 4.75%. A month after the close of your fund's fiscal
year, the Fed raised its target by 25 basis points to 5%. (Be sure to read your
fund manager's comments about managing your fund in a rising interest rate
environment.)
The fed funds rate is the rate that banks charge each other for overnight
loans and serves as the basis many financial institutions use for setting
interest charges on a variety of products, from mortgage and car loans to credit
cards.
The Fed's rate cuts were made to avert a potential domestic credit crunch
and restore some stability to global markets. The moves seemed to have worked,
as the U.S. economy since has continued its pattern of non-inflationary growth,
accompanied by low interest rates and unemployment levels that remain among the
lowest in three decades, prompting the late June reversal by the Fed.
All indications point to a confident U.S. consumer who is comfortable with
the current state of the economy, especially the performance of the housing,
stock and job markets. This confidence is reflected in the most recent Consumer
Confidence Index report, issued by the University of Michigan's Conference Board
Inc., which showed a record-setting eighth consecutive month of gains in June.
On the global front, the turmoil of the past two years appears to be fading
somewhat, as international financial markets have begun to send recovery
signals.
Domestic inflation continues to be benign, with an increase of 2.1% for the
12 months ended May 31, 1999. The general backdrop of inflation indicators
continued to be mild, with the employment cost index, average hourly earnings,
and import and producer price trends all remaining favorable.
Federal Reserve Chairman Alan Greenspan recently stated that a key factor
in achieving today's peaceful coexistence of economic growth and low inflation
has been increased productivity. Improvements in productivity, spurred by
technological advances, have been responsible for
1
<PAGE>
offsetting wage and other inflationary pressures that we would normally expect
to see as part of a growing economy.
Why Municipal Bonds? Our municipal bond funds continued to offer attractive,
stable income in a market that places a high premium on yield. In 1998,
municipal bonds represented a reasonably insulated haven in an otherwise
turbulent market, with lower volatility relative to Treasury bonds and other
fixed-income investments. Even in 1999, with interest rates rising again,
municipals outperformed Treasuries through the end of May.
The high ratio of tax-exempt municipal yields to Treasury yields sheltered
municipal bonds, to some extent, from the price decline that occurred in the
Treasury market during the first part of the year. While the yield on 30-year
Treasury bonds rose from 5.10% at the end of December to 5.83% as of May 31,
1999, the yield on the Bond Buyer Revenue Bond Index, an unmanaged index of
long-term municipal revenue bonds, gained 15 basis points--from 5.26% to 5.41%.
Given the inverse relationship between interest rates and bond prices, we saw
bond prices fall as rates rose over this period.
Though municipal bond prices did decrease, the decline was not as dramatic
as the drop in Treasuries.
This performance differential reflects the fact that Treasuries had become
relatively expensive as the result of safe-haven buying during the international
economic crises in 1998. As the financial turmoil subsided, however, foreign
investors returned to investing in their own countries rather than in U.S.
dollar-denominated securities, and the decline in demand caused U.S. Treasuries
to drop in price.
At the end of May 1999, the ratio between long-term municipal yields and
30-year Treasury yields stood at 93%, compared with the historical average of
86% for the period of 1986-1999. For investors, this meant that quality long-
term municipal bonds offered yields comparable to those of long Treasury bonds
- --even before the tax advantages of municipal bonds were taken into account.
During the funds' fiscal year, that ratio hit a high of 104% in December.
On an after-tax basis in today's market, municipal bonds continue to
present an exceptionally attractive investment option relative to Treasuries.
During 1998, lower interest rates and the strong economy combined to
generate high levels of new municipal issuance and a significant increase in the
refinancing of existing bonds. Municipal issuance in 1998 reached $284 billion,
up 29% over 1997.
In the first part of 1999, however, as the market settled into a more
stable interest rate environment, refunding activity has dropped off
dramatically, resulting in a drop in municipal supply. This, in turn, has
enhanced the attractiveness of the municipal bonds that were brought to market,
as demand--especially from individual investors--remained relatively strong.
The Value of Nuveen Expertise. Nuveen Mutual Funds are a diverse collection of
investments featuring highly regarded asset management firms--Premier
Advisers/SM/--who direct the investment activities of each portfolio.
The Premier Advisers are firms that have earned a reputation for excellence
in their field of expertise--including Nuveen Investment Advisory Services for
income investing, Rittenhouse Financial Services for growth investing and
Institutional Capital Corporation for value investing.
For more information on our funds, contact your financial adviser for a
prospectus, or call Nuveen at (800) 621-7227, or download one from
www.nuveen.com. Please read the prospectus carefully before you invest or send
money.
We encourage you to talk with your financial adviser about Nuveen's
expanding array of investments and the ways they can help you establish a
diversified portfolio designed to build and sustain long-term financial
security.
We are grateful for the confidence you have placed in us and are dedicated
to maintaining your trust in the years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 15, 1999
2
<PAGE>
NUVEEN MARYLAND MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Tom Futrell discusses fund performance, the municipal market
and key investment strategies for the Maryland fund for the fiscal year ended
May 31, 1999.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
How strong is Maryland's economy? Maryland continues to experience modest but
steady economic growth. Growth in the business services and high technology
sectors have helped diversify the state's economy, lessening its reliance on
federal government employment. Some of the employment growth, however, has come
from lower paying service-sector fields such as data processing and security
services, which has reduced Maryland's per capita income advantage over the
national average. Still, Maryland ranks 5th in the nation in per capita income.
Maryland is currently implementing a 10% tax cut that is being phased in over
several years.
In response to low interest rates, the state's municipal bond issuance was
up sharply in 1998.
Rising interest rates in 1999, however, significantly slowed municipal bond
activity--both new issuance and refundings--in the latter half of the fund's
fiscal year. There were two reasons the market slowed--the increased interest
rates, which primarily slowed new issuance, plus the fact that the refunding
market has essentially been exhausted. Municipalities flooded the market with
refundings in recent years when interest rates were dropping. A provision of the
Tax Reform Act of 1986, however, limits municipalities to only one tax-exempt
refunding per issue.
As is the case on the national level, increasing concerns about rising
economic growth and potential inflation caused bond yields to rise and prices to
fall. However, municipal bonds held their values quite well compared to U.S.
Treasury bonds.
How did Nuveen Maryland Municipal Bond Fund perform during its fiscal year?
Nuveen Maryland Municipal Bond Fund generated a total return on net asset value
of 3.65%. That compares to the 3.43% average annual total return posted by the
Lipper Maryland Municipal Debt Peer Group.* The Nuveen Maryland Municipal Bond
Fund ranked 16th out of 36 municipal bond funds for the fiscal year period.
Total return equals a fund's income and capital distributions, if any, plus or
minus changes in net asset value. The fund's taxable equivalent total return,
for investors in the 34.5% combined federal and state income tax bracket, was
6.11%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.10%. For investors in
the combined 34.5% federal and state income tax bracket, that is equivalent to a
yield of 6.26% on a taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates declined. To protect the fund's income
stream, we looked for bonds with call dates far in the future--or better yet,
that are noncallable.
*The Lipper Peer Group return represents the average annualized total return of
the 36 funds in the Lipper Maryland Municipal Debt category. The return
assumes the reinvestment of dividends and does not reflect any applicable
sales charges.
**Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
3
<PAGE>
For example, we recently purchased non-callable insured AAA Baltimore Water
& Sewer bonds due in 2024, achieving a similar yield to what would have been
obtained with callable bonds.
In addition to good call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality. With interest
rates at a higher level, and the widening differential between low-rated and
high-rated credits, we took the opportunity to investigate lower-rated issues.
Using the expertise of Nuveen Research, we considered only those bonds that
offered adequate compensation for the level of risk.
For example, we purchased bonds issued by Maryland Health and Educational
Facilities Authority for the Green Acres School, a small independent elementary
school. Because of the bonds' BBB- credit rating, the purchase involved
intensive research. Those efforts, however, paid off for the fund through the
bonds' very attractive 5.4% yield, which will help to boost the fund's income.
Another example was the purchase of Maryland Economic Development
Corporation for the Collegiate Housing Foundation University Courtyard Project.
These Baa3 rated bonds offered a 5.75% coupon and mature in 2019. The bonds,
which were issued to build student housing for the University of Maryland,
involve an innovative financing technique. Because of this unique structure and
the lower rating, the purchase required intensive research analysis. Both of
these bond issues offer significant yield premiums over AAA credits.
In recent months, we have taken advantage of rising interest rates by
selling some bonds at a loss--because as interest rates rose, prices of the
bonds fell--and subsequently buying similar securities, whose yield now
reflected the higher interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income. Tax losses were
created by the swaps, which will benefit the fund and are used to offset capital
gains for up to eight years. The higher yield of the new bonds should boost the
fund's income as well.
What is your outlook for Nuveen Maryland Municipal Bond Fund? With Maryland's
strong economy and expanding financing needs, we expect there will continue to
be a buoyant supply and demand for municipal bonds in areas such as housing,
healthcare, education and utilities.
We will continue to seek out lower investment grade and non-rated
opportunities to improve the incremental yield of the fund and boost income.
"With interest rates at a higher level, and the widening differential between
low-rated and high-rated credits, we took the opportunity to investigate lower-
rated issues."
4
<PAGE>
NUVEEN MARYLAND MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
NAV $ 10.46 $ 10.47 $ 10.46 $ 10.48
- --------------------------------------------------------------------------------
May's Declared Dividend* $0.0405 $0.0335 $0.0355 $0.0420
- --------------------------------------------------------------------------------
Fund Symbol NMDAX N/A NMDCX NMMDX
- --------------------------------------------------------------------------------
CUSIP 67065L831 67065L823 67065L815 67065L799
- --------------------------------------------------------------------------------
Inception Date 9/94 3/97 9/94 12/91
- --------------------------------------------------------------------------------
* Paid June 1, 1999
Total Returns (Annualized)/+/
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.65% -0.68% 2.95% 3.07% 3.82%
- --------------------------------------------------------------------------------
1-Year TER** 6.11% 1.69% 4.98% 5.22% 6.37%
- --------------------------------------------------------------------------------
5-Year 6.18% 5.28% 5.47% 5.54% 6.44%
- --------------------------------------------------------------------------------
Since Inception 6.26% 5.63% 5.53% 5.56% 6.51%
+ Class R share returns are actual. Class A, B and C share returns are actual
for the period since class inception; returns prior to class inception are
Class R share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate
of 34.5%).
Index Comparison/./
[Line Chart Appears Here]
<TABLE>
<CAPTION>
Nuveen Maryland Muveen Maryland Lehman Brothers
Municipal Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
<S> <C> <C> <C>
February 1992 9,580 10,000 10,000
May 1992 10,809 11,283 11,377
May 1993 11,394 11,893 12,005
May 1994 11,478 11,981 12,232
May 1995 12,620 13,174 13,584
May 1996 13,184 13,762 14,334
May 1997 14,202 14,825 15,645
May 1998 14,930 15,584 16,606
May 1999 14,874 15,526 16,574
</TABLE>
Nuveen Maryland Municipal Bond Fund (Offer) $14,874
Nuveen Maryland Municipal Bond Fund (NAV) $15,526
Lehman Brothers Municipal Bond Index $16,575
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
Monthly Tax-Free Dividends (Class A Shares)
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
Month
<S> <C>
June .0400
July .0400
August .0400
September .0400
October .0400
November .0400
December .0400
January .0405
February .0405
March .0405
April .0405
May .0405
</TABLE>
Portfolio Statistics
Fund Net Assets $75.3 million
- --------------------------------------------------
Effective Maturity 20.64 years
- --------------------------------------------------
Average
Effective Duration 7.86
- --------------------------------------------------
Top Five Sectors/1/
Housing (Multifamily) 23%
- --------------------------------------------------
Health Care 20%
- --------------------------------------------------
Housing (Single Family) 11%
- --------------------------------------------------
Tax Obligation (Limited) 9%
- --------------------------------------------------
U.S. Guaranteed 9%
- --------------------------------------------------
Bond Credit Quality/1/
[Pie Chart Appears Here]
AAA/U.S.
Guaranteed 65%
AA..........16%
A............6%
BBB/NR......13%
/1/ as a percentage of total bond holdings
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
5
<PAGE>
NUVEEN FLAGSHIP PENNSYLVANIA MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Tom O'Shaughnessy discusses fund performance, the municipal
market and key investment strategies for the Pennsylvania fund for the fiscal
year ended May 31, 1999.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
How strong is Pennsylvania's economy? Although Pennsylvania's population growth
is below the national average, the state's economy is strengthening and
broadening beyond the economically cyclical heavy industrial base. Unemployment
registered 3.8% in May 1999, down from 4.6% a year ago. Per capita income is
about average for the nation.
Recently, the state has reduced its tax burden on individuals and business
in an effort to attract new industry.
In 1998, Pennsylvania was among the largest issuers of municipal bonds in
the country, and that plentiful supply continued into 1999. Several entities,
including Allegheny County and the University of Pittsburgh, sold bond issues
exceeding $100 million each.
As was the case on the national level, increasing concerns about rising
economic growth and potential inflation caused bond yields to rise and prices to
fall. However, municipal bonds held their values quite well compared to U.S.
Treasury bonds.
How did the fund perform during its fiscal year? Nuveen Flagship Pennsylvania
Municipal Bond Fund generated a total return on net asset value of 3.42%,
compared to the 3.23% average annual total return posted by the Lipper
Pennsylvania Municipal Debt Peer Group.* Nuveen Flagship Pennsylvania Municipal
Bond Fund ranked 27th out of 62 municipal bond funds for the fiscal year period
as ranked by Lipper. Total return equals a fund's income plus capital gains
distributions, if any, plus or minus changes in net asset value. The fund's
taxable equivalent total return, for investors in the 33% combined federal and
state income tax bracket, was 5.93%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.72%. For investors in
the combined 33% federal and state income tax bracket, that is equivalent to a
yield of 7.04% on a taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates declined. To protect the fund's income
stream, we looked for bonds with call dates far in the future--or better yet,
that are noncallable. Only 5% of the Pennsylvania portfolio is callable between
now and the year 2001.
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality. Nuveen Research
helps us accomplish that. In addition, Nuveen Research helps us monitor events
in the municipal market and analyze how those events affect individual state and
national municipal markets.
For example, during spring 1998, a major not-for-profit healthcare provider
in Philadelphia declared bankruptcy. The fallout from Pittsburgh's Allegheny
Health Education and Research Foundation (AHERF) was most pronounced in the
healthcare sector of the Pennsylvania municipal market, but it was felt to a
lesser extent throughout the municipal market. Your fund did not own the
affected bonds.
* The Lipper Peer Group return represents the average annualized total return
of the 62 funds in the Lipper Pennsylvania Municipal Debt category. The
return assumes reinvestment of dividends and does not reflect any applicable
sales charges.
** Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
6
<PAGE>
Uncertainty created by the Philadelphia healthcare situation prompted
investors to demand higher yields for lower-rated issues across the country,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen. Prior to the bankruptcy,
this spread had been relatively narrow, suggesting that investors were not being
compensated adequately for taking on additional credit risk. With spreads having
widened, lower-rated securities have become more attractive on a risk-adjusted
basis.
However, with interest rates at a higher level, and the widening
differential between low-rated and high-rated credits, we took the opportunity
to investigate lower-rated issues. Using the expertise of Nuveen Research, we
considered only those bonds that offered adequate compensation for the level of
risk.
Since AHERF, we added several financially sound Pennsylvania hospitals at
very attractive prices.
In recent months, we have taken advantage of rising interest rates by
selling some bonds at a loss--because as interest rates rose, prices of the
bonds fell--and subsequently buying similar securities, whose yield now
reflected the higher interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income. Tax losses were
created by the swaps, which will benefit the fund and are used to offset capital
gains for up to eight years. The higher yield of the new bonds should boost the
fund's income as well.
What is your outlook for Nuveen Flagship Pennsylvania Municipal Bond Fund?
Rising interest rates in 1999 have made it advantageous for us to lock in higher
yields by extending the portfolio's average maturity beyond that of our peer
group. We believe that bond yields are currently attractive in relation to
inflation. Should interest rates fall or remain stable, the portfolio's longer
effective maturity would be beneficial.
With Pennsylvania's increasingly diversified economy, we believe that there
will continue to be a buoyant supply and demand for municipal bonds in areas
such as housing, healthcare, education and utilities. We will continue to seek
out undervalued securities that provide income and the opportunity for price
appreciation through credit rating upgrades.
"During spring 1998, a major not-for-profit healthcare provider in Philadelphia
declared bankruptcy.
. . .
Your fund did not own the affected bonds."
7
<PAGE>
NUVEEN FLAGSHIP PENNSYLVANIA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
NAV $ 10.45 $ 10.47 $ 10.44 $ 10.44
- --------------------------------------------------------------------------------
May's Declared Dividend* $0.0430 $0.0365 $0.0385 $0.0450
- --------------------------------------------------------------------------------
Fund Symbol FPNTX N/A FPMBX NBPAX
- --------------------------------------------------------------------------------
CUSIP 67065L740 67065L732 67065L724 67065L716
- --------------------------------------------------------------------------------
Inception Date 10/86 2/97 2/94 2/97
- --------------------------------------------------------------------------------
* Paid June 1, 1999
Total Returns (Annualized)/+/
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.42% -0.94% 2.66% 2.80% 3.55%
- --------------------------------------------------------------------------------
1-Year TER** 5.93% 1.46% 4.79% 5.06% 6.18%
- --------------------------------------------------------------------------------
5-Year 6.68% 5.77% 6.04% 6.10% 6.77%
- --------------------------------------------------------------------------------
10-Year 7.21% 6.75% 6.76% 6.63% 7.26%
+ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate
of 33%).
Index Comparison/./
[Line Chart Appears Here]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Pennsylvania Pennsylvania Lehman Brothers
Municipal Municipal Municipal
Bond Fund Offer Bond Fund NAV Bond Index
<S> <C> <C> <C>
May 1989 9,580 10,000 10,000
1990 10,126 10,570 10,731
1991 11,063 11,548 11,813
1992 12,168 12,702 12,974
1993 13,551 14,145 14,526
1994 13,918 14,528 14,885
1995 15,016 15,674 16,240
1996 15,592 16,275 16,982
1997 16,897 17,638 18,391
1998 18,600 19,415 20,117
1999 19,236 20,080 21,058
</TABLE>
Nuveen Flagship Pennsylvania Municipal Bond Fund (Offer) $19,236
Nuveen Flagship Pennsylvania Municipal Bond Fund (NAV) $20,080
Lehman Brothers Municipal Bond Index $21,058
/./ The Index Comparison shows the change in value of a $10,000 investment in
the Class A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or
ongoing expenses. The Nuveen fund return depicted in the chart reflects the
initial maximum sales charge applicable to A shares (4.20%) and all ongoing
fund expenses.
Monthly Tax-Free Dividends (Class A Shares)/./
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
Month
- -----
<S> <C>
June .0465
July .0450
August .0450
September .0450
October .0450
November .0450
December .0450
January .0430
February .0430
March .0430
April .0430
May .0430
</TABLE>
/./ The fund also paid shareholders capital gains and net ordinary income
distributions in December of $0.0593 per share.
Morningstar Rating/TM 1/
****
Overall rating among 1,586
municipal bond funds as
of 5/31/99.
Portfolio Statistics
Fund Net Assets $153 million
- --------------------------------------------------
Effective Maturity 21.29 years
- --------------------------------------------------
Average
Effective Duration 8.35
- --------------------------------------------------
Top Five Sectors/2/
Education and Civic Organizations 17%
- --------------------------------------------------
Housing (Single Family) 13%
- --------------------------------------------------
Health Care 13%
- --------------------------------------------------
Tax Obligation (General) 12%
- --------------------------------------------------
Utilities 11%
- --------------------------------------------------
Bond Credit Quality/2/
[Pie Chart Appears Here]
AAA/U.S.
Guaranteed 49%
AA...........9%
A...........10%
BBB/NR......32%
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
/1/ The Morningstar rating is an overall rating for the municipal bond category
and relates to Class A Shares only; other classes may vary. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
5/31/99 and are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the fund's three-,
five-, and 10-year average annual returns (if applicable) in excess of 90-
day Treasury bill returns, with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. A shares
of the fund received 4 stars for the 3- and 5-year periods and 3 stars for
the 10-year period. The top 10% of the funds in a broad asset class receive
5 stars and the next 22.5% receive 4 stars. The fund was rated among 1,586,
1,184, and 368 funds for the three-, five-, and 10-year periods,
respectively.
/2/ as a percentage of total bond holdings
8
<PAGE>
NUVEEN FLAGSHIP VIRGINIA MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager William Fitzgerald discusses fund performance, the municipal
market and key investment strategies for the Virginia fund for the fiscal year
ended May 31, 1999.
Comments cover the year ended May 31, 1999; performance statistics are quoted
for Class A shares at net asset value.
How strong is Virginia's economy? Because of its proximity to Washington, D.C.,
the state has traditionally had a significant reliance on the federal
government. However, the economy has diversified into the private sector in
recent years. With an unemployment rate of just 3.0% in May, job growth
continues to outpace the national average.
Virginia's expanding economy led to growing infrastructure and school
financing needs, resulting in strong municipal bond issuance in 1998.
Rising interest rates in 1999, however, significantly slowed municipal bond
activity--both new issuance and refundings--in the latter half of the fund's
fiscal year.
There were two reasons the market slowed--the increased interest rates,
which primarily slowed new issuance, plus the fact that the refunding market has
essentially been exhausted. Municipalities flooded the market with refundings in
recent years when interest rates were dropping. A provision of the Tax Reform
Act of 1986, however, limits municipalities to only one tax-exempt refunding per
issue.
As was the case on the national level, increasing concerns about rising
economic growth and potential inflation caused bond yields to rise and prices to
fall. However, municipal bonds held their values quite well compared to U.S.
Treasury bonds.
How did Nuveen Flagship Virginia Municipal Bond Fund perform during its fiscal
year? Nuveen Flagship Virginia Municipal Bond Fund generated a total return on
net asset value of 3.95%, outperforming the 3.51% average annual total return
posted by the Lipper Virginia Municipal Debt Peer Group.* The fund ranked 7th of
35 municipal bond funds in its Lipper peer category for the fiscal period. Total
return equals a fund's income plus capital gains distributions, if any, plus or
minus changes in net asset value. The fund's taxable equivalent return, for
investors in the 35% combined federal and state income tax bracket, was 6.61%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.24%. For investors in
the combined 35% federal and state income tax bracket, that is equivalent to a
yield of 6.52% on a taxable investment.
How did you manage the fund to achieve this performance? We continued to focus
on bonds we determined to have a good "call" structure. Issuers generally have
the right to call or redeem their bonds after a given date prior to maturity,
which they would do if interest rates declined. To protect the fund's income
stream, we looked for bonds with call dates far in the future--or better yet,
that are noncallable.
For instance, the fund sold water and sewer bonds with a higher coupon
issued by Henrico County that were callable in three years. Because of the
higher coupon, the bonds would very likely be called, forcing us to reinvest the
funds at what could be much lower yields. Instead, with the proceeds of that
sale, the fund purchased noncallable bonds, maturing in 2030, issued by the
Virginia College Building Authority for Washington & Lee University.
* The Lipper Peer Group return represents the average annualized total return
of the 35 funds in the Lipper Virginia Municipal Debt category. The return
assumes reinvestment of dividends and does not reflect any applicable sales
charges.
** Taxable equivalent total return equals a fund's taxable equivalent income
(based on the combined federal and state tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
9
<PAGE>
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality. Because the fund
is well positioned in terms of call protection, we can afford to be particularly
selective in making new investments.
Nuveen Research also helps us monitor events in the municipal market and
analyze how those events affect individual state and national municipal markets.
For example, during spring 1998, a major not-for-profit healthcare provider
in Philadelphia declared bankruptcy. While the impact of this bankruptcy was
most pronounced in the healthcare sector of the Pennsylvania municipal market,
it was felt to a lesser extent throughout the municipal market.
Uncertainty created by the Philadelphia healthcare situation prompted
investors to demand higher yields for lower-rated issues across the country,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen. Prior to the bankruptcy,
this spread had been relatively narrow, suggesting that investors were not being
compensated adequately for taking on additional credit risk. With spreads having
widened, lower-rated securities have become more attractive on a risk-adjusted
basis.
With interest rates at a higher level, and the widening differential
between low-rated and high-rated credits, we took the opportunity to investigate
lower-rated issues. Using the expertise of Nuveen Research, we considered only
those bonds that offered adequate compensation for the level of risk were
considered for purchase.
In recent months, we have taken advantage of rising interest rates by
selling some bonds at a loss--because as interest rates rose, prices of the
bonds fell--and subsequently buying similar securities, whose yield now
reflected the higher interest rates.
Called a "swap," this action produced two benefits for the fund and for
shareholders--tax efficiency and potentially higher income. Tax losses were
created by the swaps, which will benefit the fund and are used to offset capital
gains for up to eight years. The higher yield of the new bonds should boost the
fund's income as well.
What is your outlook for Nuveen Flagship Virginia Municipal Bond Fund? Rising
interest rates in 1999 have made it advantageous for us to lock in higher yields
by extending the portfolio's average maturity beyond that of our peer group. We
believe that bond yields are currently attractive in relation to inflation.
Should interest rates fall or remain stable, the portfolio's longer maturity
would be advantageous.
With Virginia's strong economy and influx of population, we expect there
will continue to be a buoyant supply and demand for municipal bonds in areas
such as housing, healthcare, education and utilities.
We will continue to seek out undervalued securities that provide income and
the opportunity for price appreciation through credit rating upgrades.
"Because the fund is well positioned in terms of call protection, we can afford
to be particularly selective in making new investments."
10
<PAGE>
NUVEEN FLAGSHIP VIRGINIA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 10.93 $ 10.93 $ 10.92 $ 10.93
- -----------------------------------------------------------------------------
May's Declared Dividend* $0.0435 $0.0365 $0.0385 $0.0455
- -----------------------------------------------------------------------------
Fund Symbol FVATX N/A FVACX NMVAX
- -----------------------------------------------------------------------------
CUSIP 67065L690 67065L682 67065L674 67065L666
- -----------------------------------------------------------------------------
Inception Date 3/86 2/97 10/93 2/97
- -----------------------------------------------------------------------------
* Paid June 1, 1999
</TABLE>
Total Returns (Annualized)/+/
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
1-Year 3.95% -0.37% 3.20% 3.30% 4.18%
- ----------------------------------------------------------------
1-Year TER** 6.61% 2.18% 5.44% 5.66% 6.96%
- ----------------------------------------------------------------
5-Year 6.67% 5.77% 6.00% 6.07% 6.78%
- ----------------------------------------------------------------
10-Year 7.33% 6.87% 6.86% 6.74% 7.39%
</TABLE>
+ Class A share returns are actual. Class B, C and R share returns are actual
for the period since class inception; returns prior to class inception are
Class A share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
shares have a 4.2% maximum sales charge. Class B shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the return figures. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
** Taxable Equivalent Return (based on a combined federal and state tax rate of
35%).
Index Comparison*
[Line Chart Appears Here]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Virginia Virginia Lehman Brothers
Municipal Municipal Municipal
May Bond Fund (Offer) Bond Fund (NAV) Bond Index
- ---
<S> <C> <C> <C>
1989 9,580 10,000 10,000
1990 10,168 10,614 10,731
1991 11,154 11,643 11,813
1992 12,198 12,733 12,974
1993 13,707 14,308 14,526
1994 14,066 14,682 14,885
1995 15,190 15,856 16,240
1996 15,802 16,495 16,982
1997 17,101 17,851 18,391
1998 18,691 19,511 20,117
1999 19,430 20,282 21,058
</TABLE>
- --- Nuveen Flagship Virginia Municipal Bond Fund (Offer) $19,430
- --- Nuveen Flagship Virginia Municipal Bond Fund (NAV) $20,282
- --- Lehman Brothers Municipal Bond Index $21,058
* The Index Comparison shows the change in value of a $10,000 investment in the
Class A shares of the Nuveen fund compared with the Lehman Brothers Municipal
Bond Index. The Lehman Index is comprised of a broad range of investment-
grade municipal bonds, and does not reflect any initial or ongoing expenses.
The Nuveen fund return depicted in the chart reflects the initial maximum
sales charge applicable to A shares (4.20%) and all ongoing fund expenses.
Monthly Tax-Free Dividends (Class A Shares)*
[Bar Chart Appears Here]
<TABLE>
<CAPTION>
Month
- -----
<S> <C>
June .0460
July .0450
August .0450
September .0450
October .0450
November .0450
December .0450
January .0435
February .0435
March .0435
April .0435
May .0435
</TABLE>
* The fund also paid shareholders capital gains and net ordinary income
distributions in December of $0.0298 per share.
Morningstar Rating/TM 1/
****
Overall rating among 1,586 municipal bond funds as of 5/31/99.
Portfolio Statistics
<TABLE>
<CAPTION>
<S> <C>
Fund Net Assets $ 223.8 million
- -------------------------------------------
Effective Maturity 20.17 years
- -------------------------------------------
Average Effective Duration 6.96
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Top Five Sectors/2/
<S> <C>
Health Care 14%
- -------------------------------------------
Tax Obligation (Limited) 11%
- -------------------------------------------
Education and Civic Organizations 11%
- -------------------------------------------
U.S. Guaranteed 11%
- -------------------------------------------
Water and Sewer 11%
- -------------------------------------------
</TABLE>
Bond Credit Quality/2/
[Pie Chart Appears Here]
<TABLE>
<CAPTION>
<S> <C>
AAA/U.S.
Guaranteed...... 37%
AA.............. 31%
A............... 20%
BBB/NR.......... 12%
</TABLE>
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than original cost. Performance of classes will
differ. For additional information, please see the fund's prospectus.
/1/ The Morningstar rating is an overall rating for the municipal bond category
and relates to Class A Shares only; other classes may vary. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
5/31/99 and are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the fund's three-,
five-, and 10-year average annual returns (if applicable) in excess of 90-
day Treasury bill returns, with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. A shares
of the fund received 4 stars for the 3- and 5-year periods and 3 stars for
the 10-year period. The top 10% of the funds in a broad asset class receive
5 stars and the next 22.5% receive 4 stars. The fund was rated among 1,586,
1,184, and 368 funds for the three-, five-, and 10-year periods,
respectively.
/2/ as a percentage of total bond holdings
11
<PAGE>
Portfolio of Investments
Nuveen Maryland Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials -- 2.2%
$ 1,500,000 Mayor and City Council of Baltimore (Maryland), Port Facilities 4/02 at 103 AA- $ 1,627,575
Revenue Bonds (Consolidation Coal Sales Company Project), Series
1984B, 6.500%, 10/01/11
- ----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations -- 6.2%
Maryland Health and Higher Educational Facilities Authority,
Educational Facilities Mortgage Revenue Bonds, Green Acres School
Issue, Series 1998:
665,000 5.300%, 7/01/18 7/06 at 102 BBB- 647,451
1,425,000 5.300%, 7/01/28 7/06 at 102 BBB- 1,358,980
1,000,000 Maryland Health and Higher Educational Facilities Authority, 7/08 at 102 Aa2 999,950
Refunding Revenue Bonds, The Johns Hopkins University Issue,
Series 1998, 5.125%, 7/01/20
1,500,000 Morgan State University, Maryland, Academic Fees and No Opt. Call AAA 1,695,495
Auxiliary Facilities Fees Revenue Refunding Bonds, 1993
Series, 6.100%, 7/01/20
- ----------------------------------------------------------------------------------------------------------------------------------
Health Care -- 19.5%
2,165,000 City of Gaithersburg, Maryland, Nursing Home Revenue Refunding No Opt. Call AAA 2,519,259
Bonds (Shady Grove Adventist Nursing and Rehabilitation Center
Project), Series 1992A, 6.500%, 9/01/12
1,790,000 Maryland Economic Development Corporation (Health and Mental 4/11 at 102 N/R 1,811,713
Hygiene Providers Facilities Acquisition Program), Revenue Bonds,
Series 1996A, 7.625%, 4/01/21
2,000,000 Maryland Health and Higher Educational Facilities Authority, 6/09 at 101 A 2,018,500
Kaiser Permanente, Revenue Bonds, 1998 Series A, 5.375%, 7/01/15
1,000,000 Maryland Health and Higher Educational Facilities Authority, 7/03 at 102 AAA 998,450
Refunding Revenue Bonds, Francis Scott Key Medical Center Issue,
Series 1993, 5.000%, 7/01/13
1,000,000 Maryland Health and Higher Educational Facilities Authority, 7/03 at 102 Baa1 1,017,390
Project and Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993, 5.750%, 7/01/13
3,500,000 Maryland Health and Higher Educational Facilities Authority, 1/08 at 101 Aaa 3,413,655
Revenue Bonds, Upper Chesapeake Hospitals Issue,
Series 1998A, 5.125%, 1/01/38
2,000,000 Prince George's County, Maryland, Project and Refunding Revenue Bonds 7/04 at 102 Baa1 1,891,140
(Dimensions Health Corporation Issue), Series 1994, 5.375%, 7/01/14
1,000,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 1/05 at 102 AAA 1,096,260
Control Facilities Financing Authority, Hospital Revenue Bonds,
1995 Series A (Hospital Auxilio Mutuo Obligated Group Project),
6.250%, 7/01/16
- ----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 22.5%
1,500,000 Baltimore County, Maryland, Mortgage Revenue Refunding Bonds 10/08 at 102 AAA 1,497,540
(GNMA Collateralized -- Cross Creek Apartments Project), Series
1998A, 5.250%, 10/20/33
1,000,000 Baltimore City, Maryland, Mortgage Revenue Refunding Bonds, Series 12/02 at 102 AAA 1,065,480
1992 (GNMA Collateralized-Tindeco Wharf Apartments Project), 6.700%,
12/20/28
1,000,000 Howard County, Maryland, Mortgage Revenue Refunding Bonds, Series 7/02 at 102 AAA 1,051,160
1992 (Howard Hills Townhouses Project, FHA-Insured Mortgage
Loan), 6.400%, 7/01/24
2,000,000 Howard County, Maryland, Multifamily Housing Revenue Refunding Bonds, 7/02 at 104 Baa2 2,195,840
Refunding Bonds, Series 1994 (Chase Glen Project), 7.000%, 7/01/24
(Mandatory put 7/01/04)
Community Development Administration, Department of Housing and Community
Development, State of Maryland, Multifamily Housing Revenue Bonds
(Insured Mortgage Loans), 1992 Series D:
700,000 6.700%, 5/15/27 5/02 at 102 Aa 742,889
500,000 6.750%, 5/15/33 5/02 at 102 Aa 531,170
1,000,000 Community Development Administration, Maryland Department of Housing 1/09 at 101 Aa2 986,760
of Housing and Community Development, Housing Revenue Bonds, 1999
Series A, 5.350%, 7/01/41 (Alternative Minimum Tax)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 1,000,000 Community Development Administration, Maryland Department of Housing 10/08 at 101 1/2 Aaa $ 1,008,410
and Community Development, Multifamily Development Revenue Bonds
(Auburn Manor Project), Series 1998 A, 5.300%, 10/01/28
(Alternative Minimum Tax)
1,000,000 Housing Opportunities Commission of Montgomery County (Montgomery 7/05 at 102 Aaa 1,050,890
County, Maryland), Multifamily Housing Revenue Bonds,
1995 Series A., 6.000%, 7/01/20
4,420,000 Housing Opportunities Commission of Montgomery County (Montgomery 7/08 at 101 Aaa 4,354,009
County, Maryland), Multifamily Housing Development Bonds,
1998 Series A, 5.250%, 7/01/29 (Alternative Minimum Tax)
1,550,000 Prince George's County Housing Authority (New Keystone Apartments - 1/02 at 102 AAA 1,640,722
FHA-Insured), 6.800%, 7/01/25
860,000 Housing Authority of Prince George's County, Maryland, Mortgage 11/99 at 101 AAA 862,812
Revenue Refunding Bonds (Collateralized Foxglenn Apartments Project),
Series 1998A, 5.450%, 5/20/14 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 10.3%
1,385,000 Community Development Administration, Department of Housing and Community 4/01 at 102 Aa2 1,445,691
Development, State of Maryland, Single Family Program Bonds,
1991 Fourth Series, 7.450%, 4/01/32 (Alternative Minimum Tax)
1,500,000 Community Development Administration, Maryland Department of Housing 3/08 at 101 1/2 Aa2 1,503,525
and Community Development, Residential Revenue Bonds,
1998 Series A, 5.300%, 9/01/23 (Alternative Minimum Tax)
1,615,000 Housing Opportunities Commission of Montgomery County (Maryland), 7/04 at 102 Aa2 1,725,547
Single Family Mortgage Revenue Bonds, 1994 Series A, 6.600%, 7/01/14
2,970,000 Housing Authority of Prince George's County (Maryland), FHLMC/FNMA/GNMA 8/07 at 102 AAA 3,062,040
Collateralized, Single Family Mortgage Revenue Bonds, Series 1997,
5.750%, 8/01/26 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 9.2%
1,000,000 Mayor and City Council of Baltimore, Maryland, Certificates of 10/07 at 102 AAA 999,340
Participation (Emergency Telecommunications Facilities),
Series 1997A, 5.000%, 10/01/17
2,000,000 Mayor and City Council of Baltimore Maryland, Convention Center Refunding 9/08 at 102 AAA 1,968,560
Revenue Bonds, Series 1998, 5.000%, 9/01/19
1,760,000 Maryland Stadium Authority, Convention Center Expansion Lease Revenue 12/04 at 102 AAA 1,906,450
Bonds, Series 1994, 5.875%, 12/15/12
Maryland Stadium Authority, Sports Facilities Lease Revenue Bonds,
Series 1989D:
500,000 7.375%, 12/15/04 (Alternative Minimum Tax) 12/99 at 102 Aa 520,070
500,000 7.500%, 12/15/10 (Alternative Minimum Tax) 12/99 at 102 Aa 519,930
1,000,000 Washington Suburban Sanitary District (Montgomery and Prince George's 6/07 at 100 Aa1 1,000,650
Counties, Maryland), General Construction Bonds of 1997, 5.125%, 6/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 6.5%
1,285,000 Maryland Transportation Authority, Special Obligation Revenue Bonds, 7/04 at 102 AAA 1,304,031
Baltimore/Washington International Airport Projects, Series 1994-A
(Qualified Airport Bonds), 6.400%, 7/01/19 (Alternative Minimum Tax)
1,000,000 Maryland Transportation Authority, Transportation Facilities Projects 7/02 at 100 A+ 1,038,140
Revenue Bonds, Series 1992, 5.750%, 7/01/15
2,500,000 Washington Metropolitan Area Transit Authority (District of Columbia), 1/04 at 102 AAA 2,532,500
Gross Revenue Transit Refunding Bonds, Series 1993, 5.250%, 7/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 9.2%
600,000 City of Baltimore, Maryland (Mayor and City Council of Baltimore), 10/02 at 100 AAA 650,412
General Obligation Consolidated Public Improvement Bonds,
Series 1992-A, 6.500%, 10/15/12 (Pre-refunded to 10/15/02)
700,000 The Maryland National Capital Park and Planning Commission, Maryland 7/02 at 102 AA*** 758,093
(Prince George's County), General Obligation Bonds, Prince George's
County Park Acquisition and Development Bonds, Series L-2, 6.125%,
7/01/10 (Pre-refunded to 7/01/02)
500,000 Maryland Health and Higher Educational Facilities Authority, Revenue 7/00 at 102 AAA 529,390
Bonds, Sinai Hospital of Baltimore Issue, Series 1990, 7.000%, 7/01/19
(Pre-refunded to 7/01/00)
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Maryland Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 500,000 Maryland Health and Higher Educational Facilities Authority, 7/00 at 102 AAA $ 528,060
Revenue Bonds, Francis Scott Key Medical Center Issue, Series 1990,
6.750%, 7/01/23 (Pre-refunded to 7/01/00)
1,005,000 Maryland Health and Higher Educational Facilities Authority (Doctors 7/00 at 102 AAA 1,082,345
Community Hospital Issue), Series 1990, 8.750%, 7/01/22
(Pre-refunded to 7/01/00)
2,500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 7/07 at 101 1/2 AAA 2,811,575
6.000%, 7/01/26 (Pre-refunded to 7/01/07)
500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1992 7/02 at 101 1/2 AAA 547,820
(General Obligation Bonds), 6.600%, 7/01/13
(Pre-refunded to 7/01/02)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 3.8%
1,000,000 Montgomery County, Maryland, Solid Waste System Revenue Bonds, 6/03 at 102 AAA 1,058,510
1993 Series A, 5.875%, 6/01/13 (Alternative Minimum Tax)
1,500,000 Prince George's County, Maryland, Pollution Control Revenue Refunding 1/03 at 102 A1 1,621,560
Bonds (Potomac Electric Project), 1993 Series, 6.375%, 1/15/23
185,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, 7/99 at 101 1/2 BBB+ 188,376
Series 1989-N, 7.125%, 7/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 7.3%
2,000,000 City of Baltimore, Maryland (Mayor and City Council of Baltimore), No Opt. Call AAA 1,975,960
Project and Refunding Revenue Bonds (Water Projects),
Series 1994-A, 5.000%, 7/01/24
2,000,000 City of Baltimore, Maryland (Mayor and City Council of Baltimore), 7/08 at 101 AAA 1,950,499
Project and Refunding Revenue Bonds (Water Projects),
Series 1998-A, 5.000%, 7/01/28
1,500,000 City of Baltimore, Maryland (Mayor and City Council of Baltimore), 7/06 at 101 AAA 1,550,309
Project and Refunding Revenue Bonds (Water Projects),
Series 1996-A, 5.500%, 7/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
$70,580,000 Total Investments - (cost $70,194,062) - 96.7% 72,862,883
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less - Liabilities - 3.3% 2,461,394
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $75,324,277
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There may
be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities which ensures the timely payment of principal and
interest. Securities are normally considered to be equivalent
to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
14
<PAGE>
Portfolio of Investments
Nuveen Flagship Pennsylvania Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Goods - 2.0%
$3,000,000 Delaware County Industrial Development Authority (Pennsylvania), 1/08 at 102 A- $3,099,540
Refunding Revenue Bonds, Series A 1997 (Resource Recovery Facility),
6.200%, 7/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 17.1%
3,000,000 Allegheny County Higher Education Building Authority (Commonwealth 2/06 at 102 Baa3 3,135,870
of Pennsylvania), College Revenue Bonds, Series A of 1996
(Robert Morris College), 6.250%, 2/15/26
Allegheny County Higher Education Building Authority (Commonwealth
of Pennsylvania), College Revenue Refunding Bonds, Series A of
1998 (Robert Morris College):
1,190,000 5.500%, 5/01/15 No Opt. Call Baa3 1,219,845
1,500,000 6.000%, 5/01/28 No Opt. Call Baa3 1,661,550
Chester County Health and Education Facilities Authority
(Pennsylvania), College Revenue Bonds, Series of 1998 (Immaculate College):
1,300,000 5.600%, 10/15/18 10/08 at 102 BBB- 1,285,531
2,300,000 5.625%, 10/15/27 10/08 at 102 BBB- 2,270,928
2,315,000 Delaware County Authority (Pennsylvania), College Revenue 10/08 at 100 BBB- 2,212,746
Refunding Bonds (Neumann College), Series 1998A, 5.375%, 10/01/26
Delaware County Authority, School Revenue Bonds, Series of 1998 (The
Haverford School Project):
1,000,000 5.000%, 3/15/19 3/04 at 100 A- 941,790
2,000,000 5.125%, 3/15/24 3/04 at 100 A- 1,882,240
New Wilmington Municipal Authority (Lawrence County, Pennsylvania),
College Revenue Bonds, Series 1998 (Westminster College):
1,275,000 5.300%, 3/01/18 3/08 at 100 Baa1 1,243,100
935,000 5.350%, 3/01/28 3/08 at 100 Baa1 906,239
750,000 Northeastern Pennsylvania Hospital and Education Authority, College 2/05 at 100 AAA 839,258
Revenue, Bonds, Luzerne County Community College, 6.625%, 8/15/15
Pennsylvania Higher Educational Facilities Authority (Commonwealth
of Pennsylvania), Geneva College Revenue Bonds, Series of 1998:
4,150,000 5.375%, 4/01/15 4/08 at 102 BBB- 4,082,355
1,800,000 5.375%, 4/01/23 4/08 at 102 BBB- 1,707,264
1,250,000 Pennsylvania Higher Educational Facilities Authority, Thomas 7/09 at 100 AAA 1,218,238
Jefferson University Revenue Bonds, Series 1999, 5.000%, 7/01/19 (WI)
865,000 Union County Higher Educational Facilities Financing Authority, 4/06 at 101 AAA 892,109
Union County, Pennsylvania, University Revenue Bonds, Series 1996
(Bucknell University), 5.500%, 4/01/16
600,000 The General Municipal Authority of the City of Wilkes-Barre, College 12/00 at 100 N/R 646,278
Misericordia Revenue Refunding Bonds, Series A of 1992, 7.750%, 12/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
Energy - 2.6%
3,500,000 Pennsylvania Economic Development Financing Authority (Sun Company, 12/04 at 102 BBB 3,945,235
Inc. (R&M) Project), Series 1994A, 7.600%, 12/01/24
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 12.7%
1,525,000 Allegheny County Hospital Development Authority (Allegheny County, No Opt. Call N/R 1,525,000
Pennsylvania), Hospital Revenue Bonds, Series Q (Allegheny Valley
Hospital, Sublessee), 7.000%, 8/01/15
500,000 Clarion County Hospital Authority, Hospital Revenue Refunding Bonds, 7/99 at 102 N/R 512,045
Series 1989 (Clarion Hospital Project), 8.100%, 7/01/12
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Pennsylvania Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Health Care (continued)
Columbia County Hospital Authority, Columbia County, Pennsylvania,
Health Care Revenue Bonds (The Bloomsburg Hospital Obligated Group
Project), Series of 1999:
$ 3,735,000 5.850%, 6/01/24 6/09 at 100 BBB- $ 3,667,621
1,000,000 5.900%, 6/01/29 6/09 at 100 BBB- 980,700
1,585,000 The City of Jeannette Health Services Authority, Hospital 11/06 at 102 BBB+ 1,636,719
Revenue Bonds (Jeannette District Memorial Hospital),
Series A of 1996, 6.000%, 11/01/18
2,000,000 Monroeville, Pennsylvania, Hospital Authority, Hospital 10/05 at 102 N/R 1,980,000
Revenue Refunding Bonds, Forbes Health System, 6.250%, 10/01/15
500,000 Montgomery County, Pennsylvania, Higher Education and Health 2/00 at 100 AAA 514,525
Authority, Hospital Revenue Bonds (Holy Redeemer Hospital), Series
1990A, 7.625%, 2/01/20
1,985,000 Philadelphia, Pennsylvania, Hospitals and Higher Education 11/02 at 102 A- 2,052,490
Facilities Authority, Hospital Revenue Refunding Bonds,
Chestnut Hill Hospital, 6.500%, 11/15/22
2,500,000 Philadelphia Pennsylvania Hospitals and Higher Education 7/07 at 102 BBB+ 2,529,250
Facilities Authority, Hospital Revenue Refunding Bonds,
Jeanes Hospital Project, 5.875%, 7/01/17
City of Pottsville Hospital Authority, Hospital Revenue Bonds
(The Pottsville Hospital and Warne Clinic), Series of 1998:
1,265,000 5.250%, 7/01/10 No Opt. Call BBB 1,221,927
2,250,000 5.625%, 7/01/24 7/08 at 100 BBB 2,143,935
230,000 Health Care Facilities Authority of Sayre (Pennsylvania), Series 3/01 at 102 AAA 246,017
1991A, Revenue Bonds, Guthrie Healthcare System,
7.100%, 3/01/17
350,000 Washington County Hospital Authority, Hospital Revenue Bonds, 12/02 at 102 A2 380,447
Series 1992 (Monongahela Valley Hospital, Inc. Project), 6.750%,
12/01/08
- ----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 1.3%
500,000 Redevelopment Authority of the County of Bucks, Pennsylvania, 2/02 at 100 AAA 518,975
Mortgage Revenue Refunding Bonds (Warminster Heights Section 8
Assisted FHA-Insured Project), 1992 Series A, 6.875%, 8/01/23
1,535,000 Redevelopment Authority of the City of Philadelphia, 2/08 at 100 Aa2 1,545,883
Pennsylvania, Multifamily Housing Refunding Revenue Bonds,
Series 1998 (FHA-Insured Mortgage Loan - Woodstock Mutual
Homes, Inc. Project), 5.450%, 2/01/23
- ----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 13.1%
3,260,000 Allegheny County Residential Finance Authority, Single Family 11/08 at 102 Aaa 3,268,117
Mortgage Revenue Bonds, 1998 Series DD-2, 5.400%, 11/01/29
(Alternative Minimum Tax)
1,670,000 Allegheny County Residential Finance Authority, Single Family No Opt. Call Aaa 260,871
Mortgage Revenue Bonds, 1994 Series Y, 0.000%, 5/01/27
(Alternative Minimum Tax)
300,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 10/99 at 102 AA+ 308,355
Revenue Bonds, Series S, 7.600%, 4/01/16
85,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 4/01 at 102 AA+ 88,564
Revenue Bonds, Series 30, 7.300%, 10/01/17
520,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 10/01 at 102 AA+ 547,248
Revenue Bonds, Series 1991-32, 7.150%, 4/01/15
2,500,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 4/06 at 102 AA+ 2,645,575
Revenue Bonds, Series 1996-50A, 6.000%, 10/01/13
2,000,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 4/06 at 102 AA+ 2,121,060
Revenue Bonds, Series 1996-51, 6.375%, 4/01/28 (Alternative
Minimum Tax)
1,000,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 10/06 at 102 AA+ 1,049,360
Revenue Bonds, Series 53A, 6.050%, 4/01/18 (Alternative
Minimum Tax)
3,000,000 Pennsylvania Housing Finance Agency, Single Family Mortgage 10/07 at 101 AA+ 3,039,900
Revenue Bonds, Series 1997-61A, 5.500%, 4/01/29 (Alternative
Minimum Tax)
2,600,000 Urban Redevelopment Authority of Pittsburgh, Home Improvement Loan 8/05 at 102 A 2,725,268
Bonds, 1995 Series A, 6.375%, 8/01/18 (Alternative Minimum Tax)
970,000 Pittsburgh, Pennsylvania, Urban Redevelopment Authority, Mortgage 4/06 at 102 AAA 1,010,410
Revenue Bonds, Series A, 6.000%, 4/01/19 (Alternative
Minimum Tax)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
$ 995,000 Pittsburgh, Pennsylvania, Urban Redevelopment Authority, Mortgage 4/06 at 102 AAA $ 1,055,904
Revenue Bonds, Series D, 6.250%, 10/01/17
765,000 Urban Redevelopment Authority of Pittsburgh, Mortgage Revenue 4/07 at 102 AAA 809,385
Bonds, 1997 Series A, 6.200%, 10/01/21 (Alternative Minimum Tax)
1,055,000 Urban Redevelopment Authority of Pittsburgh, Mortgage Revenue 4/04 at 102 AAA 1,126,550
Bonds, 1994 Series A, 6.625%, 4/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care -- 6.8%
2,920,000 Allegheny County Residential Finance Authority, Mortgage Revenue 10/05 at 100 AAA 3,167,207
Bonds (FHA-Insured Mortgage, Ladies Grand Army of the Republic
Health Facility Project), 1995 Series G, 6.350%, 10/01/36
2,000,000 Armstrong County Hospital Authority (Armstrong County, Pennsylvania), 12/01 at 100 AAA 2,131,740
Health Center Revenue Refunding Bonds, Series 1991 (Canterbury Place
Project), 6.500%, 12/01/21
1,000,000 Butler County Industrial Development Authority (Butler County, 6/03 at 102 A 1,013,910
Pennsylvania), Health Center Revenue Refunding Bonds,
Series 1993, Pittsburgh Lifetime Care Community (Sherwood
Oaks Project), 5.750%, 6/01/16
Chester County Health and Educational Facilities Authority
(Pennsylvania), Mortgage Revenue Refunding Bonds (Tel Hai
Obligated Group Project), Series of 1998:
1,000,000 5.400%, 6/01/18 12/08 at 100 BBB 957,620
1,100,000 5.500%, 6/01/25 12/08 at 100 BBB 1,046,056
2,000,000 Montgomery County Higher Education and Health Authority, Mortgage 1/06 at 101 BBB 2,097,660
Revenue Bonds, Series 1996 (Waverly Heights Project),
6.375%, 1/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 12.2%
Girard School District (Erie County, Pennsylvania), General Obligation
Bonds, Series of 1999B:
1,645,000 0.000%, 11/15/26 No Opt. Call AAA 379,518
1,635,000 0.000%, 11/05/28 No Opt. Call AAA 338,510
2,000,000 McKeesport Area School District (Allegheny County, Pennsylvania), 10/06 at 100 AAA 2,206,020
General Obligation Bonds, Series of 1996A, 6.000%, 10/01/25
4,875,000 McKeesport Area School District (Allegheny County, Pennsylvania), No Opt. Call AAA 1,265,599
General Obligation Bonds, Series of 1997D, 0.000%, 10/01/24
2,195,000 Montour School District (Allegheny County, Pennsylvania), General No Opt. Call AAA 1,023,155
Obligation Bonds, Series B of 1993, 0.000%, 1/01/14
1,000,000 Commonwealth of Pennsylvania, General Obligation Bonds, First 5/06 at 101 1/2 AAA 1,020,800
Series of 1996, 5.375%, 5/15/16
6,050,000 City of Philadelphia, Pennsylvania, General Obligation Bonds, 3/09 at 101 AAA 5,795,000
Series 1998, 5.000%, 3/15/28
3,500,000 The School District of Philadelphia, Pennsylvania, General 4/09 at 100 AAA 3,125,430
Obligation Bonds, Series A of 1999, 4.500%, 4/01/23
1,500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 7/07 at 100 A 1,511,670
5.375%, 7/01/25
2,000,000 Radnor Township, General Obligation Bonds, Series 1996, 5.250%, 11/01/26 5/06 at 100 Aa2 1,967,080
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 4.0%
1,500,000 The Harrisburg Authority, Dauphin County, Pennsylvania, Series I 4/06 at 102 AAA 1,557,000
of 1996 (Pooled Bond Program), 5.625%, 4/01/19
1,390,000 Pennsylvania Intergovernmental Cooperative Authority (City of No Opt. Call AAA 1,595,512
Philadelphia Funding Program), Series of 1994, 7.000%, 6/15/05
3,000,000 Southeastern Pennsylvania Transportation Authority, Special Revenue 3/07 at 102 AAA 3,026,940
Bonds, Series of 1997, 5.375%, 3/01/22
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.8%
2,300,000 County of Allegheny, Pennsylvania, Airport Revenue Refunding Bonds, 1/08 at 101 AAA 2,291,053
Series 1997A (Pittsburgh International Airport), 5.250%, 1/01/16
(Alternative Minimum Tax)
1,550,000 Pennsylvania Turnpike Commission, Pennsylvania Turnpike Revenue 12/02 at 102 AAA 1,579,063
Bonds, Series O of 1992, 5.500%, 12/01/17
3,500,000 Philadelphia, Pennsylvania, Airport Revenue Bonds, Philadelphia 6/07 at 102 AAA 3,472,385
Airport System, Series 1997B, 5.400%, 6/15/27
(Alternative Minimum Tax)
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Pennsylvania Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed - 10.3%
$ 200,000 Allegheny County Hospital Development Authority, Hospital Revenue Bonds, 10/01 at 100 BBB+*** $ 214,542
Series 1991 A (St. Margaret Memorial Hospital), 7.125%, 10/01/21
(Pre-refunded to 10/01/01)
200,000 Butler County Hospital Authority (Butler County, Pennsylvania), Hospital 6/01 at 102 AAA 216,304
Revenue Bonds, Series 1991A (North Hills Passavant Hospital),
7.000%, 6/01/22 (Pre-refunded to 6/01/01)
2,850,000 Deer Lakes School District (Allegheny County, Pennsylvania), General 1/04 at 100 AAA 3,131,210
Obligation Bonds, Series of 1995, 6.350%, 1/15/14 (Pre-refunded to
1/15/04)
1,320,000 Delaware County Authority, Health Facilities Revenue Bonds, Series of 12/06 at 102 Aaa 1,461,148
1996 (Mercy Health Corporation of Southeastern Pennsylvania Obligated
Group), 6.000%, 12/15/26
2,000,000 Pennsylvania Economic Development Financing Authority (MacMillan Bloedel 12/05 at 102 Baa2*** 2,379,500
Limited Partnership), 7.600%, 12/01/20 (Alternative Minimum Tax)
(Pre-refunded to 12/01/05)
1,500,000 Pennsylvania Intergovernmental Cooperation Authority, Special Tax 6/05 at 100 AAA 1,721,775
Revenue Bonds (City of Philadelphia Funding Program), Series of 1994,
7.000%, 6/15/14 (Pre-refunded to 6/15/05)
250,000 Philadelphia Authority for Industrial Development Revenue Bonds, Series 5/02 at 102 A+*** 273,718
of 1992 (National Board of Medical Examiners Project), 6.750%, 5/01/12
(Pre-refunded to 5/01/02)
650,000 City of Philadelphia, Pennsylvania, Gas Works Revenue Bonds, Twelfth No Opt. Call AAA 785,285
Series B, 7.000%, 5/15/20
2,000,000 Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities No Opt. Call BBB+*** 2,211,040
Authority, Hospital Revenue Refunding Bonds, Pennsylvania Hospital,
6.250%, 7/01/06
1,450,000 The Philadelphia Municipal Authority, Philadelphia, Pennsylvania, 4/00 at 100 AAA 1,504,158
Criminal Justice Center Refunding Revenue Bonds, Series of 1988,
7.800%, 4/01/18 (Pre-refunded to 4/01/00)
500,000 Saint Mary Hospital Authority, Hospital Revenue Bonds, Series 1992A 7/02 at 102 AAA 546,600
(Franciscan Health System/Saint Mary Hospital of Langhorne Inc.),
6.500%, 7/01/12 (Pre-refunded to 7/01/02)
935,000 The Municipal Authority of the Borough of West View (Allegheny County, No Opt. Call AAA 1,290,487
Pennsylvania), Special Obligation Bonds, Series of 1985A,
9.500%, 11/15/14
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 10.7%
2,000,000 Beaver County Industrial Development Authority, Pennsylvania, Exempt 6/08 at 102 AAA 1,973,940
Facilities Revenue Bonds, 1998 Series A (Shippingport Project),
5.375%, 6/01/28 (Alternative Minimum Tax)
2,000,000 Cambria County Industrial Development Authority (Pennsylvania), Pollution 11/05 at 102 AAA 2,115,440
Control Revenue Refunding Bonds, 1995 Series A (Pennsylvania Electric
Company Project), 5.800%, 11/01/20
800,000 Greater Lebanon Refuse Authority, Lebanon County, Pennsylvania, Solid 11/02 at 100 A- 847,168
Waste Revenue Bonds, Series of 1992, 7.000%, 11/15/04
1,500,000 Lawrence County, Pennsylvania, Industrial Development Authority, 9/01 at 102 Baa2 1,593,570
Pollution Control Revenue Refunding Bonds, Pennsylvania Power Company,
New Castle Project, Series A, 7.150%, 3/01/17
1,610,000 Lehigh County Industrial Development Authority, Pollution Control Revenue 11/02 at 102 AAA 1,753,805
Refunding Bonds, 1992 Series A (Pennsylvania Power and Light Company
Project), 6.400%, 11/01/21
550,000 Lehigh County Industrial Development Authority, Pollution Control Revenue 8/05 at 102 AAA 597,284
Refunding Bonds, 1995 Series A (Pennsylvania Power and Light Company
Project), 6.150%, 8/01/29
950,000 Luzerne County Industrial Development Authority, Exempt Facilities 12/02 at 102 A- 1,042,283
Revenue Bonds, 1992 Series B (Pennsylvania Gas and Water Company
Project), 7.125%, 12/01/22 (Alternative Minimum Tax)
1,500,000 Luzerne County Industrial Development Authority, Exempt Facilities 12/04 at 102 AAA 1,694,025
Revenue Refunding Bonds, 1994 Series A (Pennsylvania Gas and Water
Company Project), 7.000%, 12/01/17 (Alternative Minimum Tax)
1,000,000 Northampton County Industrial Development Authority (Pennsylvania), 7/05 at 102 AAA 1,080,340
Pollution Control Revenue Refunding Bonds, 1995 Series A (Metropolitan
Edison Company Project), 6.100%, 7/15/21
City of Philadelphia, Pennsylvania, Gas Works Revenue Bonds, Fourteenth
Series:
2,000,000 6.375%, 7/01/14 7/03 at 102 AAA 2,188,099
1,400,000 6.375%, 7/01/26 7/03 at 102 BBB 1,520,651
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer 1.9%
$ 2,000,000 Allegheny County Sanitary Authority, Allegheny County, Pennsylvania, 12/07 at 102 AAA $ 2,019,179
Sewer Revenue Bonds, Series of 1997, 5.375%, 12/01/24
830,000 South Wayne County Water and Sewer Authority, Pennsylvania, Revenue 4/02 at 102 N/R 891,494
Refunding Sewer Bonds, 8.200%, 4/15/13 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
$156,565,000 Total Investments (cost $145,733,737) - 99.5% 152,325,090
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.5% 717,301
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $153,042,391
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices
at later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to
be equivalent to AAA rated securities.
N/R Investment is not rated.
(WI) Security purchased on a when-issued basis (note 1).
See accompanying notes to financial statements.
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Virginia Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Goods -- 0.9%
$ 2,000,000 Industrial Development Authority of the County of No Opt. Call A- $ 1,972,400
Henrico, Virginia, Solid Waste Disposal
Revenue Bonds, Series 1996A (Browning-Ferris
Industries of South Atlantic, Inc. Project),
5.450%, 1/01/14 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples -- 0.7%
1,500,000 Industrial Development Authority of the County 4/07 at 101 A+ 1,577,010
of James City, Virginia, Sewage and Solid Waste
Disposal Facilities Revenue Bonds, Series 1997
(Anheuser Busch Project), 6.000%, 4/01/32
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations -- 10.4%
1,000,000 Industrial Development Authority of Arlington 7/07 at 102 Aa1 1,022,140
County, Virginia, Headquarters Facility Revenue
Bonds (The Nature Conservancy), Series 1997A,
5.450%, 7/01/27
500,000 Medical College of Hampton Roads, Virginia, 11/01 at 102 A- 534,230
General Revenue Refunding Bonds, Series 1991A,
6.875%, 11/15/16
Industrial Development Authority of Loudoun
County, Virginia, University Facilities Revenue
Refunding Bonds (The George Washington University), Series of 1992:
500,000 6.250%, 5/15/12 5/02 at 102 A1 535,305
2,225,000 6.250%, 5/15/22 5/02 at 102 A1 2,378,881
1,250,000 Industrial Development Authority of Rockingham 10/03 at 102 Baa3 1,281,288
County, Virginia, Educational Facilities Revenue Bonds
(Bridgewater College), Series 1993, 6.000%, 10/01/23
Staunton Industrial Development Authority, Educational
Facilities Revenue Bonds (Mary Baldwin College):
350,000 5.900%, 11/01/03 No Opt. Call N/R 361,526
370,000 6.000%, 11/01/04 No Opt. Call N/R 384,260
2,000,000 The Rector and Visitors of the University of 6/03 at 102 AA+ 2,021,440
Virginia, General Revenue Bonds, Series 1993B,
5.375%, 6/01/20
1,000,000 The Rector and Visitors of the University of 6/08 at 101 AA+ 968,250
Virginia, General Revenue Pledge Bonds, Series
1998A, 5.000%, 6/01/24
750,000 Virginia College Building Authority, Educational 1/02 at 102 AAA 809,813
Facilities Revenue Refunding Bonds, Washington
and Lee University Project,
6.400%, 1/01/12
800,000 Virginia College Building Authority, Educational 5/02 at 102 Aa2 874,552
Facilities Revenue Bonds (Randolph-Macon College
Project), Series of 1992,
6.625%, 5/01/13
2,000,000 Virginia College Building Authority, Educational 10/02 at 102 BBB+ 2,141,720
Facilities Revenue Refunding Bonds, Roanoke
College Project, 6.625%, 10/15/12
3,250,000 Virginia College Building Authority, Educational 4/03 at 102 Aa2 3,392,805
Facilities Revenue Refunding Bonds (Hampton
University Project), Series of
1993, 5.750%, 4/01/14
2,000,000 Virginia College Building Authority, Educational No Opt. Call AAA 2,016,880
Facilities Revenue Bonds (The Washington and
Lee University Project), Series 1998, 5.250%, 1/01/31
420,000 Virginia College Building Authority, Educational 1/04 at 102 AA 445,238
Facilities Revenue Bonds (The Washington and
Lee University Project), Series of 1994,
5.750%, 1/01/14
1,250,000 Virginia College Building Authority, Educational 7/08 at 102 AA 1,211,375
Facilities Revenue and Refunding Bonds
(Marymount University Project), Series 1998,
5.125%, 7/01/28
Industrial Development Authority of the City of
Winchester, Virginia, Educational Facilities
First Mortgage Revenue Bonds
(Shenandoah University Project), Series 1994:
1,800,000 6.700%, 10/01/14 10/04 at 102 AA 2,038,788
775,000 6.750%, 10/01/19 10/04 at 102 AA 879,641
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forest and Paper Products -- 5.2%
$ 2,000,000 Industrial Development Authority of Covington-Allegheny County, 9/04 at 102 A1 $ 2,183,540
Virginia, Pollution Control Facilities Refunding Revenue Bonds
(Westvaco Corporation Project), Series 1994, 6.650%, 9/01/18
2,500,000 Industrial Development Authority of Goochland County, Virginia, 12/08 at 101 Baa2 2,509,225
Industrial Development Refunding Revenue Bonds (Nekoosa Packaging
Corporation Project), Series 1998, 5.650%, 12/01/25
(Alternative Minimum Tax)
3,545,000 Industrial Development Authority of the Isle of Wight County, Virginia, 4/04 at 102 A1 3,819,915
Solid Waste Disposal Facilities Revenue Bonds (Union Camp Corporation
Project), Series 1994, 6.550%, 4/01/24 (Alternative Minimum Tax)
3,000,000 Industrial Development Authority of the Isle of Wight County, Virginia, 5/07 at 102 BBB+ 3,130,290
Solid Waste Disposal Facilities Revenue Bonds (Union Camp Corporation
Project), Series 1997, 6.100%, 5/01/27 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care -- 14.1%
1,125,000 Industrial Development Authority of Albemarle County, Virginia, Health 10/02 at 102 N/R 1,230,491
Services Revenue Bonds (The University of Virginia Health Services
Foundation), Series 1992, 6.500%, 10/01/22
2,060,000 Industrial Development Authority of Albemarle County, Virginia, Hospital 10/03 at 102 A2 2,119,019
Refunding Revenue Bonds (Martha Jefferson Hospital), Series 1993,
5.875%, 10/01/13
2,000,000 Industrial Development Authority of Fairfax County, Virginia, Health 8/06 at 102 AA 2,142,240
Care Revenue Bonds (Inova Health System Project), Series 1996A,
6.000%, 8/15/26
2,000,000 Industrial Development Authority of the City of Fredericksburg, Virginia, 6/07 at 102 AAA 1,971,720
Hospital Facilities Revenue Refunding Bonds (MediCorp Health System
Obligated Group), Series 1996, 5.250%, 6/15/23
1,110,000 Industrial Development Authority of the County of Giles, Virginia, Exempt 12/05 at 102 A+ 1,140,159
Facility Revenue Bonds, Hoechst Celanese Project, Series 1995, 5.950%,
12/01/25 (Alternative Minimum Tax)
500,000 Industrial Development Authority of the City of Hampton, Virginia, 11/04 at 102 Aa2 552,055
Hospital Revenue and Refunding Bonds (Sentara Hampton General Hospital),
Series 1994A, 6.500%, 11/01/12
2,000,000 Industrial Development Authority of the County of Hanover, Virginia, No Opt. Call AAA 2,308,460
Hospital Revenue Bonds, Series 1995 (Memorial Regional Medical Center
Project at Hanover Medical Park) (Guaranteed by Bon Secours Health
System Obligated Group), 6.375%, 8/15/18
2,000,000 Bon Secours Health System Obligated Group Revenue Bonds, Industrial 8/05 at 102 AAA 2,038,860
Development Authority of the County of Hanover, Virginia, Hospital
Revenue Bonds, Series 1995 (Bon Secours Health System Projects),
5.500%, 8/15/25
1,250,000 Industrial Development Authority of Henry County, Virginia, Hospital 1/07 at 101 A+ 1,304,875
Revenue Bonds (Memorial Hospital of Martinsville and Henry County),
Series 1997, 6.000%, 1/01/27
1,700,000 Industrial Development Authority of Loudoun County, Virginia, Hospital 6/05 at 102 AAA 1,776,857
Revenue Bonds (Loudoun Hospital Center), Series 1995, 5.800%, 6/01/20
Industrial Development Authority of the City of Lynchburg, Virginia,
Healthcare Facilities Revenue and Refunding Bonds (Centra Health),
Series 1998:
1,000,000 5.200%, 1/01/23 1/08 at 101 A+ 971,500
3,000,000 5.200%, 1/01/28 1/08 at 101 A+ 2,885,520
5,320,000 Medical College of Virginia Hospitals Authority, General Revenue Bonds, 7/08 at 102 AAA 5,176,254
Series 1998, 5.125%, 7/01/23
1,000,000 Industrial Development Authority of the City of Norfolk, Virginia, 8/07 at 102 AAA 984,960
Health Care Revenue Bonds, Series 1997 (Bon Secours Health System),
5.250%, 8/15/26
2,080,000 Peninsula Ports Authority of Virginia, Health System Revenue and Refunding 7/02 at 102 Aa2 2,278,806
Bonds (Riverside Health System Project), Series 1992-A, 6.625%, 7/01/18
400,000 Richmond, Virginia, Industrial Development Authority, Medical Facility 8/99 at 101 AA- 405,032
Revenue Bonds, Richmond Metropolitan Blood Service, 7.125%, 2/01/11
2,260,000 City of Virginia Beach Development Authority, Virginia, Hospital Revenue 11/01 at 102 AA 2,432,800
Bonds (Sentara Bayside Hospital), Series 1991, 6.300%, 11/01/21
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship Virginia Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily - 2.1%
$1,200,000 Fairfax County (Virginia), Redevelopment and Housing Authority, 9/06 at 102 AAA $1,260,456
FHA-Insured Mortgage Housing for the Elderly Revenue Refunding Bonds,
Series 1996 (Little River Glen), 6.100%, 9/01/26
2,000,000 Newport News, Virginia, Redevelopment and Housing Authority, Mortgage 1/02 at 102 AAA 2,079,340
Revenue Refunding Bonds, West Apartments, Series A, 6.550%, 7/01/24
480,000 Suffolk Redevelopment and Housing Authority, Multifamily Housing Revenue 7/02 at 104 Baa2 522,206
Refunding Bonds, Series 1994 (Chase Heritage at Dulles Project), 7.000%,
7/01/24 (Mandatory put 7/01/04)
700,000 Virginia State Housing Development Authority, Multifamily Housing Bonds, 5/01 at 102 AA+ 736,099
Series 1991F, 7.000%, 5/01/04
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 7.9%
180,000 Puerto Rico Housing Finance Corporation, Single Family Mortgage Revenue 9/00 at 102 AAA 188,276
Bonds, Portfolio 1, Series B, 7.650%, 10/15/22
Virginia Housing Development Authority, Commonwealth Mortgage Bonds,
1992 Series A:
3,000,000 7.100%, 1/01/17 1/02 at 102 AA+ 3,116,520
1,000,000 7.100%, 1/01/22 1/02 at 102 AA+ 1,030,030
3,170,000 7.150%, 1/01/33 1/02 at 102 AA+ 3,309,987
1,000,000 Virginia State Housing Development Authority, Commonwealth Mortgage Bonds, 7/05 at 102 AA+ 1,055,630
Series C1, 6.300%, 7/01/25 (Alternative Minimum Tax)
2,000,000 Virginia State Housing Development Authority, Commonwealth Mortgage Bonds, 7/05 at 102 AA+ 2,101,940
Series C3, 6.125%, 7/01/22 (Alternative Minimum Tax)
7,000,000 Virginia Housing Development Authority, Commonwealth Mortgage Bonds, 1996 1/08 at 102 AA+ 6,976,830
Series G, Subseries G-1, 5.300%, 1/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 2.3%
715,000 Industrial Development Authority of Albemarle County, Virginia, Mortgage 1/01 at 103 N/R 768,053
Revenue Refunding Bonds, Series 1986A (FHA-Insured Project), 8.900%,
7/15/26
1,000,000 Health Center Commission for the County of Chesterfield, Virginia, 12/06 at 102 AAA 1,055,120
Mortgage Revenue Bonds (GNMA Collateralized - Lucy Corr Nursing Home
Project), Series 1996, 5.875%, 12/01/21
500,000 Fairfax County Redevelopment and Housing Authority, Multifamily Housing 12/06 at 103 AAA 529,575
Revenue Refunding Bonds (FHA-Insured Mortgage Loan - Paul Spring
Retirement Center), Series 1996 A, 6.000%, 12/15/28
500,000 Front Royal and Warren County, Virginia Industrial Development Authority 7/99 at 107 A 537,240
(Heritage Hall XIII), Series 1986, 9.450%, 7/15/24
1,190,000 Industrial Development Authority of the County of Henrico, Virginia, 7/03 at 102 AAA 1,244,359
Nursing Facility Insured - Mortgage Refunding Revenue Bonds (Cambridge
Manor Nursing Home), Series 1993, 5.875%, 7/01/19
1,000,000 Northern Virginia Health Center Commission, Nursing Home Mortgage 7/08 at 102 AAA 945,090
Revenue Refunding Bonds (Birmingham Green Project), Series 1998,
5.000%, 7/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 8.7%
1,500,000 City of Portsmouth, Virginia, General Obligation Bonds, Public Utility 8/03 at 102 AA- 1,532,520
Refunding Bonds, Series 1993, 5.500%, 8/01/19
500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1996 (General 7/06 at 101 1/2 A 506,245
Obligation Bonds), 5.400%, 7/01/25
1,500,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997 (General 7/07 at 100 A 1,511,670
Obligation Bonds), 5.375%, 7/01/25
Commonwealth of Puerto Rico, Public Improvement Bonds of 1994 (General
Obligation Bonds):
2,575,000 6.450%, 7/01/17 7/04 at 102 AAA 2,892,575
2,500,000 6.500%, 7/01/23 7/04 at 101 1/2 AAA 2,814,025
5,000,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1998 (General 7/08 at 101 A 4,796,400
Obligation Bonds), 5.000%, 7/01/28
3,005,000 City of Richmond, Virginia, General Obligation Public Improvement Bonds, 7/03 at 102 AA 3,069,788
Series 1993B, 5.500%, 7/15/23
Virginia Public School Authority, School Financing Bonds (1991 Resolution),
Series 1995B:
1,000,000 5.750%, 8/01/15 8/05 at 102 Aa1 1,066,670
1,210,000 5.625%, 8/01/16 8/05 at 102 Aa1 1,261,377
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited -- 11.0%
$2,300,000 Big Stone Gap, Virginia, Redevelopment and Housing Authority, 9/05 at 102 AA $ 2,357,293
Commonwealth of Virginia Correctional Facility, Lease Revenue
Bonds (Wallens Ridge Development Project), Series 1995,
5.500%, 9/01/15
3,000,000 Industrial Development Authority of Brunswick County, Virginia, 7/06 at 102 AAA 3,087,390
Correctional Facility Lease Revenue Bonds, Series 1996, 5.500%,
7/01/17
5,000,000 Hampton Roads, Virginia, Regional Jail Authority, Regional Jail 7/06 at 102 AAA 5,141,950
Facility Revenue Bonds, Series 1996A, 5.500%, 7/01/24
2,000,000 Industrial Development Authority of the County of Henrico, 8/05 at 102 AA 2,298,940
Virginia, Public Facility Lease Revenue Bonds, Henrico
County Regional Jail Project, Series 1994, 7.000%, 8/01/13
750,000 Loudoun County, Virginia, Certificates of Participation, No Opt. Call AAA 888,653
Series E, 7.200%, 10/01/10
1,500,000 Peninsula Airport Commission, Virginia, Airport Improvement 7/01 at 102 AA 1,608,570
Revenue Bonds, 7.300%, 7/15/21 (Alternative Minimum Tax)
Prince William County, Virginia, Industrial Development
Authority, Lease Revenue, ATCC Project:
2,000,000 6.000%, 2/01/14 2/06 at 102 A2 2,096,880
1,000,000 6.000%, 2/01/18 2/06 at 102 A2 1,057,560
2,500,000 Prince William County Park Authority, Virginia, Revenue 10/04 at 102 A- 2,790,200
Bonds, Series 1994, 6.875%, 10/15/16
2,250,000 Puerto Rico Highway and Transportation Authority, Highway 7/16 at 100 A 2,314,125
Revenue Bonds, Series Y of 1996, 5.500%, 7/01/36
1,000,000 Virginia Public School Authority, School Financing Bonds, 8/04 at 102 Aa1 1,101,570
Series 1994 A, 6.200%, 8/01/13
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 8.5%
2,250,000 Capital Region Airport Commission, Richmond (Virginia), 7/05 at 102 AAA 2,337,233
International Airport Projects, Airport Revenue Bonds,
Series 1995A, 5.625%, 7/01/25
750,000 Charlottesville-Albemarle Airport Authority (Virginia), 12/05 at 102 BBB 777,330
Airport Revenue Refunding Bonds, Series 1995, 6.125%,
12/01/13 (Alternative Minimum Tax)
Loudoun County (Virginia), Industrial Development Authority,
Air Cargo Facility Revenue, Washington Dulles Air Cargo:
110,000 6.625%, 1/01/00 (Alternative Minimum Tax) No Opt. Call N/R 110,894
3,000,000 7.000%, 1/01/09 (Alternative Minimum TaX) 1/01 at 102 N/R 3,105,540
600,000 6.500%, 1/01/09 (Alternative Minimum Tax) 1/06 at 102 N/R 624,978
1,000,000 Metropolitan Washington D.C. Airports Authority, Airport 10/04 at 102 AAA 1,034,060
System Revenue Bonds, Series 1994A, 5.750%, 10/01/20
(Alternative Minimum Tax)
770,000 Metropolitan Washington D.C. Apartments Authority, General 10/07 at 101 AA- 774,466
Airport Revenue, Series B, 5.500%, 10/01/23
(Alternative Minimum Tax)
5,500,000 Pocahontas Parkway Association, Route 895 Connector Toll 8/08 at 102 BBB- 5,378,285
Road Revenue Bonds, Senior Current Interest,
Series 1998A, 5.500%, 8/15/28
5,000,000 Pocahantas Parkway Association, Route 895 Connector 8/08 at 64 13/16 BBB- 1,850,650
Toll Road Revenue Bonds, Senior Current Interest,
Series 1998B, 0.000%, 8/15/16
1,900,000 Puerto Rico Ports Authority, Special Facilities Revenue 6/06 at 102 BBB- 2,037,807
Bonds, 1996 Series A (American Airlines, Inc. Project),
6.250%, 6/01/26 (Alternative Minimum Tax)
1,000,000 Virginia Port Authority, Port Facilities Revenue Bonds, 7/07 at 101 AAA 1,014,250
Series 1997, 5.500%, 7/01/24 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 10.4%
1,000,000 Town of Abingdon, Virginia, General Obligation Capital 8/02 at 102 A2*** 1,089,840
Improvement Bonds, Series 1992, 6.250%, 8/01/12
(Pre-refunded to 8/01/02)
750,000 Chesapeake Bay Bridge and Tunnel District, General Resolution 7/01 at 102 AAA 804,278
Revenue Bonds, Refunding Series 1991, 6.375%, 7/01/22
(Pre-refunded to 7/01/01)
1,000,000 Industrial Development Authority of Covington-Allegheny County, 4/02 at 102 N/R*** 1,088,080
Virginia, Hospital Facility Revenue Bonds (Allegheny Regional
Hospital), Series 1992, 6.625%, 4/01/12
(Pre-refunded to 4/01/02)
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Flagship Virginia Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 730,000 City of Danville, Virginia, General Improvement Bonds of Fiscal Year 5/02 at 102 A3*** $ 795,532
1991-1992, 6.500%, 5/01/12 (Pre-refunded to 5/01/02)
500,000 Fairfax County Redevelopment and Housing Authority, Virginia, Revenue 11/99 at 102 N/R*** 518,365
Bonds (Vinson Pavilion Project), 1989 Series A, 7.500%, 11/01/19
(Pre-refunded to 11/01/99)
1,355,000 Fairfax County Redevelopment and Housing Authority, Virginia, Revenue 6/02 at 102 N/R*** 1,527,058
Bonds, 1992 Issue A (FCRHA Office Building), 7.500%, 6/15/18
(Pre-refunded to 6/15/02)
150,000 Fairfax County, Virginia, Water Authority, Water Refunding Revenue 4/07 at 102 AAA 168,374
Bonds, Series 1992, 6.000%, 4/01/22 (Pre-refunded to 4/01/07)
995,000 Henrico County, Virginia, Water and Sewer System Refunding Revenue 5/02 at 100 Aa2*** 1,059,715
Bonds, Series 1992, 6.250%, 5/01/13 (Pre-refunded to 5/01/02)
250,000 Martinsville, Virginia, Industrial Development Authority, Hospital 1/01 at 100 A2*** 262,290
Facility Revenue Bonds, Memorial Hospital of Martinsville and Henry,
7.000%, 1/01/11 (Pre-refunded to 1/01/01)
2,000,000 Peninsula Ports Authority, Virginia, Health Care Facilities Revenue 8/06 at 100 BBB+*** 2,300,220
Refunding Bonds, Mary Immaculate Project, 7.000%, 8/01/17
(Pre-refunded to 8/01/06)
5,250,000 Industrial Development Authority of the County of Prince William, 10/05 at 102 Aaa 6,102,600
Virginia, Hospital Facility Revenue Bonds (Potomac Hospital
Corporation of Prince William), Series 1995, 6.850%, 10/01/25
(Pre-refunded to 10/01/05)
1,000,000 Prince William County Service Authority, Virginia, Water and Sewer 7/01 at 100 AAA 1,046,360
System Revenue Bonds, Series 1991, 6.000%, 7/01/29 (Pre-refunded to
7/01/01)
1,500,000 Richmond, Virginia, Redevelopment and Housing Authority, Project Revenue 3/05 at 102 AAA 1,714,905
Bonds (1994 Old Manchester Project), Series 1994, 6.800%, 3/01/15
(Pre-refunded to 3/01/05)
Virginia College Building Authority, Educational Facilities Revenue,
Marymount University Project:
1,000,000 7.000%, 7/01/12 (Pre-refunded to 7/01/02) 7/02 at 102 N/R*** 1,104,540
1,400,000 7.000%, 7/01/22 (Pre-refunded to 7/01/02) 7/02 at 102 N/R*** 1,546,356
Virginia College Building Authority, Educational Facilities Revenue
Bonds (The Washington and Lee University Project), Series of 1994:
580,000 5.750%, 1/01/14 (Pre-refunded to 1/01/04) 1/04 at 102 AAA 628,906
1,000,000 5.800%, 1/01/24 1/04 at 102 AAA 1,086,390
410,000 Virginia State Resource Authority, Water and Sewer System Pooled Revenue 11/99 at 102 AA*** 423,546
Bonds, Series 1986A, 7.650%, 11/01/16 (Pre-refunded to 11/01/99)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 5.6%
2,110,000 Halifax County Industrial Development Authority (Old Dominion Electric 12/02 at 102 A+ 2,248,142
Cooperative), 6.500%, 12/01/12 (Alternative Minimum Tax)
2,500,000 Mecklenburg County, Virginia, Industrial Development Authority, Exempt 5/01 at 102 Aa3 2,610,350
Facility, Mecklenburg Cogeneration Project, Series 1991A,
7.350%, 5/01/08 (Alternative Minimum Tax)
2,000,000 City of Richmond, Virginia, Public Utility Revenue and Refunding Bonds, 1/08 at 101 A+ 1,938,580
Series 1998A, 5.125%, 1/15/28
1,000,000 Industrial Development Authority of Russell County, Virginia, Pollution 11/00 at 102 Baa1 1,060,190
Control Revenue Bonds (Appalachian Power Company Project), Series G,
7.700%, 11/01/07
1,500,000 Southeastern Public Service Authority of Virginia, Senior Revenue Bonds, 7/03 at 102 A- 1,545,720
Series 1993 (Regional Solid Waste System), 6.000%, 7/01/13
(Alternative Minimum Tax)
1,000,000 Virginia State Resource Authority, Solid Waste Disposal System Revenue 11/02 at 102 AA 1,097,020
Bonds, Series B, 6.750%, 11/01/12
1,960,000 Virginia Resources Authority, Solid Waste Disposal System Revenue Bonds 4/05 at 102 AA 2,009,372
(County of Prince William, Virginia - Refunding), 1995 Series A,
5.500%, 4/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 10.7%
1,000,000 Blacksburg (Virginia), Polytechnic Institute Sanitation Authority 11/02 at 102 A 1,091,300
(Virginia), Sewer System Revenue Bonds, Series of 1992,
6.250%, 11/01/12
Fairfax County (Virginia), Water Authority, Water Refunding Revenue
Bonds, Series 1992:
850,000 6.000%, 4/01/22 4/07 at 102 AA 924,452
1,625,000 5.750%, 4/01/29 4/02 at 100 AA 1,672,613
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer (continued)
$ 1,000,000 Frederick-Winchester Service Authority (Virginia), Regional Sewer System 10/03 at 102 AAA $ 1,046,060
Refunding Revenue Bonds, Series 1993, 5.750%, 10/01/15
1,505,000 Henrico County (Virginia), Water and Sewer System Refunding Revenue 5/02 at 100 Aa2 1,585,006
Bonds, Series 1992, 6.250%, 5/01/13
4,250,000 Leesburg (Virginia), Utility System Revenue Refunding Bonds, 7/07 at 102 AAA 4,181,958
5.125%, 7/01/22
1,000,000 Loudoun County Sanitation Authority (Virginia), Water and Sewer System 1/03 at 102 AAA 1,083,290
Revenue Bonds, Refunding Series 1992, 6.250%, 1/01/16
1,000,000 Loudoun County Sanitation Authority (Virginia), Water and Sewer System 1/07 at 102 AAA 982,850
Revenue Bonds, Refunding Series 1996, 5.125%, 1/01/26
2,500,000 Loudoun County Sanitation Authority (Virginia), Water and Sewer System 1/09 at 102 AAA 2,291,049
Revenue Bonds, Series 1998, 4.750%, 1/01/30
1,500,000 Prince William County Service Authority (Virginia), Water and Sewer 7/08 at 101 AAA 1,386,044
System Refunding Revenue Bonds, Series 1997, 4.750%, 7/01/29
4,000,000 Upper Occoquan Sewage Authority (Virginia), Regional Sewerage System 1/04 at 102 AAA 3,867,399
Revenue Refunding Bonds, Series of 1993, 5.000%, 7/01/21
1,000,000 Virginia Resources Authority, Sewer System Revenue Bonds, 1995 Series A 10/05 at 102 AA 1,063,589
(Hopewell Regional Wastewater Treatment Facility Project),
6.000%, 10/01/25 (Alternative Minimum Tax)
1,000,000 Virginia Resources Authority, Water and Sewer System Revenue Bonds, 1995 10/05 at 102 AA 1,082,599
Series A (Sussex County Project), 5.600%, 10/01/25
1,500,000 Virginia Resources Authority, Water and Sewer System Refunding Revenue 4/02 at 100 AA 1,575,179
Bonds, 1992 Series A, 6.125%, 4/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
$214,865,000 Total Investments - (cost $207,326,496) - 98.5% 220,516,882
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 3,250,163
-------------------------------------------------------------------------------------------------------------------
Net Assets 100% $223,767,045
===================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices
at later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to
be equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
25
<PAGE>
Statement of Net Assets
May 31, 1999
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $72,862,883 $152,325,090 $220,516,882
Cash 993,862 -- --
Receivables:
Interest 1,524,701 2,547,104 4,050,106
Shares sold 197,928 145,940 216,282
Other assets 62,655 131,028 145,909
- -----------------------------------------------------------------------------------------------------------------
Total assets 75,642,029 155,149,162 224,929,179
- -----------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- 430,809 11,123
Payables:
Investments purchased -- 1,219,100 --
Shares redeemed 54,600 90,591 591,084
Accrued expenses:
Management fees (note 6) 32,113 18,342 87,054
12b-1 distribution and service fees (notes 1 and 6) 9,403 26,410 43,217
Other 39,864 37,321 38,128
Dividends payable 181,772 284,198 391,528
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 317,752 2,106,771 1,162,134
- -----------------------------------------------------------------------------------------------------------------
Net assets (note 7) $75,324,277 $153,042,391 $223,767,045
=================================================================================================================
Class A Shares (note 1)
Net assets $22,092,626 $ 70,865,040 $138,940,871
Shares outstanding 2,111,989 6,780,803 12,707,661
Net asset value and redemption price per share $ 10.46 $ 10.45 $ 10.93
Offering price per share (net asset value per share plus maximum sales
charge of 4.20% of offering price) $ 10.92 $ 10.91 $ 11.41
=================================================================================================================
Class B Shares (note 1)
Net assets $ 4,731,691 $ 7,966,056 $ 10,419,054
Shares outstanding 452,102 760,809 953,686
Net asset value, offering and redemption price per share $ 10.47 $ 10.47 $ 10.93
=================================================================================================================
Class C Shares (note 1)
Net assets $ 4,089,393 $ 13,167,132 $ 17,678,623
Shares outstanding 390,962 1,261,491 1,618,237
Net asset value, offering and redemption price per share $ 10.46 $ 10.44 $ 10.92
=================================================================================================================
Class R Shares (note 1)
Net assets $44,410,567 $ 61,044,163 $ 56,728,497
Shares outstanding 4,236,689 5,844,477 5,191,058
Net asset value, offering and redemption price per share $ 10.48 $ 10.44 $ 10.93
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
Statement of Operations
Year Ended May 31, 1999
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (note 1) $ 4,010,907 $ 8,392,849 $12,452,492
- -----------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 395,007 808,227 1,195,842
12b-1 service fees - Class A (notes 1 and 6) 39,229 137,788 273,937
12b-1 distribution and service fees - Class B (notes 1 and 6) 34,859 51,898 68,330
12b-1 distribution and service fees - Class C (notes 1 and 6) 25,426 84,233 129,361
Shareholders' servicing agent fees and expenses 64,260 105,338 140,620
Custodian's fees and expenses 60,294 63,437 80,067
Trustees' fees and expenses (note 6) 2,256 2,866 3,838
Professional fees 11,816 15,528 14,815
Shareholders' reports - printing and mailing expenses 54,027 65,719 67,606
Federal and state registration fees 8,548 18,687 8,063
Other expenses 3,377 9,299 11,307
- -----------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 699,099 1,363,020 1,993,786
Custodian fee credit (note 1) (13,684) (6,072) (9,134)
Expense reimbursement (note 6) (47,257) (361,812) (71,949)
- -----------------------------------------------------------------------------------------------------------------
Net expenses 638,158 995,136 1,912,703
- -----------------------------------------------------------------------------------------------------------------
Net investment income 3,372,749 7,397,713 10,539,789
- -----------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain from investment transactions (notes 1 and 4) 571,636 395,831 944,358
Net change in unrealized appreciation or depreciation of investments (1,379,409) (2,967,385) (3,060,934)
- -----------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (807,773) (2,571,554) (2,116,576)
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 2,564,976 $ 4,826,159 $ 8,423,213
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Maryland
---------------------------------
Year Ended Year Ended
5/31/99 5/31/98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 3,372,749 $ 3,014,635
Net realized gain from investment transactions (notes 1 and 4) 571,636 38,164
Net change in unrealized appreciation or depreciation
of investments (1,379,409) 1,872,963
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 2,564,976 4,925,762
- -------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (887,278) (744,781)
Class B (136,626) (45,159)
Class C (133,784) (91,846)
Class R (2,124,331) (2,152,261)
From accumulated net realized gains from investment transactions:
Class A -- --
Class B -- --
Class C -- --
Class R -- --
- -------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (3,282,019) (3,034,047)
- -------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 12,748,209 9,987,470
Net proceeds from shares issued to shareholders due
to reinvestment of distributions 2,071,522 2,015,880
- -------------------------------------------------------------------------------------------------------------
14,819,731 12,003,350
Cost of shares redeemed (5,741,563) (5,468,111)
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 9,078,168 6,535,239
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets 8,361,125 8,426,954
Net assets at the beginning of year 66,963,152 58,536,198
- -------------------------------------------------------------------------------------------------------------
Net assets at the end of year $75,324,277 $66,963,152
=============================================================================================================
Balance of undistributed net investment
income at the end of year $ 108,787 $ 18,057
=============================================================================================================
See accompanying notes to financial statements.
</TABLE>
_____
28
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Virginia
--------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
5/31/99 5/31/98 5/31/99 5/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 7,397,713 $ 6,884,447 $ 10,539,789 $ 10,446,823
Net realized gain from investment transactions (notes 1 and 4) 395,831 1,203,144 944,358 382,323
Net change in unrealized appreciation or depreciation
of investments (2,967,385) 4,263,803 (3,060,934) 7,151,615
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 4,826,159 12,351,394 8,423,213 17,980,761
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (3,437,714) (3,203,991) (6,603,088) (6,589,893)
Class B (227,324) (49,039) (288,055) (72,610)
Class C (503,249) (346,415) (739,016) (637,996)
Class R (3,234,496) (3,306,035) (2,930,514) (3,128,186)
From accumulated net realized gains from investment transactions:
Class A (380,650) (123,729) (354,974) (116,144)
Class B (30,257) (1,903) (18,678) (1,295)
Class C (63,063) (14,187) (44,664) (12,972)
Class R (342,018) (122,743) (150,604) (53,068)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (8,218,771) (7,168,042) (11,129,593) (10,612,164)
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 26,410,992 20,611,181 33,800,119 26,410,433
Net proceeds from shares issued to shareholders due
to reinvestment of distributions 3,885,514 4,302,789 5,206,747 6,677,292
- ------------------------------------------------------------------------------------------------------------------------------------
30,296,506 24,913,970 39,006,866 33,087,725
Cost of shares redeemed (12,419,924) (11,137,451) (24,787,027) (19,538,617)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 17,876,582 13,776,519 14,219,839 13,549,108
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 14,483,970 18,959,871 11,513,459 20,917,705
Net assets at the beginning of year 138,558,421 119,598,550 212,253,586 191,335,881
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $153,042,391 $138,558,421 $223,767,045 $212,253,586
====================================================================================================================================
Balance of undistributed net investment
income at the end of year $ 1,117 $ 6,187 $ 3,265 $ 24,149
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust I (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Maryland Municipal Bond Fund ("Maryland"), the Nuveen
Flagship Pennsylvania Municipal Bond Fund ("Pennsylvania") and the Nuveen
Flagship Virginia Municipal Bond Fund ("Virginia") (collectively, the "Funds"),
among others. The Trust was organized as a Massachusetts business trust on July
1, 1996.
The Funds seek to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. Temporary investments in securities that have variable rate and
demand features qualifying them as short-term securities are valued at amortized
cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. Any securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At May
31, 1999, Pennsylvania had an outstanding when-issued purchase commitment of
$1,219,100. There were no such outstanding purchase commitments in either of the
other funds.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared monthly as a dividend 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
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Funds
currently consider significant net realized capital gains and/or market discount
as amounts in excess of $.001 per share. Furthermore, the Funds intend to
satisfy conditions which will enable interest from municipal securities, which
is exempt from regular federal and designated state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Funds. All
monthly tax-exempt income dividends paid during the fiscal year ended May 31,
1999, have been designated Exempt Interest Dividends. Net realized capital gain
and market discount distributions are subject to federal taxation.
30
<PAGE>
Flexible Sales Charge Program
Each Fund offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 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 only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended May 31, 1999.
Expense Allocation
Expenses of the Funds that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares, which presently only
includes 12b-1 distribution and service fees, are recorded to the specific
class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby the custodian fees
and expenses are reduced by credits earned on each Fund's cash on deposit with
the bank. Such deposit arrangements are an alternative to overnight investments.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Maryland
-------------------------------------------------
Year Ended 5/31/99 Year Ended 5/31/98
----------------------- -----------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 577,632 $ 6,112,774 464,364 $ 4,845,395
Class B 235,116 2,495,746 213,521 2,237,985
Class C 187,416 1,988,761 68,184 714,237
Class R 203,056 2,150,928 209,535 2,189,853
Shares issued to shareholders due to reinvestment of distributions:
Class A 57,622 611,952 53,642 561,120
Class B 5,480 58,201 1,687 17,707
Class C 8,572 91,026 6,886 71,952
Class R 123,134 1,310,343 130,430 1,365,101
- -----------------------------------------------------------------------------------------------------------------------
1,398,028 14,819,731 1,148,249 12,003,350
- -----------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (173,380) (1,842,288) (134,447) (1,409,630)
Class B (9,376) (99,303) (8,959) (93,717)
Class C (51,865) (546,993) (33,614) (349,287)
Class R (305,927) (3,252,979) (345,224) (3,615,477)
- -----------------------------------------------------------------------------------------------------------------------
(540,548) (5,741,563) (522,244) (5,468,111)
- -----------------------------------------------------------------------------------------------------------------------
Net increase 857,480 $ 9,078,168 626,005 $ 6,535,239
=======================================================================================================================
</TABLE>
31
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Pennsylvania
------------------------------------------------------------
Year Ended 5/31/99 Year Ended 5/31/98
----------------------------- ----------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,042,066 $ 11,085,436 1,036,447 $ 10,930,439
Class B 556,149 5,925,032 223,667 2,375,027
Class C 466,677 4,965,788 290,257 3,081,110
Class R 417,495 4,434,736 401,273 4,224,605
- -------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders due to reinvestment of distributions:
Class A 127,403 1,358,196 172,750 1,815,747
Class B 6,887 73,512 2,572 27,340
Class C 14,586 155,250 25,872 271,646
Class R 215,836 2,298,556 207,616 2,188,056
- -------------------------------------------------------------------------------------------------------------------------------
2,847,099 30,296,506 2,360,454 24,913,970
- -------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (549,431) (5,838,055) (477,420) (5,039,815)
Class B (48,814) (522,051) (1,898) (20,305)
Class C (54,534) (578,008) (98,010) (1,035,568)
Class R (516,487) (5,481,810) (477,624) (5,041,763)
- -------------------------------------------------------------------------------------------------------------------------------
(1,169,266) (12,419,924) (1,054,952) (11,137,451)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase 1,677,833 $ 17,876,582 1,305,502 $ 13,776,519
===============================================================================================================================
Virginia
------------------------------------------------------------
Year Ended 5/31/99 Year Ended 5/31/98
----------------------------- ----------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,781,027 $ 19,736,719 1,437,801 $ 15,756,900
Class B 605,747 6,716,554 326,829 3,585,765
Class C 421,265 4,668,341 363,753 3,972,294
Class R 241,908 2,678,505 282,345 3,095,474
Shares issued to shareholders due to reinvestment of distributions:
Class A 261,217 2,903,901 370,069 4,035,466
Class B 14,259 158,363 3,820 41,944
Class C 23,019 255,663 59,523 649,924
Class R 169,963 1,888,820 178,519 1,949,958
- -------------------------------------------------------------------------------------------------------------------------------
3,518,405 39,006,866 3,022,659 33,087,725
- -------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,444,306) (16,020,885) (1,169,518) (12,775,202)
Class B (18,515) (205,614) (14,233) (156,135)
Class C (242,411) (2,672,615) (105,398) (1,154,489)
Class R (531,239) (5,887,913) (499,196) (5,452,791)
- -------------------------------------------------------------------------------------------------------------------------------
(2,236,471) (24,787,027) (1,788,345) (19,538,617)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase 1,281,934 $ 14,219,839 1,234,314 $ 13,549,108
===============================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid on July 1, 1999, to shareholders of record on June 9,
1999, as follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- --------------------------------------------------------------------------------
Dividend per share:
<S> <C> <C> <C>
Class A $.0405 $.0430 $.0435
Class B .0335 .0365 .0365
Class C .0355 .0385 .0385
Class R .0420 .0450 .0455
================================================================================
</TABLE>
32
<PAGE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal securities for the fiscal year ended May 31,
1999, were as follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- --------------------------------------------------------------------------------
Purchases:
<S> <C> <C> <C>
Long-term municipal securities $29,023,994 $44,032,604 $47,782,805
Short-term municipal securities 1,400,000 29,200,000 6,600,000
Sales:
Long-term municipal securities 20,741,225 26,505,673 32,802,744
Short-term municipal securities 1,400,000 30,200,000 7,600,000
================================================================================
</TABLE>
At May 31, 1999, 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, 1999, Maryland had an unused capital loss carryforward of $22,799
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)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1999, were as follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- --------------------------------------------------------------------------------
Gross unrealized:
<S> <C> <C> <C>
appreciation $3,029,045 $7,321,348 $13,854,830
depreciation (360,224) (729,995) (664,444)
- --------------------------------------------------------------------------------
Net unrealized appreciation $2,668,821 $6,591,353 $13,190,386
================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with Nuveen Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
- --------------------------------------------------------------------------------
<S> <C>
For the first $125 million .5500 of 1%
For the next $125 million .5375 of 1
For the next $250 million .5250 of 1
For the next $500 million .5125 of 1
For the next $1 billion .5000 of 1
For net assets over $2 billion .4750 of 1
================================================================================
</TABLE>
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to its officers, all of whom receive remuneration for their services
to the Trust from the Adviser or its affiliates.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
33
<PAGE>
Notes to Financial Statements (continued)
During the fiscal year ended May 31, 1999, John Nuveen & Co. Incorporated (the
"Distributor"), a wholly owned subsidiary of The John Nuveen Company, collected
sales charges on purchases of Class A Shares, the majority of which were paid
out as concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales charges collected $122,337 $223,813 $419,012
Paid to authorized dealers 103,713 204,837 366,627
===============================================================================
</TABLE>
The Distributor also received 12b-1 service fees on Class A Shares,
substantially all of which were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 1999, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase as
follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Commission advances $119,242 $288,171 $321,047
===============================================================================
</TABLE>
To compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase, all
12b-1 distribution fees on Class B Shares, and all 12b-1 service and
distribution fees on Class C Shares during the first year following a purchase
are retained by the Distributor. During the fiscal year ended May 31, 1998, the
Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
12b-1 fees retained $43,598 $88,258 $109,765
===============================================================================
</TABLE>
The remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained CDSC on share redemptions during the
fiscal year ended May 31, 1999, as follows:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CDSC retained $1,569 $9,124 $8,001
===============================================================================
</TABLE>
7. Composition of Net Assets
At May 31, 1999, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Maryland Pennsylvania Virginia
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital paid-in $72,569,469 $146,078,216 $210,431,337
Balance of undistributed net investment income 108,787 1,117 3,265
Accumulated net realized gain (loss) from investment transactions (22,800) 371,705 142,057
Net unrealized appreciation of investments 2,668,821 6,591,353 13,190,386
- ---------------------------------------------------------------------------------------------------------------
Net assets $75,324,277 $153,042,391 $223,767,045
===============================================================================================================
</TABLE>
34
<PAGE>
Financial Highlights
35
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
---------------------------------- -----------------------------
MARYLAND Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
May 31, Value Income (a) (Loss) Total Income Gains Total Value Return (b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1999 $10.56 $.49 $ (.11) $ .38 $(.48) $ -- $(.48) $10.46 3.65%
1998 10.25 .48 .32 .80 (.49) -- (.49) 10.56 7.95
1997 (c) 10.25 .16 .01 .17 (.17) -- (.17) 10.25 1.63
1997 (d) 10.43 .46 (.15) .31 (.49) -- (.49) 10.25 3.06
1996 (d) 9.60 .48 .85 1.33 (.50) -- (.50) 10.43 14.07
1995 (e) 9.84 .20 (.23) (.03) (.21) -- (.21) 9.60 (.26)
Class B (3/97)
1999 10.56 .41 (.10) .31 (.40) -- (.40) 10.47 2.95
1998 10.25 .41 .31 .72 (.41) -- (.41) 10.56 7.16
1997 (f) 10.29 .10 (.04) .06 (.10) -- (.10) 10.25 .83
Class C (9/94)
1999 10.56 .43 (.11) .32 (.42) -- (.42) 10.46 3.07
1998 10.24 .43 .32 .75 (.43) -- (.43) 10.56 7.44
1997 (c) 10.24 .15 -- .15 (.15) -- (.15) 10.24 1.43
1997 (d) 10.42 .39 (.16) .23 (.41) -- (.41) 10.24 2.28
1996 (d) 9.59 .41 .84 1.25 (.42) -- (.42) 10.42 13.24
1995 (e) 9.75 .16 (.15) .01 (.17) -- (.17) 9.59 .12
Class R (12/91)
1999 10.58 .51 (.11) .40 (.50) -- (.50) 10.48 3.82
1998 10.26 .51 .32 .83 (.51) -- (.51) 10.58 8.23
1997 (c) 10.26 .17 -- .17 (.17) -- (.17) 10.26 1.68
1997 (d) 10.44 .47 (.14) .33 (.51) -- (.51) 10.26 3.29
1996 (d) 9.61 .51 .84 1.35 (.52) -- (.52) 10.44 14.33
1995 (d) 10.62 .51 (1.01) (.50) (.51) -- (.51) 9.61 (4.58)
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Credit/ Before Credit/ After Credit/ After Credit/ Portfolio
Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
(000) ment ment ment (a) ment (a) Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1999 $22,093 1.04% 4.55% .95% 4.64% 29%
1998 17,427 1.00 4.56 .94 4.62 7
1997 (c) 12,977 1.02* 4.83* .95* 4.90* 3
1997 (d) 11,788 1.12 4.67 1.00 4.79 4
1996 (d) 6,860 1.33 4.41 1.00 4.74 17
1995 (e) 1,605 1.59* 4.67* 1.00* 5.26* 35
Class B (3/97)
1999 4,732 1.80 3.81 1.71 3.90 29
1998 2,332 1.75 3.79 1.69 3.85 7
1997 (f) 150 1.76* 3.94* 1.70* 4.00* 3
Class C (9/94)
1999 4,089 1.59 4.01 1.50 4.10 29
1998 2,606 1.55 4.01 1.49 4.07 7
1997 (c) 2,103 1.57* 4.28* 1.50* 4.35* 3
1997 (d) 1,985 1.87 3.93 1.75 4.05 4
1996 (d) 1,438 2.06 3.73 1.75 4.04 17
1995 (e) 860 1.86* 4.44* 1.75* 4.55* 35
Class R (12/91)
1999 44,411 .83 4.75 .75 4.83 29
1998 44,599 .80 4.76 .74 4.82 7
1997 (c) 43,306 .82* 5.03* .75* 5.10* 3
1997 (d) 43,738 .87 4.94 .75 5.06 4
1996 (d) 47,389 1.04 4.78 .75 5.07 17
1995 (d) 42,741 .89 5.14 .75 5.28 35
==============================================================================================================
</TABLE>
* Annualized.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(c) For the four months ended May 31.
(d) For the year ended January 31.
(e) From commencement of class operations as noted through January 31.
(f) From commencement of class operations as noted.
36
<PAGE>
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
---------------------------------- ----------------------------
PENNSYLVANIA** Net Realized/
Beginning Net Unrealized Net Ending
Year Ended Net Asset Investment Investment Investment Capital Net Asset Net Total
May 31, Value Income (a) Gain (Loss) Total Income Gains Total Value Return (b)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (10/86)
1999 $10.68 $.53 $(.17) $ .36 $(.53) $(.06) $(.59) $10.45 3.42%
1998 10.25 .56 .45 1.01 (.56) (.02) (.58) 10.68 10.05
1997 10.00 .57 .25 .82 (.57) -- (.57) 10.25 8.37
1996 10.21 .59 (.20) .39 (.60) -- (.60) 10.00 3.83
1995 10.06 .60 .16 .76 (.61) -- (.61) 10.21 7.90
Class B (2/97)
1999 10.70 .45 (.17) .28 (.45) (.06) (.51) 10.47 2.66
1998 10.27 .48 .45 .93 (.48) (.02) (.50) 10.70 9.23
1997 (c) 10.21 .16 .06 .22 (.16) -- (.16) 10.27 2.18
Class C (2/94)
1999 10.68 .47 (.17) .30 (.48) (.06) (.54) 10.44 2.80
1998 10.25 .50 .45 .95 (.50) (.02) (.52) 10.68 9.50
1997 9.99 .51 .26 .77 (.51) -- (.51) 10.25 7.88
1996 10.21 .53 (.21) .32 (.54) -- (.54) 9.99 3.16
1995 10.06 .54 .16 .70 (.55) -- (.55) 10.21 7.31
Class R (2/97)
1999 10.68 .55 (.17) .38 (.56) (.06) (.62) 10.44 3.55
1998 10.25 .58 .45 1.03 (.58) (.02) (.60) 10.68 10.30
1997 (c) 10.21 .20 .03 .23 (.19) -- (.19) 10.25 2.31
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income
to Average to Average to Average to Average
Net Assets Net Assets Net Assets Net Assets Portfolio
Year Ended Ending Net Before Credit/ Before Credit/ After Credit/ After Credit/ Turnover
May 31, Assets (000) Reimbursement Reimbursement Reimbursement Reimbursement Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (10/86)
1999 $70,865 .94% 4.75% .69% 5.00% 18%
1998 65,826 .95 4.94 .61 5.28 20
1997 55,667 1.09 5.22 .70 5.61 46
1996 44,392 1.13 5.42 .79 5.76 65
1995 42,600 1.29 5.68 .89 6.08 50
Class B (2/97)
1999 7,966 1.70 4.01 1.45 4.26 18
1998 2,640 1.70 4.14 1.34 4.50 20
1997 (c) 229 1.72* 4.47* 1.35* 4.84* 46
Class C (2/94)
1999 13,167 1.49 4.21 1.24 4.46 18
1998 8,912 1.50 4.39 1.16 4.73 20
1997 6,320 1.63 4.68 1.25 5.06 46
1996 4,442 1.34 5.19 1.68 4.85 65
1995 3,118 1.39 5.50 1.84 5.05 50
Class R (2/97)
1999 61,044 .74 4.95 .49 5.20 18
1998 61,180 .75 5.14 .41 5.48 20
1997 (c) 57,383 .77* 5.45* .39* 5.83* 46
=========================================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Pennsylvania.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
37
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
Class (Inception Date)
<TABLE>
<CAPTION>
Investment Operations Less Distributions
---------------------------------- -----------------------------
VIRGINIA** Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
May 31, Value Income (a) (Loss) Total Income Gains Total Value Return (b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1999 $11.06 $.53 $(.10) $ .43 $(.53) $(.03) $(.56) $10.93 3.95%
1998 10.66 .56 .41 .97 (.56) (.01) (.57) 11.06 9.30
1997 10.40 .58 .25 .83 (.57) -- (.57) 10.66 8.20
1996 10.56 .57 (.15) .42 (.58) -- (.58) 10.40 4.03
1995 10.36 .59 .20 .79 (.59) -- (.59) 10.56 7.99
Class B (2/97)
1999 11.06 .45 (.10) .35 (.45) (.03) (.48) 10.93 3.20
1998 10.66 .48 .41 .89 (.48) (.01) (.49) 11.06 8.53
1997 (c) 10.62 .16 .04 .20 (.16) -- (.16) 10.66 1.94
Class C (10/93)
1999 11.06 .47 (.11) .36 (.47) (.03) (.50) 10.92 3.30
1998 10.65 .50 .42 .92 (.50) (.01) (.51) 11.06 8.81
1997 10.39 .52 .26 .78 (.52) -- (.52) 10.65 7.61
1996 10.56 .51 (.16) .35 (.52) -- (.52) 10.39 3.37
1995 10.36 .53 .20 .73 (.53) -- (.53) 10.56 7.40
Class R (2/97)
1999 11.06 .56 (.10) .46 (.56) (.03) (.59) 10.93 4.18
1998 10.66 .59 .41 1.00 (.59) (.01) (.60) 11.06 9.54
1997 (c) 10.62 .20 .04 .24 (.20) -- (.20) 10.66 2.26
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
Ratio of Investment Ratio of Investment
Expenses Income Expenses Income to
to Average to Average to Average Average
Ending Net Assets Net Assets Net Assets Net Assets
Net Before Credit/ Before Credit/ After Credit/ After Credit/ Portfolio
Assets Reimburse- Reimburse- Reimburse- Reimburse- Turnover
(000) ment ment ment (a) ment (a) Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1999 $138,941 .89% 4.78% .86% 4.81% 15%
1998 133,966 .90 4.99 .74 5.15 3
1997 122,252 1.00 5.19 .74 5.45 23
1996 117,677 1.06 5.18 .83 5.41 17
1995 112,643 1.10 5.50 .79 5.81 50
Class B (2/97)
1999 10,419 1.64 4.03 1.61 4.06 15
1998 3,894 1.64 4.20 1.51 4.33 3
1997 (c) 381 1.66* 4.49* 1.47* 4.68* 23
Class C (10/93)
1999 17,679 1.44 4.23 1.41 4.26 15
1998 15,660 1.44 4.44 1.29 4.59 3
1997 11,700 1.55 4.63 1.29 4.89 23
1996 10,978 1.60 4.62 1.38 4.84 17
1995 6,537 1.65 4.93 1.34 5.24 50
Class R (2/97)
1999 56,728 .69 4.99 .66 5.02 15
1998 58,734 .70 5.19 .54 5.35 3
1997 (c) 57,002 .71* 5.50* .52* 5.69* 23
==============================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Virginia.
(a) After custodian fee credit and expense reimbursement, where applicable
(notes 1 and 6).
(b) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(c) From commencement of class operations as noted.
38
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust I:
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Maryland Municipal Bond Fund (Maryland),
Nuveen Flagship Pennsylvania Municipal Bond Fund (Pennsylvania), and Nuveen
Flagship Virginia Municipal Bond Fund (Virginia) (collectively, the "Funds")
(three of the portfolios constituting the Nuveen Flagship Multistate Trust I (a
Massachusetts business trust)), as of May 31, 1999, the related statements of
operations for the year then ended, and the statements of changes in net assets
and the financial highlights for each of the two years then ended. We have also
audited the financial statements and financial highlights of Maryland for the
years ended January 31, 1997 and prior. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1999, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers and, when
replies were not received, we carried out alternative auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of the Nuveen
Maryland Municipal Bond Fund, Nuveen Flagship Pennsylvania Municipal Bond Fund,
and Nuveen Flagship Virginia Municipal Bond Fund of the Nuveen Flagship
Multistate Trust I as of May 31, 1999, and the results of their operations for
the year then ended, and the changes in their net assets and the financial
highlights for each of the two years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 20, 1999
39
<PAGE>
Building a Better Portfolio
Can Make You a Successful Investor
Nuveen Family
of Mutual Funds
Nuveen offers a variety of
funds designed to
help you reach your
financial goals.
Growth
Nuveen Rittenhouse Growth Fund
Growth and
Income
European Value Fund
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Dividend and
Growth Fund
Income
Income Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Successful investors know that a well-diversified portfolio -- one that balances
different types of investments, levels of risk and tax management -- can be the
foundation for building and sustaining wealth. That's why Nuveen offers you
and your financial adviser a wide range of quality investments that can help
you build a better portfolio in the pursuit of your financial goals.
Mutual Funds
Nuveen offers a family of equity, balanced and municipal bond funds featuring
Premier Advisers/SM/ including Institutional Capital Corporation, Rittenhouse
Financial Services, and Nuveen Advisory Corp. Each brings a specialized
expertise in a particular investment style or asset class, time-tested
investment strategies and a focus on consistent, long-term performance. With
Nuveen's Premier Adviser funds, you have all the advantages of a family of funds
plus the benefits of specialized investment expertise.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more to invest. A range of actively managed growth, balanced and municipal
income-oriented portfolios are available, all based upon a disciplined
investment philosophy.
Defined Portfolios
Nuveen Defined Portfolios are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, while also offering
experienced, professional security selection and surveillance. In addition,
Nuveen Defined Portfolios provide daily liquidity at that day's net asset value
for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
quality municipal bonds. The fund shares are listed and traded on the New York
and American stock exchanges. Exchange-traded funds provide the investment
convenience, price visibility and liquidity of common stocks.
MuniPreferred/(R)/
Nuveen MuniPreferred offers investors a AAA rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
40
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
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
Chase Global Fund Services Company
P.O. Box 5186
New York, NY 10274
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
41
<PAGE>
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
quality investments designed for individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them pursue their financial goals.
The cornerstone of Nuveen's investment philosophy is a commitment to
disciplined long-term investment strategies whose aim is to provide consistent,
competitive 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 income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. Our growth,
growth and income, income, and tax-free funds, along with our defined portfolios
and private asset management, can help you build a better, well-diversified
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you. Or call us at (800) 257-8787 for more
information, including a prospectus where applicable. Please read that
information carefully before investing.
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
VAN-1-5-99
<PAGE>
PART C--OTHER INFORMATION
Item 22: Financial Statements.
Financial statements:
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information through incorporation
by reference to each Fund's most recent Annual and Semi-Annual Reports:
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets.
Report of Independent Public Accountants
Item 23: Exhibits.
(b) Exhibits:
<TABLE>
<C> <S> <C>
a.1 Declaration of Trust of Registrant. Filed as Exhibit 1(a) to
Registrant's Registration Statement on Form N-1A (File No.
333-16617) and incorporated herein by reference thereto.
a.2 Amended and Restated Establishment and Designation of Series
of Shares of Beneficial Interest dated October 11, 1996. Filed
as Exhibit 1(b) to Registrant's Registration Statement on Form
N-1A (File No. 333-16617) and incorporated herein by reference
thereto.
a.3 Certificate for the Establishment and Designation of Classes
dated July 10, 1996. Filed as Exhibit 1(c) to Registrant's
Registration Statement on Form N-1A (File No. 333-16617) and
incorporated herein by reference thereto.
a.4 Incumbency Certificate. Filed as Exhibit 1(d) to Post-Effec-
tive Amendment No. 1 to Registrant's Registration Statement on
Form N-1A (File No. 333-16617) and incorporated herein by ref-
erence thereto.
b. By-Laws of Registrant. Filed as Exhibit 2 to Registrant's Reg-
istration Statement on Form N-1A (File No. 333-16617) and in-
corporated herein by reference thereto.
b.1 Amendment to By-Laws.
c. Specimen certificates of Shares of each Fund. Filed as Exhibit
4 to Registrant's Registration Statement on Form N-1A (File
No. 333-16617) and incorporated herein by reference thereto.
d.1 Investment Management Agreement between Registrant and Nuveen
Advisory Corp. Filed as Exhibit 5 to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 333-16617) and incorporated herein by reference
thereto.
d.2 Renewal of Investment Management Agreement dated May 2, 1999.
e.1 Distribution Agreement between Registrant and John Nuveen &
Co. Incorporated. Filed as Exhibit 6 to Post-Effective Amend-
ment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 333-16617) and incorporated herein by reference
thereto.
e.2 Renewal of Distribution Agreement dated July 30, 1999.
f. Not applicable.
g. Custodian Agreement between Registrant and Chase Manhattan
Bank. Filed as Exhibit 8 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No.
333-16617) and incorporated herein by reference thereto.
h. Transfer Agency Agreement between Registrant and Chase Global
Funds Services Company. Filed as Exhibit h to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A (File No. 333-16617) and incorporated by reference there-
to.
i. Opinion of Morgan, Lewis, and Bockius LLP.
j. Consent of Arthur Andersen LLP, Independent Public Accoun-
tants.
k. Not applicable.
l. Not applicable.
m. Amended Plan of Distribution and Service Pursuant to Rule 12b-
1 for the Class A Shares, Class B Shares and Class C Shares of
each Fund.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
o. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Ex-
hibit 18 to Registrant's Registration Statement on Form N-1A
(File No. 333-16617) and incorporated herein by reference
thereto.
99(a). Original Powers of Attorney for each Director authorizing,
among others, Gifford R. Zimmerman and Larry W. Martin to exe-
cute the Registration Statement on his or her behalf. Filed as
Exhibit 99(a) to Post-Effective Amendment No. 1 to Regis-
trant's Registration Statement on Form N-1A (File No. 333-
16617) and incorporated herein by reference thereto.
99(b). Certified copy of Resolution of Board of Trustees authorizing
the signing of the names of trustees and officers on the Reg-
istrant's Registration Statement pursuant to power of attor-
ney.
99(c). Code of Ethics and Reporting Requirements. Filed as Exhibit
99(c) to Post-Effective Amendment No. 1 to Registrant's Regis-
tration Statement on Form N-1A (File No. 333-16617) and incor-
porated herein by reference thereto.
</TABLE>
Item 24: Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 25: Indemnification
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
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<PAGE>
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she shall have had reasonable cause to believe this conduct was
unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 26: Business and Other Connections of Investment Adviser
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Nuveen
Taxable Funds Inc., Nuveen Municipal Money Market Fund, Inc., and Nuveen Money
Market Trust. It also serves as investment adviser to the following closed-end
management type investment companies: Nuveen Municipal Value Fund, Inc., Nuveen
California Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund,
Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund,
Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen California
Performance Plus Municipal Fund, Inc., Nuveen New York Performance Plus
Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal
Market Opportunity Fund, Inc., Nuveen California Municipal Market Opportunity
Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen California
Investment Quality Municipal Fund, Inc., Nuveen New York Investment Quality
Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc., Nuveen
Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment Quality
Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal Fund,
Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select Quality
Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund, Inc.,
Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund, Nuveen
Georgia Premium Income Municipal Fund, Nuveen Missouri Premium Income Municipal
Fund, Nuveen North Carolina Premium Income Municipal Fund,
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<PAGE>
Nuveen California Premium Income Municipal Fund, Nuveen Insured Premium Income
Municipal Fund 2, Nuveen Dividend Advantage Municipal Fund, Nuveen California
Dividend Advantage Municipal Fund and Nuveen New York Dividend Advantage
Municipal Fund. Nuveen Advisory Corp. has no other clients or business at the
present time. The principal business address for all of these investment
companies is 333 West Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Schwertfeger has, during the last two years, been
Chairman and formerly Executive Vice President and Director of the John Nuveen
Company, John Nuveen & Co. Incorporated, and Nuveen Institutional Advisory
Corp.; Chairman and Director (since January 1997) of Nuveen Asset Management,
Inc., Director (since 1996) of Institutional Capital Corporation; Chairman and
Director of Rittenhouse Financial Services, Inc.
Item 27: Principal Underwriters
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies: Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship
Municipal Trust, Nuveen Municipal Money Market Fund Inc., Nuveen Taxable Funds
Inc., Nuveen Money Market Trust, Nuveen Investment Trust, Nuveen Investment
Trust II, and Nuveen Investment Trust III. Nuveen also acts as depositor and
principal underwriter of the Nuveen Tax-Free Unit Trust and the Nuveen Unit
Trust, registered unit investment trusts. Nuveen has also served or is serving
as co-managing underwriter to the following closed-end management type
investment companies: Nuveen Municipal Value Fund, Inc., Nuveen California
Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen
Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen
Performance Plus Municipal Fund, Inc., Nuveen California Performance Plus
Municipal Fund, Inc., Nuveen New York Performance Plus Municipal Fund, Inc.,
Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal Market Opportunity
Fund, Inc., Nuveen California Municipal Market Opportunity Fund, Inc., Nuveen
Investment Quality Municipal Fund, Inc., Nuveen California Investment Quality
Municipal Fund, Inc., Nuveen New York Investment Quality Municipal Fund, Inc.,
Nuveen Insured Quality Municipal Fund, Inc., Nuveen Florida Investment Quality
Municipal Fund, Nuveen New Jersey Investment Quality Municipal Fund, Inc.,
Nuveen Pennsylvania Investment Quality Municipal Fund, Nuveen Select Quality
Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund, Inc.,
Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income
Municipal Fund, Inc., Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen
Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income Municipal
Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen Texas
Quality Income Municipal Fund, Nuveen California Quality Income Municipal Fund,
Inc., Nuveen New York Quality Income Municipal Fund, Inc., Nuveen Premier
Municipal Income Fund, Inc., Nuveen Premier Insured Municipal Income Fund,
Inc., Nuveen Premium Income Municipal Fund 2, Inc., Nuveen Insured California
Premium Income Municipal Fund, Inc., Nuveen Insured New York Premium Income
Municipal Fund, Inc., Nuveen Select Maturities Municipal Fund, Nuveen Arizona
Premium Income Municipal Fund, Inc., Nuveen Insured Florida Premium Income
Municipal Fund, Nuveen Michigan Premium Income Municipal Fund, Inc., Nuveen New
Jersey Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal
Fund 4, Inc., Nuveen Insured California Premium Income Municipal Fund 2, Inc.,
Nuveen Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland Premium
Income Municipal Fund, Nuveen Massachusetts Premium Income Municipal Fund,
Nuveen Virginia Premium Income Municipal Fund, Nuveen Connecticut Premium
Income Municipal Fund, Nuveen Georgia Premium Income Municipal Fund, Nuveen
Missouri Premium Income Municipal Fund, Nuveen North Carolina Premium Income
Municipal Fund, Nuveen California Premium Income Municipal Fund, Nuveen Insured
Premium Income Municipal Fund 2, Nuveen Select Tax-Free Income Portfolio,
Nuveen Select Tax-Free Income Portfolio 2, Nuveen Insured California Select
Tax-Free Income Portfolio, Nuveen Insured New York Select Tax-Free Income
Portfolio, Nuveen Select Tax-Free Income Portfolio 3, Nuveen Dividend Advantage
Municipal Fund, Nuveen California Dividend Advantage Municipal Fund and Nuveen
New York Dividend Advantage Municipal Fund.
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<PAGE>
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Chairman of the Board, Chairman of the Board
Schwertfeger Chief Executive Officer and Director and Director
333 West Wacker
Drive
Chicago, IL 60606
John P. Amboian President None
333 West Wacker
Drive
Chicago, IL 60606
William Adams IV Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Alan G. Berkshire Vice President and Secretary Vice President and
333 West Wacker Assistant Secretary
Drive
Chicago, IL 60606
Clifton L. Fenton Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Kathleen M. Vice President Vice President
Flanagan
333 West Wacker
Drive
Chicago, IL 60606
Stephen D. Foy Vice President Vice President and
333 West Wacker Controller
Drive
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Richard D. Hughes Vice President None
Two Radnor Corpo-
rate Center
Radnor, PA 19087
Anna R. Kucinskis Vice President Vice President
333 West Wacker
Drive
Chicago, IL 60606
Robert B. Kuppen- Vice President None
heimer
19900 MacArthur
Blvd.
Irvine, CA 92612
Larry W. Martin Vice President and Vice President and
333 West Wacker Assistant Secretary Assistant Secretary
Drive
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker
Drive
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker
Drive
Chicago, IL 60606
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices
Business Address with Underwriter with Registrant
- -----------------------------------------------------------------------------------
<S> <C> <C>
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Margaret E. Wilson Vice President and None
333 West Wacker Drive Corporate Controller
Chicago, IL 60606
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
Item 28: Location of Accounts and Records
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, 770 Broadway, New York, New York
10004 maintains all general and subsidiary ledgers, journals, trial balances,
records of all portfolio purchases and sales, and all other required records
not maintained by Nuveen Advisory Corp. or Chase Global Funds Services Company.
Chase Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts,
maintains all the required records in its capacity as transfer, dividend
paying, and shareholder service agent for the Funds.
Item 29: Management Services
Not applicable.
Item 30: Undertakings
Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that this Registration Statement
meets all the requirements for effectiveness under paragraph (b) of Rule 485
under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, and State of Illinois, on the 28th day of
September, 1999.
NUVEEN FLAGSHIP MULTISTATE TRUST I
/s/ Larry W. Martin
-----------------------------------------
Larry W. Martin, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <C> <S>
/s/ Stephen D. Foy
-------------------------------
Stephen D. Foy Vice President and September 28, 1999
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal
Executive Officer)
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
</TABLE>
/s/ Larry W. Martin
By____________________________
Larry W. Martin
William J. Schneider Trustee Attorney-in-Fact
Judith M. Stockdale Trustee
September 28, 1999
An original power of attorney authorizing, among others, Gifford R. Zimmerman
and Larry W. Martin to execute this Registration Statement, and Amendments
thereto, for each of the trustees of Registrant on whose behalf this
Registration Statement is filed, has been executed and is incorporated by
reference to this Registration Statement.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
------- ------- ------------
<C> <S> <C>
b.1 Amendment to By-Laws
d.1 Renewal of Investment Management Agreement dated May
2, 1999.
e.1 Renewal of Distribution Agreement dated July 30,
1999.
i. Opinion of Morgan Lewis & Bockius LLP.
j. Consent of Arthur Andersen LLP, Independent Public
Accountants.
m. Amended Plan of Distribution and Service Pursuant to
Rule 12b-1 for Class A Shares, Class B Shares and
Class C Shares of each Fund.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
</TABLE>
<PAGE>
Amendment to By-Laws
of
NUVEEN FLAGSHIP MULTISTATE TRUST I
The By-Laws of Nuveen Flagship Multistate Trust I, a Massachusetts business
trust, (the "Fund") have been amended by unanimous vote of the Board of Trustees
at a meeting duly called, convened and held on October 29, 1998, to read as
follows:
WHEREAS, the Fund's By-Laws permit shareholders to cast a vote at any
regular or special meeting of shareholders either in person or by proxy;
and
WHEREAS, such proxies are currently returned to the Fund by means of the
United States Postal Service or by overnight courier; and
WHEREAS, the Board now deems it beneficial to include the submission of
proxies by telephonic and electronic means.
NOW, THEREFORE, BE IT RESOLVED, that Section 2.7 of the Fund's By-Laws be
amended to include the following at the end of such section:
The placing of a Shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions (including, without limitation,
instructions transmitted over the Internet) obtained pursuant to procedures
which are reasonably designed to verify that such instructions have been
authorized by such Shareholder, shall constitute execution of such proxy by
or on behalf of such Shareholder
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST I
----------------------------------
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
------------------------------------------
This Agreement made this 2nd day of May, 1999 by and between Nuveen Flagship
Multiatate Trust 1, a Massachusetts business trust (the "Fund"), and Nuveen
Advisory Corp., a Delaware corporation (the "Advisor").
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1999 unless continued in the manner
required by the Investment Company Act of 1940; and
WHEREAS, the Board of Trustees, at a meeting called for the purpose of reviewing
the Agreement, have approved the Agreement and its continuance until August 1,
2000 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 2000 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST I
By: /s/ Gifford R. Zimmerman
------------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- -------------------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By: /s/ Steven J. Krupa
------------------------------
Vice President
ATTEST:
/s/ Larry W. Martin
- -------------------------------------
Assistant Secretary
<PAGE>
Renewal of Distribution Agreement
---------------------------------
This Agreement made this 30th day of July, 1999 by and between Nuveen Flagship
Multistate Trust I, a Massachusetts business trust (the "Fund"), and John Nuveen
& Co. Incorporated, a Delaware corporation (the "Underwriter");
WHEREAS, the parties hereto are the contracting parties under that certain
Distribution Agreement (the "Agreement") pursuant to which the Underwriter
acts as agent for the distribution of shares of the Fund; and
WHEREAS, the Agreement terminates August 1, 1999 unless continued in the manner
required by the Investment Company Act of 1940;
WHEREAS, the Board of Trustees of the Fund, at a meeting called for the purpose
of reviewing the Agreement has approved the Agreement and its continuance until
August 1, 2000 in the manner required by the Investment Company Act of 1940;
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 2000 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST I
By: /s/ Gifford R. Zimmerman
------------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- -------------------------------------
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By: /s/ Larry W. Martin
------------------------------
Vice President
ATTEST:
/s/ Nicholas Dalmeso
- -------------------------------------
Assistant Secretary
<PAGE>
Exhibit i
September 27, 1999
Nuveen Flagship Multistate Trust I
333 West Wacker Drive
Chicago, Illinois 60606
Re: Opinion of Counsel regarding Post-Effective Amendment No. 4 to the
Registration Statement filed on Form N-1A under the Securities Act of 1933 (File
No. 333-16617).
Ladies and Gentlemen:
We have acted as counsel for Nuveen Flagship Multistate I, a
Massachusetts voluntary association (commonly known as a business trust) (the
"Trust"), in connection with the above-referenced Registration Statement on Form
N-1A (as amended, the "Registration Statement") which relates to the Class A
Shares, Class B Shares, Class C Shares and Class R Shares, (collectively, the
"Shares") par value $.01 per share, of each of the following series of the
Trust: Nuveen Flagship Arizona Municipal Bond Fund, Nuveen Flagship Colorado
Municipal Bond Fund, Nuveen Flagship Florida Municipal Bond Fund, Nuveen
Maryland Municipal Bond Fund, Nuveen Flagship New Mexico Municipal Bond Fund,
Nuveen Flagship Pennsylvania Municipal Bond Fund, and Nuveen Flagship Virginia
Municipal Bond Fund. (collectively, the "Series"). This opinion is being
delivered to you in connection with the Trust's filing of Post-Effective
Amendment No. 4 to the Registration Statement (the "Amendment") to be filed with
the Securities and Exchange Commission on or about September 27, 1999 pursuant
to Rule 485(b) of the Securities Act of 1933 (the "1933 Act"). With your
permission, all assumptions and statements of reliance herein have been made
without any independent investigation or verification on our part except to the
extent otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;
(b) copies, certified by the Secretary of State of the Commonwealth
of Massachusetts, of the Trust's Declaration of Trust and of all amendments
thereto on file within the office of the Secretary of State (the "Charter");
(c) a certificate executed by Karen L. Healy, an Assistant Secretary
of the Trust certifying as to, and attaching copies of, the Charter and the
By-Laws (the "By-Laws"), and certain resolutions adopted by the Board of
Trustees authorizing the issuance of the Shares; and
<PAGE>
(d) a printer's proof, dated September 24, 1999, of the Amendment.
In our capacity as counsel to the Trust, we have examined the
originals, or certified, conformed or reproduced copies, of all records,
agreements, instruments and documents as we have deemed relevant or necessary as
the basis for the opinions hereinafter expressed. In all such examinations, we
have assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinion, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representatives of the Trust. We have assumed that the Registration Statement,
as filed with the Securities and Exchange Commission, will be in substantially
the form of the printer's proof referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are
of the opinion that the Shares, when issued and sold in accordance with the
Trust's Charter and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and nonassessable,
except that, as set forth in the Registration Statement, shareholders of the
Trust may, under certain circumstances, be held personally liable for its
obligations.
The opinion expressed herein is limited to the laws of the
Commonwealth of Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated July 20, 1999, and to all references to our Firm included in or made a
part of this registration statement of Nuveen Flagship Multistate Trust I
(comprising the Nuveen Flagship Arizona Municipal Bond Fund, Nuveen Flagship
Colorado Municipal Bond Fund, Nuveen Flagship New Mexico Municipal Bond Fund,
Nuveen Flagship Florida Municipal Bond Fund, Nuveen Maryland Municipal Bond
Fund, Nuveen Flagship Pennsylvania Municipal Bond Fund and the Nuveen Flagship
Virginia Municipal Bond Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 24, 1999
<PAGE>
Exhibit m
Nuveen Flagship Municipal Trust
Nuveen Flagship Multistate Trust I
Nuveen Flagship Multistate Trust II
Nuveen Flagship Multistate Trust III
Nuveen Flagship Multistate Trust IV
Plan of Distribution and Service
Pursuant to Rule 12b-1
January 30, 1997
As amended July 23, 1998
Whereas, Nuveen Flagship Municipal Trust, Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III and
Nuveen Flagship Multistate Trust IV, each a Massachusetts business trust (each,
a "Trust"), engages in business as an open-end management investment company and
is registered under the Investment Company Act of 1940, as amended (the "Act");
Whereas, each Trust is authorized to and may or does issue shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets (each Trust's series together with all other such series subsequently
established by a Trust being referred to herein individually as a "Fund" and
collectively as the "Funds");
Whereas, each Trust has outstanding the Funds set forth on Exhibit A;
Whereas, each Trust, on behalf of each Fund, employs John Nuveen & Co.
Incorporated (the "Distributor") as distributor of the shares of each Fund of
each Trust (the "Shares") pursuant to a Distribution Agreement dated as of
February 1, 1997;
Whereas, each Trust is authorized to issue Shares in four different classes
("Classes"): Class A, Class B, Class C and Class R (although not all Funds will
issue all Classes of Shares);
Whereas, each Trust, on behalf of its Funds, desires to adopt an amended
Plan of Distribution and Service pursuant to Rule 12b-1 under the Act ("Rule
12b-1"), and the Board of Trustees of each Trust has determined that there is a
reasonable likelihood that adoption of this amended Plan of Distribution and
Service will benefit each Trust and its shareholders;
Whereas, each Trust, on behalf of its Funds, has adopted a Multiple Class
Plan Pursuant to Rule 18f-3 (the "Rule 18f-3 Plan") to enable the various
Classes of Shares to be granted
<PAGE>
different rights and privileges and to bear different expenses, and has an
effective registration statement on file with the SEC containing a Prospectus
describing such Classes of Shares;
Whereas, as described in the Rule 18f-3 Plan, the purchase of Class A
Shares is generally subject to an up-front sales charge, as set forth in each
Trust's Prospectuses and Statements of Additional Information, and the purchase
of Class B and Class C Shares will not be subject to an up-front sales charge,
but in lieu thereof the Class B Shares will be subject to an asset-based
distribution fee (and a declining contingent deferred sales charge) and Class C
Shares will be subject to an asset-based distribution fee (and a one-year
contingent deferred sales charge), as described in the Prospectus for the
Shares; and
Whereas, Shares representing an investment in Class B will automatically
convert to Class A Shares 8 years after the investment, as described in the
Prospectus for the Shares;
Now, Therefore, each Trust, on behalf of each of its Funds, hereby adopts,
and the Distributor hereby agrees to the terms of, this Plan of Distribution and
Service (the "Plan") in accordance with Rule 12b-1, on the following terms and
conditions:
1. (a) The Fund is authorized to compensate the Distributor for services
performed and expenses incurred by the Distributor in connection with
the distribution of Shares of Class A, Class B and Class C of the Fund
and the servicing of accounts holding such Shares.
(b) The amount of such compensation paid during any one year shall consist
of:
(i) with respect to Class A Shares, a Service Fee not to exceed .20
% of average daily net assets of the Class A Shares of the Fund;
(ii) with respect to Class B Shares, a Service Fee not to exceed .20%
of average daily net assets of the Class B Shares of the Fund,
plus a Distribution Fee not to exceed .75% of average daily net
assets of the Class B Shares of the Fund; and
(iii) (A) with respect to Class C Shares of Long-Term and Intermediate
Funds, a Service Fee not to exceed .20% of average daily net
assets of the Class C Shares of the Fund, plus a Distribution
Fee not to exceed .55% of average daily net assets of the Class
C Shares of the Fund; and
(B) with respect to Class C Shares of Limited-Term Funds, a
Service Fee not to exceed .20% of average daily net assets of
the Class C Shares of the
-2-
<PAGE>
Fund, plus a Distribution Fee not to exceed .35% of average
daily net assets of the Class C Shares of the Fund.
Such compensation shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Trustees may
determine.
(c) With respect to Class A Shares, the Distributor shall pay any Service
Fees it receives under the Plan for which a particular underwriter,
dealer, broker, bank or selling entity having a Dealer Agreement in
effect ("Authorized Dealer", which may include the Distributor) is the
dealer of record to such Authorized Dealers to compensate such
organizations for providing services to shareholders relating to their
investment. The Distributor may retain any Service Fees not so paid.
(d) With respect to the Class B Shares, the Distributor:
(i) shall retain the Distribution Fee to compensate it for costs
associated with the distribution of the Class B Shares,
including the payment of broker commissions to Authorized
Dealers (which may include the Distributor) who were the dealer
of record with respect to the purchase of those shares; and
(ii) shall pay any Service Fees it receives under the Plan for which
a particular Authorized Dealer is the dealer of record (which
may include the Distributor) to such Authorized Dealers to
compensate such organizations for providing services to
shareholders relating to their investment; provided, however,
that the Distributor shall be entitled to retain, for the first
year after purchase of the Class B Shares, the Service Fee to
the extent that it may have pre-paid the Service Fee for that
period to the Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(e) With respect to the Class C Shares, the Distributor:
(i) shall pay the Distribution Fee it receives under the Plan with
respect to Class C Shares for which a particular Authorized
Dealer is the dealer of record (which may include the
Distributor) to such Authorized Dealers to compensate such
organizations in connection with such share sales; provided,
however, that the Distributor shall be entitled to retain, for
the
-3-
<PAGE>
first year after purchase of the Class C Shares, the
Distribution Fee to the extent that it may have pre-paid the
Distribution Fee for that period to the Authorized Dealer of
record; and
(ii) shall pay any Service Fees it receives under the Plan for which
a particular Authorized Dealer is the dealer of record (which
may include the Distributor) to such Authorized Dealers to
compensate such organizations for providing services to
shareholders relating to their investment; provided, however,
that the Distributor shall be entitled to retain, for the first
year after purchase of the Class B or C Shares, the Service Fee
to the extent that it may have pre-paid the Service Fee for that
period to the Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(f) Services for which such Authorized Dealers may receive Service Fee
payments include any or all of the following: maintaining account records for
shareholders who beneficially own Shares; answering inquiries relating to the
shareholders' accounts, the policies of the Fund and the performance of their
investment; providing assistance and handling transmission of funds in
connection with purchase, redemption and exchange orders for Shares; providing
assistance in connection with changing account setups and enrolling in various
optional fund services; producing and disseminating shareholder communications
or servicing materials; the ordinary or capital expenses, such as equipment,
rent, fixtures, salaries, bonuses, reporting and recordkeeping and third party
consultancy or similar expenses, relating to any activity for which payment is
authorized by the Board; and the financing of any other activity for which
payment is authorized by the Board.
(g) Payments of Distribution or Service Fees to any organization as of any
month-end (or other period-end, as appropriate) will not exceed the appropriate
amount based on the annual percentages set forth in subparagraphs (b)(i), (ii)
and (iii) above, based on average net assets of accounts for which such
organization appeared on the records of the Fund and/or its transfer agent as
the organization of record during the preceding month (period).
2. This amended Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved with respect to the affected Funds and
Classes thereof by votes of a majority of both (a) the Board of Trustees of the
Trust, and (b) those Trustees of the Trust who are not "interested persons" of
the Trust (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the "Rule
12b-1 Trustees") cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related Agreement(s).
-4-
<PAGE>
3. This Plan shall remain in effect until August 1, 1999, and shall continue in
effect thereafter so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 2.
4. The Distributor shall provide to the Board of Trustees of the Trust and the
Board shall review, at least quarterly, a written report of distribution- and
service-related activities, Distribution Fees, Service Fees, and the purposes
for which such activities were performed and expenses incurred.
5. This Plan may be terminated as to a given Fund or as to a given Class A,
Class B or Class C of a Fund at any time by vote of a majority of the Rule 12b-1
Trustees or by vote of a majority (as defined in the Act) of the outstanding
voting Shares of the applicable Fund or Class.
6. This Plan may not be amended to increase materially the amount of
compensation payable by a Fund with respect to Class A, Class B or Class C
Shares under paragraph 1 hereof unless such amendment is approved by a vote of
at least a majority (as defined in the Act) of the outstanding voting Shares of
that Class of Shares of that Fund. No material amendment to the Plan shall be
made unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the Trustees
who are not interested persons (as defined in the Act) of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
8. The Trust shall preserve copies of this Plan and any related agreements and
all reports made pursuant to paragraph 4 hereof, for a period of not less than
six years from the date of the Plan, any such agreement or any such report, as
the case may be, the first two years in an easily accessible place.
-5-
<PAGE>
Exhibit A
to Plan of Distribution and Service Pursuant to Rule 12b-1
Nuveen Flagship Municipal Trust
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
Nuveen Municipal Research Fund
Nuveen Flagship Multistate Trust I
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Oklahoma Municipal Bond Fund *
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
Nuveen Flagship Multistate Trust II
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen California Intermediate Municipal Bond Fund *
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
Nuveen Flagship Multistate Trust III
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
Nuveen Flagship Multistate Trust IV
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
<PAGE>
* Funds not currently offered which will be described in a Trust's N-1A
registration statement but not included in the publicly-disseminated prospectus
-7-
<PAGE>
Exhibit 99 (b)
Certified Resolution
--------------------
The undersigned, Alan G. Berkshire, hereby certifies, on behalf of Nuveen
Flagship Multistate Trust I (the "Fund"), (1) that he is the duly elected,
qualified and acting Secretary of the Fund, and that as such Secretary he has
custody of its corporate books and records, (2) that attached to this
Certificate is a true and correct copy of a resolution duly adopted by the Board
of Trustees of the Fund at a meeting held on February 1, 1999, and (3) that said
resolution has not been amended or rescinded and remains in full force and
effect.
September 24, 1999
/s/ Alan G. Berkshire
--------------------------------------
Alan G. Berkshire, Assistant Secretary
<PAGE>
RESOLVED, that the officers of the Fund be, and each of them hereby is,
authorized in the name and on behalf of the Fund to execute and cause to be
filed with the Securities and Exchange Commission such amendment or amendments
to the Fund's registration statement on Form N-1A, including the registration of
additional shares pursuant to Rule 24f-2 of the Investment Company Act of 1940,
as amended, as such officer shall deem necessary or desirable, such
determination to be conclusively evidenced by his or their execution of such an
amendment to the registration statement.
FURTHER RESOLVED, that the officers of the Fund be, and each of them hereby is,
authorized to execute, file or cause to be filed all such instruments and
documents, and make or cause to be made all such payments, and do or cause to be
done all such other acts and things as they may deem necessary or desirable in
order to effect the filing of such amendments of the registration statement.
