<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]
Georgia
Louisiana
North Carolina
Tennessee
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.
<TABLE>
<CAPTION>
<S> <C>
Introduction 1
- ------------------------------------------------------------------------------------------------------------------------------------
Nuveen Flagship Georgia Municipal Bond Fund 2
- ------------------------------------------------------------------------------------------------------------------------------------
Nuveen Flagship Louisiana Municipal Bond Fund 4
- ------------------------------------------------------------------------------------------------------------------------------------
Nuveen Flagship North Carolina Municipal Bond Fund 6
- ------------------------------------------------------------------------------------------------------------------------------------
Nuveen Flagship Tennessee Municipal Bond Fund 8
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
<TABLE>
<S> <C>
Who Manages the Funds 10
- ------------------------------------------------------------------------------------------------------------------------------------
What Securities We Invest In 11
- ------------------------------------------------------------------------------------------------------------------------------------
How We Select Investments 12
- ------------------------------------------------------------------------------------------------------------------------------------
What the Risks Are 13
- ------------------------------------------------------------------------------------------------------------------------------------
How We Manage Risk 13
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<S> <C>
What Share Classes We Offer 15
- ------------------------------------------------------------------------------------------------------------------------------------
How to Reduce Your Sales Charge 17
- ------------------------------------------------------------------------------------------------------------------------------------
How to Buy Shares 17
- ------------------------------------------------------------------------------------------------------------------------------------
Systematic Investing 18
- ------------------------------------------------------------------------------------------------------------------------------------
Systematic Withdrawal 19
- ------------------------------------------------------------------------------------------------------------------------------------
Special Services 19
- ------------------------------------------------------------------------------------------------------------------------------------
How to Sell Shares 20
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Section 4 General Information
This section summarizes the funds' distribution policies and other general fund
information.
<TABLE>
<S> <C>
Dividends, Distributions and Taxes 22
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and Service Plans 23
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value 24
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Service Providers 24
- ------------------------------------------------------------------------------------------------------------------------------------
Year 2000 25
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Section 5 Financial Highlights
<TABLE>
<S> <C>
This section provides the funds' financial performance
for the past five years. 25
- ------------------------------------------------------------------------------------------------------------------------------------
Appendix Additional State Information 29
</TABLE>
<PAGE>
September 29, 1999
Section 1 The Funds
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
Prospectus
This prospectus is intended to provide important information to
help you evaluate whether one of the Nuveen Mutual Funds listed
above may be right for you. Please read it carefully before
investing and keep it for future reference.
- --------------------------------------------------------------------------------
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
Section 1 The Funds 1
<PAGE>
Nuveen Flagship Georgia Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
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 Georgia bonds. The fund is non-diversified, and may invest more
of its assets in a single issuer than a diversified fund. Greater concentration
may increase risk. As with any mutual fund investment, loss of money is a risk
of investing.
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-year
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>
<S> <C>
1989 8.6%
1990 6.6%
1991 11.7%
1992 7.9%
1993 11.7%
1994 -6.1%
1995 17.0%
1996 3.8%
1997 11.9%
1998 5.4%
</TABLE>
During the ten years ending December 31, 1998, the highest and lowest
quarterly returns were 6.96% and -5.67%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the 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) 1.00% 5.19% 7.21%
Class B 0.63% 5.30% 7.19%
Class C 4.96% 5.49% 7.06%
Class R 5.66% 6.12% 7.67%
- ---------------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 8.22%
Lipper
Peer Group/3/ 5.37% 5.19% 7.58%
</TABLE>
<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 .13% .14% .14% .13%
========================================================================================================
Total Annual Fund Operating
Expenses-Gross+ .88% 1.64% 1.44% .68%
+After Expense Reimbursements
---------------------------------------------------------------------------------------------------
Expense Reimbursements (.14%) (.14%) (.15%) (.14%)
---------------------------------------------------------------------------------------------------
Total Operating Expenses--Net .74% 1.50% 1.29% .54%
---------------------------------------------------------------------------------------------------
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 $ 506 $ 562 $ 147 $ 69 $ 506 $ 167 $ 147 $ 69
- ------------------------------------------------------------------------------------------------
3 Years $ 689 $ 836 $ 456 $218 $ 689 $ 517 $ 456 $218
- ------------------------------------------------------------------------------------------------
5 Years $ 887 $1,006 $ 787 $379 $ 887 $ 892 $ 787 $379
- ------------------------------------------------------------------------------------------------
10 Years $1,459 $1,741 $1,724 $847 $1,459 $1,741 $1,724 $847
- ------------------------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
Portfolio Statistics
<TABLE>
<S> <C>
Average Effective Maturity 22.63 years
- ------------------------------------------------------------------------------------------------
Average Duration 8.89
- ------------------------------------------------------------------------------------------------
Weighted Average Credit Quality AA+
- ------------------------------------------------------------------------------------------------
Number of Issues 89
- ------------------------------------------------------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 69%
- ------------------------------------------------------------------------------------------------
AA 12%
- ------------------------------------------------------------------------------------------------
A 12%
- ------------------------------------------------------------------------------------------------
BBB/NR 7%
- ------------------------------------------------------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation-Limited (16%)
Other (28%)
Housing-Multifamily (16%)
Water and Sewer (16%)
U.S. Guaranteed (13%)
Health Care (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 (1.59)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Louisiana Debt Category. Returns assume reinvestment of dividends
and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
Nuveen Flagship Louisiana Municipal Bond Fund
FUND OVERVIEW
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases
local, income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
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 Louisiana bonds. The fund is non-diversified, and may invest more
of its assets in a single issuer than a diversified fund. Greater concentration
may increase risk. As with any mutual fund investment, loss of money is a risk
of investing.
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
nine years as well as annualized fund and index returns for the one-, 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 nine 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]
<TABLE>
<S> <C>
1990 7.2%
1991 13.8%
1992 9.0%
1993 13.2%
1994 -6.2%
1995 18.8%
1996 4.8%
1997 9.7%
1998 6.1%
</TABLE>
From inception in September 1989 to December 31, 1998, the highest and lowest
quarterly returns were 7.34% and -5.86%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1998
------------------------------------
Class 1 Year 5 Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) 1.60% 5.45% 7.95%
Class B 1.25% 5.52% 7.92%
Class C 5.38% 5.74% 7.85%
Class R 6.22% 6.43% 8.50%
- --------------------------------------------------------------------------------
LB Market Benchmark/2/ 6.48% 6.22% 8.15%
Lipper Peer Group/3/ 5.43% 5.45% 7.76%
</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 .13% .14% .13% .13%
========================================================================================================
Total Annual Fund Operating
Expenses--Gross+ .88% 1.64% 1.43% .68%
+After Expense Reimbursements
---------------------------------------------------------------------------------------------------
Reimbursements (.13%) (.15%) (.14%) (.13%)
---------------------------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Net .75% 1.49% 1.29% .55%
---------------------------------------------------------------------------------------------------
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 $ 506 $ 562 $ 146 $ 69 $ 506 $ 167 $ 146 $ 69
- ------------------------------------------------------------------------------------------------
3 Years $ 689 $ 836 $ 452 $218 $ 689 $ 517 $ 452 $218
- ------------------------------------------------------------------------------------------------
5 Years $ 887 $1,006 $ 782 $379 $ 887 $ 892 $ 782 $379
- ------------------------------------------------------------------------------------------------
10 Years $1,459 $1,741 $1,713 $847 $1,459 $1,741 $1,713 $847
- ------------------------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
Portfolio Statistics
Average Effective Maturity 22.10 years
- -------------------------------------------------------------------------
Average Duration 9.15
- -------------------------------------------------------------------------
Weighted Average Credit Quality AA+
- -------------------------------------------------------------------------
Number of Issues 87
- -------------------------------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 67%
- -------------------------------------------------------------------------
AA 6%
- -------------------------------------------------------------------------
A 10%
- -------------------------------------------------------------------------
BBB/NR 17%
- -------------------------------------------------------------------------
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation--Limited (11%)
Other (32%)
Tax Obligation--General (11%)
Utilities (10%)
Housing--Single-Family (16%)
Health Care (20%)
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 (1.60)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Louisiana Debt Category. Returns assume reinvestment of dividends
and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 5
<PAGE>
Nuveen Flagship North Carolina Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
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 North Carolina bonds. The fund is non-diversified, and may invest
more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
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 10.1%
1990 5.8%
1991 11.7%
1992 8.8%
1993 11.3%
1994 -5.6%
1995 15.5%
1996 3.0%
1997 8.9%
1998 5.5%
During the ten years ending December 31, 1998, the highest and lowest quarterly
returns were 5.83% and -5.32%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the 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% 4.30% 6.86%
Class B 0.78% 4.40% 6.86%
Class C 4.97% 4.61% 6.73%
Class R 5.63% 5.27% 7.36%
- ---------------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 8.22%
Lipper
Peer Group/3/ 5.54% 5.12% 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 .55% .55% .55% .55%
- ------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- ------------------------------------------------------------------------
Other Expenses .13% .14% .14% .13%
- ------------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Gross+ .88% 1.64% 1.44% .68%
- ------------------------------------------------------------------------
+After Expense Reimbursements
-----------------------------------------------------------------------
Reimbursements (.14%) (.20%) (.20%) (.15%)
-----------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Net. 74% 1.44% 1.24% .53%
-----------------------------------------------------------------------
</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 $ 506 $ 562 $ 147 $ 69 $ 506 $ 167 $ 147 $ 69
- --------------------------------------------------------------------------
3 Years $ 689 $ 836 $ 456 $218 $ 689 $ 517 $ 456 $218
- --------------------------------------------------------------------------
5 Years $ 887 $1,006 $ 787 $379 $ 887 $ 892 $ 787 $379
- --------------------------------------------------------------------------
10 Years $1,459 $1,741 $1,724 $847 $1,459 $1,741 $1,724 $847
- --------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/99)
Portfolio Statistics
<TABLE>
<CAPTION>
<S> <C>
Average Effective Maturity 21.00 years
- --------------------------------------------------
Average Duration 8.54
- --------------------------------------------------
Weighted Average Credit Quality AA
- --------------------------------------------------
Number of Issues 99
- --------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 30%
- --------------------------------------------------
AA 44%
- --------------------------------------------------
A 16%
- --------------------------------------------------
BBB/NR 10%
- --------------------------------------------------
</TABLE>
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Tax Obligation-Limited (14%)
Housing-Single-Family (17%)
U.S. Guaranteed (9%)
Health Care (21%)
Other (24%)
Utilities (15%)
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 (1.37)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper North Carolina Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 7
<PAGE>
Nuveen Flagship Tenessee 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 Tennessee 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-, 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 9.8%
1990 5.8%
1991 11.6%
1992 9.1%
1993 11.8%
1994 -5.5%
1995 15.8%
1996 3.5%
1997 9.1%
1998 5.5%
During the ten years ending December 31, 1998, the highest and lowest quarterly
returns were 6.30% and -5.42%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the 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) 1.13% 4.53% 7.03%
Class B 0.77% 4.64% 7.03%
Class C 4.94% 4.87% 6.90%
Class R 5.73% 5.49% 7.52%
- ------------------------------------------------------------
LB Market
Benchmark/2/ 6.48% 6.22% 8.22%
Lipper
Peer Group/3/ 5.47% 5.39% 7.37%
</TABLE>
8 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 .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)
Portfolio Statistics
Average Effective Maturity 20.16 years
- ----------------------------------------------
Average Duration 8.08
- ----------------------------------------------
Weighted Average Credit Quality AA+
- ----------------------------------------------
Number of Issues 101
- ----------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 47%
- ----------------------------------------------
AA 31%
- ----------------------------------------------
A 13%
- ----------------------------------------------
BBB/NR 9%
- ----------------------------------------------
Industry Diversification (Top 5)
[PIE CHART APPEARS HERE]
Housing--Single Family (12%)
Tax Obligation--Limited (13%)
U.S. Guaranteed (16%)
Health Care (15%)
Utilities (10%)
Other (34%)
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 (1.83)%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Tennessee Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 9
<PAGE>
Section 2 How We Manage Your Money
To help you understand 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.
Thomas J. O'Shaughnessy has been the portfolio manager for the Georgia, North
Carolina, and Tennessee Funds since July 1998. Mr. O'Shaughnessy has been a
portfolio manager for Nuveen Advisory since 1983, and an Assistant Vice
President since 1998, he currently manages investments for twelve Nuveen-
sponsored investment companies, including the Florida, Kentucky, and
Pennsylvania Funds. Michael S. Davern has been the portfolio manager for the
Louisiana Fund since 1998. 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 Arizona, Colorado, Kansas,
Michigan, Missouri, New Mexico and Wisconsin Funds.
10 Section 2 How We Manage Your Money
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management fees
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 11
<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
12 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 Georgia, Louisiana, and North Carolina Funds, which as "non-
diversified" funds may concentrate their investments in municipal bonds of
certain issuers to a greater extent than the Tennessee Fund, 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 13
<PAGE>
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Tennessee Fund also may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the funds' investments. The funds, however, have no present intent to use
these strategies.
14 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
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 15
<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
. Letter of intent or Exchange-Traded directors of Nuveen or
. Group purchase Fund reinvestment employees of authorized
. Certain employees and dealers
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
16 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 17
<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
18 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 19
<PAGE>
How to Sell Shares
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.
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.
20 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 presently have set a minimum balance of $100 unless you have an active
Nuveen Defined Portfolio reinvestment account. You will not be assessed a CDSC
on an involuntary redemption.
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 21
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions to
shareholders. We discuss some other fund policies, as well.
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.
22 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 23
<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.
24 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 25
<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.
Georgia Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------------ -------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income(a) Gain (Loss) Total Income Gains Total Value Return(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
1999 $11.19 $.54 $(.17) $ .37 $(.54) $ -- $(.54) $11.02 3.34%
1998 10.57 .56 .62 1.18 (.56) -- (.56) 11.19 11.37
1997 10.20 .57 .37 .94 (.57) -- (.57) 10.57 9.39
1996 10.46 .57 (.25) .32 (.58) -- (.58) 10.20 3.05
1995 10.23 .58 .23 .81 (.58) -- (.58) 10.46 8.31
Class B (2/97)
1999 11.20 .46 (.17) .29 (.46) -- (.46) 11.03 2.57
1998 10.57 .48 .63 1.11 (.48) -- (.48) 11.20 10.66
1997(c) 10.66 .14 (.11) .03 (.12) -- (.12) 10.57 .31
Class C (1/94)
1999 11.17 .48 (.17) .31 (.48) -- (.48) 11.00 2.80
1998 10.55 .50 .62 1.12 (.50) -- (.50) 11.17 10.79
1997 10.18 .51 .37 .88 (.51) -- (.51) 10.55 8.80
1996 10.44 .51 (.25) .26 (.52) -- (.52) 10.18 2.48
1995 10.21 .52 .23 .75 (.52) -- (.52) 10.44 7.72
Class R (2/97)
1999 11.15 .56 (.15) .41 (.57) -- (.57) 10.99 3.67
1998 10.57 .58 .59 1.17 (.59) -- (.59) 11.15 11.23
1997(c) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------
Class
(Inception
Date)
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ending Assets Net Net Turnover
May 31, (000) Assets(a) Assets(a) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (3/86)
1999 $128,138 .74% 4.83% 32%
1998 120,545 .66 5.09 25
1997 111,518 . 78 5.44 39
1996 107,862 .80 5.46 59
1995 113,354 .83 5.79 40
Class B (2/97)
1999 11,991 1.50 4.08 32
1998 3,518 1.38 4.32 25
1997(c) 113 1.32* 4.80* 39
Class C (1/94)
1999 24,358 1.29 4.28 32
1998 18,770 1.21 4.54 25
1997 11,803 1.32 4.87 39
1996 9,433 1.34 4.90 59
1995 6,973 1.38 5.18 40
Class R (2/97)
1999 364 54 5.03 32
1998 245 .45 5.26 25
1997(c) 22 .38* 5.71* 39
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(a) After 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>
Louisiana Municipal Bond Fund**
<TABLE>
<CAPTION>
Investment Operations Less Distributions
------------------------------------ -------------------------------
Class
(Inception
Date)
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ending Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income (a) Gain (Loss) Total Income Gains Total Value Return (b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/89)
1999 $11.55 $.57 $(.13) $ .44 $(.57) $(.04) $(.61) $11.38 3.73%
1998 11.10 .59 .49 1.08 (.59) (.04) (.63) 11.55 9.88
1997 10.71 .59 .39 .98 (.59) -- (.59) 11.10 9.37
1996 10.80 .59 (.08) .51 (.60) -- (.60) 10.71 4.77
1995 10.48 .60 .32 .92 (.60) -- (.60) 10.80 9.20
Class B (2/97)
1999 11.55 .48 (.14) .34 (.48) (.04) (.52) 11.37 2.98
1998 11.09 .50 .50 1.00 (.50) (.04) (.54) 11.55 9.18
1997(c) 11.10 .16 -- .16 (.17) -- (.17) 11.09 1.44
Class C (2/94)
1999 11.54 .50 (.13) .37 (.51) (.04) (.55) 11.36 3.20
1998 11.09 .52 .50 1.02 (.53) (.04) (.57) 11.54 9.32
1997 10.70 .53 .39 .92 (.53) -- (.53) 11.09 8.78
1996 10.80 .53 (.09) .44 (.54) -- (.54) 10.70 4.12
1995 10.48 .54 .32 .86 (.54) -- (.54) 10.80 8.59
Class R (2/97)
1999 11.55 .59 (.13) .46 (.59) (.04) (.63) 11.38 4.03
1998 11.09 .61 .50 1.11 (.61) (.04) (.65) 11.55 10.21
1997(c) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
- -----------------------------------------------------------------------------------------------------------------------------------
</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 (9/89)
1999 $99,176 .75% 4.89% 11%
1998 89,143 .75 5.13 15
1997 76,030 .79 5.38 25
1996 72,005 .80 5.46 26
1995 68,145 .83 5.80 44
Class B (2/97)
1999 18,870 1.49 4.15 11
1998 8,999 1.45 4.38 15
1997(c) 917 1.46* 4.69* 25
Class C (2/94)
1999 21,352 1.29 4.34 11
1998 13,682 1.29 4.58 15
1997 7,645 1.33 4.83 25
1996 5,658 1.35 4.87 26
1995 3,220 1.37 5.21 44
Class R (2/97)
1999 2,451 .55 5.10 11
1998 28 .52 5.32 15
1997(c) -- .04* 5.31* 25
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997,
reflects the financial highlights of Flagship Louisiana.
(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 27
<PAGE>
North Carolina 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 $10.62 $.51 $(.15) $.36 $(.51) $(.09) $(.60) $10.38 3.43%
1998 10.28 .53 .34 .87 (.53) -- (.53) 10.62 8.69
1997 10.05 .54 .23 .77 (.54) -- (.54) 10.28 7.79
1996 10.23 .55 (.18) .37 (.55) -- (.55) 10.05 3.67
1995 10.08 .57 .15 .72 (.57) -- (.57) 10.23 7.45
Class B (2/97)
1999 10.62 .44 (.15) .29 (.43) (.09) (.52) 10.39 2.73
1998 10.28 .45 .35 .80 (.46) -- (.46) 10.62 7.89
1997(c) 10.33 .12 (.06) .06 (.11) -- (.11) 10.28 .64
Class C (10/93)
1999 10.60 .46 (.16) .30 (.45) (.09) (.54) 10.36 2.85
1998 10.26 .47 .34 .81 (.47) -- (.47) 10.60 8.09
1997 10.03 .48 .23 .71 (.48) -- (.48) 10.26 7.20
1996 10.22 .49 (.18) .31 (.50) -- (.50) 10.03 3.01
1995 10.06 .51 .16 .67 (.51) -- (.51) 10.22 6.97
Class R (2/97)
1999 10.62 .53 (.15) .38 (.53) (.09) (.62) 10.38 3.61
1998 10.28 .55 .34 .89 (.55) -- (.55) 10.62 8.88
1997(c) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 $183,370 .74% 4.80% 11%
1998 186,340 .86 5.06 29
1997 181,595 .93 5.31 23
1996 185,016 .90 5.32 54
1995 191,850 .91 5.73 35
Class B (2/97)
1999 10,609 1.44 4.11 11
1998 3,609 1.61 4.23 29
1997(c) 271 1.62* 4.60* 23
Class C (10/93)
1999 17,507 1.24 4.31 11
1998 8,291 1.41 4.50 29
1997 7,065 1.48 4.76 23
1996 6,589 1.45 4.77 54
1995 6,049 1.46 5.13 35
Class R (2/97)
1999 1,312 .53 5.01 11
1998 848 .66 5.24 29
1997(c) 405 .66* 5.57* 23
- -------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ending May 31, 1997, reflects
the financial highlights of Flagship North Carolina.
(a) After 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.
28 Section 5 Financial Highlights
<PAGE>
Tennessee 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 (11/87)
1999 $11.46 $.55 $(.15) $ .40 $(.56) $-- $(.56) $11.30 3.47%
1998 11.06 .58 .40 .98 (.58) -- (.58) 11.46 9.01
1997 10.83 .59 .23 .82 (.59) -- (.59) 11.06 7.71
1996 11.01 .59 (.18) .41 (.59) -- (.59) 10.83 3.78
1995 10.78 .60 .23 .83 (.60) -- (.60) 11.01 8.04
Class B (2/97)
1999 11.46 .47 (.16) .31 (.47) -- (.47) 11.30 2.72
1998 11.06 .49 .40 .89 (.49) -- (.49) 11.46 8.21
1997(c) 11.14 .14 (.09) .05 (.13) -- (.13) 11.06 .42
Class C (10/93)
1999 11.45 .49 (.15) .34 (.49) -- (.49) 11.30 2.97
1998 11.05 .52 .39 .91 (.51) -- (.51) 11.45 8.39
1997 10.82 .53 .23 .76 (.53) -- (.53) 11.05 7.12
1996 11.00 .53 (.18) .35 (.53) -- (.53) 10.82 3.22
1995 10.78 .54 .22 .76 (.54) -- (.54) 11.00 7.35
Class R (2/97)
1999 11.44 .57 (.15) .42 (.58) -- (.58) 11.28 3.68
1998 11.04 .60 .40 1.00 (.60) -- (.60) 11.44 9.20
1997(c) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 $285,935 .84% 4.81% 16%
1998 278,232 .82 5.11 15
1997 257,475 .85 5.35 23
1996 250,886 .88 5.30 38
1995 241,778 .89 5.64 23
Class B (2/97)
1999 12,410 1.59 4.08 16
1998 5,775 1.58 4.31 15
1997(c) 537 1.37* 4.72* 23
Class C (1/94)
1999 28,134 1.39 4.27 16
1998 20,673 1.37 4.55 15
1997 15,049 1.40 4.80 23
1996 15,483 1.43 4.75 38
1995 12,494 1.44 5.08 23
Class R (2/97)
1999 529 .64 5.01 16
1998 534 .62 5.29 15
1997(c) 248 .46* 5.75* 23
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(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 29
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from a specific state, each
fund also bears investment risks from economic, political or regulatory changes
that could adversely affect municipal bond issuers in that state and therefore
the value of the fund's investment portfolio. The following discussion of
special state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The
discussion includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should consult
your tax adviser about the state tax consequences of a specific fund investment.
See the Statement of Additional Information for further information.
Georgia
One of the nation's fastest growing states in terms of population, Georgia has
benefited from steady economic and employment growth as a result of the State's
stable and broad-based trade and service economy, low average cost of living,
and extensive transportation infrastructure.
The State's unemployment level is low at 3.7% in July 1999, below the national
average of 4.3% in July 1999 and down from the State's 4.3% rate in July 1998.
Per capita income in 1998 was $25,106, approximately 95% of the national
average.
As of August 31, 1999, Georgia's general obligation debt carried AAA ratings
from Standard & Poor's, Moody's, and Fitch. These rating 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 Georgia Fund's regular monthly dividends will not be subject to Georgia
personal income tax to the extent they are paid out of income earned on Georgia
municipal bonds or U.S. government securities. You will be subject to Georgia
personal income tax, however, to the extent the Georgia Fund distributes any
taxable income or realized capital gains, or if you sell or exchange Georgia
Fund shares and realize a capital gain on the transaction.
The treatment of corporate shareholders of the Georgia Fund is similar to that
described above.
30 Appendix
<PAGE>
Louisiana
Louisiana's economic base has experienced some improvement after the recession
of the 1980's. Per capita personal income grew 5.0% to $21,835 in 1998, but
remains at 82% of the national average. The unemployment rate for the State was
4.7% in July 1999, above the national average of 4.3%.
The State possesses natural resources which have played a significant role in
driving the economy. Chemicals provide the largest employment in the
manufacturing industry. Tourism is the second largest industry in the State,
generating $339 million in State and local taxes and 112,000 jobs created by the
end of 1998. Louisiana will continue to rely on the gaming industry, despite a
sector employment drop due to the consolidation and downsizing of hotels and
casinos. Prospects of a land based casino in New Orleans could provide a boost
both locally and statewide.
The State's general obligation bond rating by Moody's, Standard & Poor's and
Fitch is A2, A+ and A, respectively. 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 Louisiana Fund's regular monthly dividends will not be subject to Louisiana
personal income tax to the extent they are paid out of income earned on
Louisiana municipal obligations or U.S. government securities. You will be
subject to Louisiana personal income tax, however, to the extent the Louisiana
Fund distributes any taxable income or realized capital gains, or if you sell or
exchange Louisiana Fund shares and realize capital gains on the transaction.
The treatment of corporate shareholders of the Louisiana Fund is similar to that
described above.
North Carolina
North Carolina's economy continues to grow and diversify. The State ranks among
the top ten states in economic growth, as measured by employment growth. While
manufacturing remains an important employment sector, the services and retail
trade sectors also supply a significant percentage of employment. Growth in the
high-technology sector has helped diversify the State's economy and also has
helped offset recent employment losses in the textile, apparel, and tobacco
industries.
The State's unemployment rate was 2.9% in July 1999, below the national average
of 4.3% in July 1999 and down from the State's 3.3% rate in July 1998. Per
capita income in 1998 was 24,122, approximately 91% of the national average.
As of August 31, 1999, Moody's, Standard & Poor's, and Fitch all rate the State
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.
Tax Treatment
The North Carolina Fund's regular monthly dividends will not be subject to North
Carolina personal income taxes to the extent they are paid out of income earned
on North Carolina municipal bonds or obligations of the
Appendix 31
<PAGE>
U.S. government. You will be subject to North Carolina personal income taxes,
however, to the extent the North Carolina Fund distributes any taxable income or
realized capital gains, or if you sell, or exchange North Carolina Fund shares
and realize a capital gain on the transaction.
The treatment of corporate shareholders of the North Carolina Fund is similar to
that described above.
Tennessee
Tennessee's economy experienced strong growth in the early 1990's, but the
economic climate in the State has changed somewhat since then. Economic growth
has slowed from its strong pace of the early 1990's, as growth in the service
sector and in the State major metropolitan areas has moderated. As a result of
the good growth in the auto and truck manfacturing sectors, the State is now
more vulnerable to economic cycles. Still, the economy has been healthy.
Tennessee's unemployment rate in July 1999 was 3.4%, compared to the national
average of 4.3% in July 1999 and the State's 4.0% average in July 1998. Per
capita income was $23,615 in 1998, about 89% of the national average.
As of August 31, 1999, Tennessee's general obligation bonds carried ratings of
Aaa/AAA/AAA by Moody's, Standard & Poor's and Fitch, respectively. 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 Tennessee Fund's regular monthly dividends will not be subject to Tennessee
personal income taxes to the extent they are paid out of income earned on or
capital gains realized from the sale of Tennessee municipal bonds or U.S.
government securities. You will be subject to Tennessee personal income taxes,
however, to the extent the Tennessee Fund distributes any taxable income or
realized capital gains on other securities. You will not be subject to Tennessee
personal income taxes if you sell or exchange Tennessee Fund shares.
The treatment of corporate shareholders of the Tennessee Fund differs from that
described above. Corporate shareholders should refer to the Statement of
Additional Information for more detailed information.
32 Appendix
<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>
<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 811-07943.
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-MS5-NA 9-99
<PAGE>
September 29, 1999
NUVEEN FLAGSHIP MULTISTATE TRUST III
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectuses
of the Nuveen Flagship Multistate Trust III dated September 29, 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-12
Investment Adviser and Investment Management Agreement..................... S-19
Portfolio Transactions..................................................... S-20
Net Asset Value............................................................ S-21
Tax Matters................................................................ S-21
Performance Information.................................................... S-28
Additional Information on the Purchase and Redemption of Fund Shares....... S-34
Distribution and Service Plan.............................................. S-42
Independent Public Accountants and Custodian............................... S-43
Financial Statements....................................................... S-43
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 Tennessee Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
S-2
<PAGE>
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental entity or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end
management series investment company organized as a Massachusetts business
trust on July 1, 1996. Each of the Funds is an open-end management investment
company organized as a series of the Nuveen Flagship Multistate Trust III. The
Trust is an open-end management series company under SEC Rule 18f-2. Each Fund
is a separate series issuing its own shares. The Trust currently has four
series: the Nuveen Flagship Georgia Municipal Bond Fund (formerly the
S-3
<PAGE>
Flagship Georgia Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship Louisiana Municipal Bond Fund (formerly the
Flagship Louisiana Double Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); the Nuveen Flagship North Carolina Municipal Bond Fund (formerly
the Flagship North Carolina Tax Exempt Fund, a series of the Flagship Tax
Exempt Funds Trust); and the Nuveen Flagship Tennessee Municipal Bond Fund
(formerly the Flagship Tennessee Double Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust). Certain matters under the Investment Company
Act of 1940 which must be submitted to a vote of the holders of the outstanding
voting securities of a series company shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
Portfolio Securities
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local income tax in each Fund's
respective state, which generally will be Municipal Obligations issued within
the Fund's respective state. In general, Municipal Obligations include debt
obligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public
facilities such as airports, bridges, highways, hospitals, housing, mass
transportation, schools, streets and water and sewer works. Industrial
development bonds and pollution control bonds that are issued by or on behalf
of public authorities to finance various privately-rated facilities are
included within the term Municipal Obligations if the interest paid thereon is
exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have
credit characteristics equivalent to bonds rated within the four highest grades
by Moody's, S&P or Fitch, except that the Fund may not invest more than 20% of
its net assets in unrated bonds and (3) temporary investments as described
below, the income from which may be subject to state income tax or to both
federal and state income taxes. See Appendix A for more information about
ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property,
S-4
<PAGE>
disposition of the property in the event of foreclosure might prove difficult.
A Fund will seek to minimize the special risks associated with such securities
by only investing in those nonappropriation leases where Nuveen Advisory has
determined that the issuer has a strong incentive to continue making
appropriations and timely payment until the security's maturity. Some lease
obligations may be illiquid under certain circumstances. Lease obligations
normally provide a premium interest rate which along with regular amortization
of the principal may make them attractive for a portion of the assets of the
Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
Year 2000 Issues
The "Year 2000" problem refers to the fact that many computer programs use
only the last two digits of a year, and do not recognize a year that begins
with "20" instead of "19." If this problem is not corrected, computers could
function improperly or not at all, which could affect the global economy. The
SEC has urged securities issuers to disclose the steps they are taking to
correct any Year 2000 problems.
The Funds invest primarily in municipal securities. If municipal issuers do
not correct any Year 2000 problems in a timely manner, they could experience
problems in conducting their operations or in making payments on their
securities, which could cause the value of these securities to decline.
Municipal issuers could experience three types of Year 2000 problems. First, if
an issuer's internal computer systems experience Year 2000 problems, this could
disrupt an issuer's operations (such as its ability to collect local taxes or
fees). Second, an issuer may rely on other parties for the payments that
support its debt service, such as servicers that collect mortgage or student
loan payments, and those third parties may have Year 2000 problems that
interfere with their ability to forward payments to the issuer. Third, an
issuer may have mechanical problems in sending payments to its securities
holders.
Nuveen Advisory is obtaining information about the Year 2000 readiness of the
issuers of its portfolio securities.
Portfolio Trading and Turnover
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with their investment objective. Securities may
be sold in anticipation of market decline or purchased in anticipation of
market rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage
of what Nuveen Advisory believes to be a temporary disparity in the normal
yield relationship between the two securities. Each Fund may make changes in
its investment portfolio in order to limit its exposure to changing market
conditions. Changes in a Fund's investments are known as "portfolio turnover."
While it is impossible to predict future portfolio turnover rates, the annual
portfolio turnover rate for each of the Funds is generally not expected to
exceed 75%. However, each Fund reserves the right to make changes in its
investments whenever it deems such action advisable and, therefore, a Fund's
annual portfolio turnover rate may exceed 75% in particular years depending
upon market conditions.
S-5
<PAGE>
The portfolio turnover rates for the 1998 and 1999 fiscal years for the Funds
were:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1998 1999
----------- -----------
<S> <C> <C>
Nuveen Flagship Georgia Municipal Bond Fund...... 25% 32%
Nuveen Flagship Louisiana Municipal Bond Fund.... 15% 11%
Nuveen Flagship North Carolina Municipal Bond
Fund............................................ 29% 11%
Nuveen Flagship Tennessee Municipal Bond Fund.... 15% 16%
</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.
Special Considerations Relating to Municipal Obligations of Designated States
As described in the Prospectus, except for investments in temporary
investments, each of the Funds will invest substantially all of its assets (at
least 80%) in municipal bonds that are exempt from federal and state tax in
that state ("Municipal Obligations"), generally Municipal Obligations issued in
its respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public authorities in the
states of currently offered Funds. This information was obtained from official
statements of issuers located in the respective states as well as from other
publicly available official documents and statements. The Funds have not
independently verified any of the information contained in such statements and
documents. The information below is intended only as a general summary, and is
not intended as a discussion of any specific factor that may affect any
particular obligation or issuer.
S-6
<PAGE>
Factors Pertaining to Georgia
One of the nation's fastest growing states in terms of population, Georgia
has benefited from steady economic and employment growth as a result of the
State's stable and broad-based trade/service economy, low average cost of
living, and extensive transportation infrastructure. The State's economy has
slowed somewhat since the activity associated with the 1996 Olympic games.
Despite the slight decline, Georgia's job creation continues to outpace the
national rate. Much of the growth has centered in the business services and
healthcare sectors and has been centered in the metropolitan Atlanta area.
The State's unemployment level is low at 3.7% in July 1999, below the
national average of 4.3% in July 1999, and down from the State's 4.3% rate in
July 1998. Per capita income in 1998 was $25,106, approximately 95% of the
national average.
As of August 31, 1999, Georgia's general obligation debt carries AAA ratings
from Standard & Poor's, Moody's, and 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 Louisiana
Louisiana's economic base has experienced some improvement after the
recession of the 1980's. The strong national economy is providing Louisiana
some job growth and diversification of employment. The State continues to be
reliant on oil and gas related industries. However, recent technological
advances in the exploration of oil have allowed for increased productivity in
the extraction of oil and gas. The gaming industry has been relatively stable
and appears to be most successful in Lake Charles and Shreveport because of the
proximity to Texas.
Louisiana's economy has slowed somewhat since late 1997 due to falling oil
prices. However, in July 1999 oil prices exceeded $20 a barrel. As oil prices
stabilize or continue to rise, the State's economy will follow. The state has
experienced a decline in manufacturing jobs which have been offset by increases
in trade and service sectors. Tourism is becoming increasingly important to the
economy. In 1998, tourists spent $7.8 billion which resulted in the creation of
112,000 jobs and $339 million in revenues for the State. The unemployment rate
for the State was 4.7% in July 1999, above the national average of 4.3%. Per
capita income has increased and was $21,385 in 1998, but remains at about 81%
of the national average.
The State of Louisiana's financial situation is improving in part due to the
strong national economy and from the current administration's decision to limit
the use of one-time revenues for recurring expenditures. Also, the State is
addressing its historic over reliance on Medicaid disproportionate share
funding, which caused a budgetary crisis in 1995 and 1996 when the State's
funding was reduced.
The State's general obligation bond rating by Moody's, Standard & Poor's and
Fitch is A2, A- and A, respectively. 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.
S-7
<PAGE>
Factors Pertaining to North Carolina
North Carolina's economy continues to grow and diversify. The State ranks
among the top ten states in terms of economic growth, as measured by employment
growth. While manufacturing remains an important employment sector, the
services and retail trade sectors also supply a significant percentage of
employment. Growth in the high-technology sector has helped diversify the
State's economy and has also helped offset recent employment losses in the
textile, apparel, and tobacco industries.
The State's unemployment rate was 2.9% in July 1999, below the national
average of 4.3% in July 1999 and down from the State's 3.3% rate in July 1998.
Per capita income in 1998 was $24,122, approximately 91% of the national
average.
As of August 31, 1999, Moody's, Standard & Poor's, and Fitch all rate the
State's general obligation bonds 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.
Factors Pertaining to Tennessee
Tennessee's economy experienced strong growth in the early 1990's, but the
economic climate in the State has changed somewhat since then. Economic growth
has slowed from its strong pace of the early 1990's, as growth in the Service
Sector and in the State major metropolitan areas has moderated. As a result of
the good growth in the auto and truck manufacturing sectors, the State is now
more vulnerable to economic cycles. Still, the economy has been healthy.
Tennessee's unemployment rate in July 1999 was 3.4%, compared to the national
average of 4.3% in July 1999, and the State's 4.0% average in July 1998. Per
capita income was $23,615 in 1998, about 89% of the national average.
As of August 31, 1999, Tennessee's general obligation ratings are Aaa/AAA/AAA
by Moody's, Standard & Poor's and Fitch, respectively. 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.
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
S-8
<PAGE>
hedging transactions will reduce yield. Net gains, if any, from hedging and
other portfolio transactions will be distributed as taxable distributions to
shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
Short-term Securities
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable short-term securities
("temporary investments"). Temporary investments will not exceed 20% of a
Fund's assets except when made for defensive purposes. The Funds will invest
only in taxable temporary investments that are either U.S. Government
securities or are rated within the highest grade by Moody's, S&P, or Fitch and
mature within one year from the date of purchase or carry a variable or
floating rate of interest. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
S-9
<PAGE>
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
S-10
<PAGE>
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-11
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has 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
- ---------------- ------- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 3/28/49 Chairman of Chairman since July 1, 1996 of The John
Schwertfeger* the Board Nuveen Company, John Nuveen & Co.
333 West Wacker Drive and President Incorporated, Nuveen Advisory Corp. and
Chicago, IL 60606 and Trustee 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. 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 Consultant.
3725 Huntington
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 Company.
Highwood, IL 60040
Anne E. Impellizzeri 1/26/33 Trustee President and Chief Executive Officer of
3 West 29th Street Blanton-Peale Institutes of Religion and
New York, NY 10010 Health (since December 1990).
Peter R. Sawers 4/3/33 Trustee Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct
Northfield, IL 60093 Professor, Lake Forest Graduate School of
Management, Lake Forest, Illinois.
William J. Schneider 9/24/44 Trustee Senior Partner and Chief Operating Officer,
4000 Miller-Valentine Miller-Valentine Partners; Vice President,
Ct. Miller-Valentine Group, a development and
P.O. Box 744 contract company; Member Community Advisory
Dayton, OH 45401 Board, National City Bank, Dayton, Ohio.
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
Positions
Date of and Offices Principal Occupations
Name and Address Birth with Trust During Past Five Years
- ---------------- ------- ----------- ----------------------
<S> <C> <C> <C>
Judith M. 12/29/47 Trustee Executive Director, Gaylord and Dorothy
Stockdale Donnelley Foundation (since 1994);
35 E. prior thereto, Executive Director,
Wacker Great Lakes Protection Fund (from 1990
Drive to 1994).
Suite
2600
Chicago,
IL 60601
Alan G. 12/28/60 Vice President and Senior Vice President (since May 1999,
Berkshire Assistant Secretary formerly Vice President) and General
333 West Counsel (since September 1997) and
Wacker Secretary (since May 1998) of The John
Drive Nuveen Company, John Nuveen & Co.
Chicago, Incorporated; Vice President (since
IL 60606 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. 11/28/67 Vice President and Vice President of John Nuveen & Co.
D'Arrigo Treasurer Incorporated (since January 1999),
333 West prior thereto, Assistant Vice President
Wacker (from January 1997); formerly,
Drive Associate of John Nuveen & Co.
Chicago, Incorporated; Chartered Financial
IL 60606 Analyst.
Michael S. 6/26/57 Vice President Vice President of Nuveen Advisory Corp.
Davern (since January 1997); prior thereto,
One South Vice President and Portfolio Manager of
Main Flagship Financial.
Street
Dayton,
OH 45402
Lorna C. 10/24/45 Vice President Vice President of John Nuveen & Co.
Ferguson incorporated; Vice President (since
333 West January 1998) of Nuveen Advisory Corp.
Wacker and Nuveen Institutional Advisory Corp.
Drive
Chicago,
IL 60606
William M. 3/2/64 Vice President Vice President of Nuveen Advisory Corp.
Fitzgerald (since December 1995); Assistant Vice
333 West President of Nuveen Advisory Corp.
Wacker (from September 1992 to December 1995),
Drive prior thereto, Assistant Portfolio
Chicago, Manager of Nuveen Advisory Corp.
IL 60606
Stephen D. 5/31/54 Vice President and Vice President of John Nuveen & Co.
Foy Controller Incorporated and (since May 1998) The
333 West John Nuveen Company; Certified Public
Wacker Accountant.
Drive
Chicago,
IL 60606
J. Thomas 7/5/55 Vice President Vice President of Nuveen Advisory Corp.;
Futrell Chartered Financial Analyst.
333 West
Wacker
Drive
Chicago,
IL 60606
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
Positions
Date of and Offices Principal Occupations
Name and Address Birth with Trust During Past Five Years
- ---------------- ------- ----------- ----------------------
<S> <C> <C> <C>
Richard A. 3/26/63 Vice President Vice President of Nuveen Institutional
Huber Advisory Corp. (since March 1998); and
333 West Nuveen Advisory Corp. (since January
Wacker 1997) prior thereto, Vice President and
Drive Portfolio Manager of Flagship
Chicago, IL Financial, Inc.
60606
</TABLE>
<TABLE>
<S> <C> <C> <C>
Steven J. 8/21/57 Vice President Vice President of Nuveen Advisory Corp.
Krupa
333 West
Wacker
Drive
Chicago,
IL 60606
Larry W. 7/27/51 Vice President and Vice President, Assistant Secretary and
Martin Assistant Secretary Assistant General Counsel of John Nuveen &
333 West Co. Incorporated; Vice President and
Wacker Assistant Secretary of Nuveen Advisory
Drive Corp.; Vice President and Assistant
Chicago, Secretary of Nuveen Institutional Advisory
IL 60606 Corp.; Assistant Secretary of The John
Nuveen Company and (since January 1997)
Nuveen Asset Management Inc.
Edward F. 7/7/65 Vice President Vice President (since September 1996),
Neild, previously Assistant Vice President (since
IV December 1993) of Nuveen Advisory Corp.,
333 West Portfolio manager prior thereto; Vice
Wacker President (since September 1996),
Drive previously Assistant Vice President (since
Chicago, May 1995) of Nuveen Institutional Advisory
IL 60606 Corp., Portfolio manager prior thereto
Chartered Financial Analyst.
Stephen 9/20/57 Vice President Vice President (since September 1997),
S. previously Assistant Vice President (since
Peterson September 1996) Portfolio Manager prior
333 West thereto of Nuveen Advisory Corp.; Chartered
Wacker Financial Analyst.
Drive
Chicago,
IL 60606
Stuart W. 5/1/56 Vice President Vice President of John Nuveen & Co.
Rogers Incorporated.
333 West
Wacker
Drive
Chicago,
IL 60606
Thomas C. 7/31/51 Vice President Vice President of Nuveen Advisory Corp. and
Spalding, Nuveen Institutional Advisory Corp.;
Jr. Chartered Financial Analyst.
333 West
Wacker
Drive
Chicago,
IL 60606
Gifford 9/9/56 Vice President Vice President, Assistant Secretary and
R. and Secretary Associate General Counsel formerly
Zimmerman Assistant General Counsel of John Nuveen &
333 West Co. Incorporated; Vice President (since May
Wacker 1993) and Secretary (since July 1999) of
Drive Nuveen Advisory Corp. and Nuveen
Chicago, Institutional Advisory Corp.; Vice
IL 60606 President and Assistant Secretary of The
John Nuveen Company; Chartered Financial
Analyst.
</TABLE>
S-14
<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 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.
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 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 ....................... $2,566 $73,000
Lawrence H. Brown........................ $2,774 $80,000
Anne E. Impellizzeri..................... $2,566 $73,000
Peter R. Sawers.......................... $2,575 $73,750
William J. Schneider..................... $2,566 $73,000
Judith M. Stockdale...................... $2,566 $73,500
</TABLE>
- --------
*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 for each
participating Trustee (including the return from the assumed investments in
the eligible Nuveen Funds) payable from the Trust is as follows:
Bremner--$36
Impellizzeri--$243
Sawers--$247
Schneider--$243
Stockdale--$61
The officers and trustees of each Fund, in the aggregate, own less than 1% of
the shares of the Fund.
S-15
<PAGE>
The following table sets forth the percentage ownership of each person, who,
as of September 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 Georgia
Municipal Bond Fund MLPF&S 32.80%
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin./970C4
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Georgia
Municipal Bond Fund MLPF&S 31.73
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97NC2
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Georgia
Municipal Bond Fund MLPF&S 49.60
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin./97C83
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Georgia
Municipal Bond Fund Carolyn P. Fellows 23.54
Class R Shares............ Carolyn P. Fellows Trust
415 Sassafras Rd.
Roswell, GA 30076-3669
Alan J. Brown 15.15
432 Calton Hill Ct.
Alpharetta, GA 30004
Wilfred E. Boykin 13.95
1725 Briarcliff Rd.
Milledgeville, GA 31061-2154
J.V. Brooks 13.17
P.O. Box 818
Valdosta, GA 31603-0818
Roger T. Hansen 10.44
Marian L. Hansen
2289 Blaylock-Goldmine Rd.
Clayton, GA 30525
Kurt Vogt 6.70
and Inge Vogt
1118 Reading Dr., NW
Acworth, GA 30102-3426
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Louisiana
Municipal Bond Fund MLPF&S 42.54
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin./70079
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Louisiana
Municipal Bond Fund MLPF&S 51.98
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97NC5
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Louisiana
Municipal Bond Fund MLPF&S 71.08
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin./97DD4
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Louisiana
Municipal Bond Fund Bear Stearns Securities Corp. 96.82
Class R Shares............ FBO 187-62656-28
1 Metrotech Center North
Brooklyn, NY 11201-3859
Nuveen Flagship North
Carolina Municipal Bond MLPF&S 14.93
Fund Class A Shares....... for the sole benefit of its customers
Attn: Fund Admin./970C6
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship North
Carolina Municipal Bond MLPF&S 10.43
Fund Class B Shares....... for the sole benefit of its customers
Attn: Fund Admin./97NC8
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship North
Carolina Municipal Bond MLPF&S 17.15
Fund Class C Shares....... for the sole benefit of its customers
Attn: Fund Admin./97CM8
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship North
Carolina Municipal Bond Louise S. Allen 9.23
Fund Class R Shares....... 157 Sitterson Loop
Plymouth, NC 27962-9566
John R. Campbell 8.91
2701 St. Claire Rd
Winston-Salem, NC 27106-5022
James H. Ward 5.82
P.O. Box 67
Plymouth, NC 27962-0067
Maryellen D. Casler 5.34
1726 Seabrook Ave.
Cary, NC 27511-5625
Nuveen Flagship Tennessee 20.47
Municipal Bond Fund MLPF&S
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin./970N6
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Tennessee
Municipal Bond Fund MLPF&S 13.43
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97ND0
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Tennessee
Municipal Bond Fund MLPF&S 47.42
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin./97CM7
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Tennessee
Municipal Bond Fund Darius A. Hensley 23.90
Class R Shares............ P.O. Box 305
Piney Flats, TN 37686-0305
Edward D. Jones and Co. FAO 18.18
Hugh A. Stephenson
EDJ 152-03466-1-8
P.O. Box 2500
Maryland Heights, MO 63043-8500
J.C. Bradford Co. Cust. FBO 12.70
Jeffrey L. Cooper
330 Commerce Street
Nashville, TN 37201-1809
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship Tennessee
Municipal Bond Fund J.C. Hawk 10.50%
Class R Shares (cont'd)...... and Ruth L. Hawk
2015 Sherwood Dr.
Johnson City, TN 37601-3236
Georgia J. Bartosch 9.64
Georgia Jean Bartosch Living Trust
3535 Kirby Rd Apt. A121
Memphis, TN 38115-3710
Walter Wolentarski 7.90
Patricia A. Wolentarski
665 Rebel Rd
Old Hickory, TN 37138-1045
Terry F. Heffstetler 5.80
Helen B. Heffstetler
3942 US Hwy. 411 S
Maryville, TN 37801-7646
</TABLE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds 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 last three fiscal years, the Funds paid net management fees 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>
Georgia Municipal Bond
Fund.................... 338,940 461,866 634,915 283,341 278,606 212,546
Louisiana Municipal Bond
Fund.................... 223,450 412,374 523,717 193,709 122,920 164,948
North Carolina Municipal
Bond Fund............... 850,815 1,064,856 842,438 133,892 -- 286,712
Tennessee Municipal Bond
Fund.................... 1,051,491 1,508,648 1,729,282 341,259 56,952 3,700
</TABLE>
S-19
<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 the
sponsor of the Nuveen Defined Portfolios, and is the principal underwriter for
the Nuveen Mutual Funds, and has served as co-managing underwriter for the
shares of the Nuveen Exchange-Traded Funds. Over 1,300,000 individuals have
invested to date in Nuveen's funds and Defined Portfolios. Founded in 1898,
Nuveen is a subsidiary of The John Nuveen Company which, in turn, is
approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul
is located in St. Paul, Minnesota and is principally engaged in providing
property-liability insurance through subsidiaries. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
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
S-20
<PAGE>
clients and opinions of the persons responsible for recommending investments to
the Fund and such other clients. While this procedure could have a detrimental
effect on the price or amount of the securities available to 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 Funds' shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the Exchange is normally open for
trading. The Exchange is not open for trading on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of a class of shares of a
Fund will be computed by dividing the 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
S-21
<PAGE>
respect of any one issuer to an amount not greater in value than 5% of the
value of a Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
the total assets is invested in the securities of any one issuer (other than
United States Government securities and securities of other regulated
investment companies) or two or more issuers controlled by a Fund and engaged
in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law to 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 by a
Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-
S-22
<PAGE>
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. Present law taxes both long- and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, however, (i) gain on the sale of shares
held for more than 18 months will generally be taxed at a maximum marginal rate
of 20%, (ii) gain on the sale of shares held for more than one year but not
more than 18 months will generally be taxed at a maximum marginal rate of 28%,
and (iii) gain on the sale of shares held for not more than one year and other
ordinary income will generally be taxed at a maximum marginal rate of 39.6%.
Because of the limitations on itemized deductions and the deduction for
personal exemptions applicable to higher income taxpayers, the effective tax
rate on net income may be higher in certain circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or
S-23
<PAGE>
exchange of shares of a Fund if the shareholder purchases other shares of such
Fund (whether through reinvestment of distributions or otherwise) or the
shareholder acquires or enters into a contract or option to acquire securities
that are substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the
extent the redemption or exchange price exceeds the shareholder's tax basis in
the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
S-24
<PAGE>
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
State Tax Matters
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
satisfy the conditions which will cause distributions to qualify as exempt-
interest dividends to shareholders when distributed as intended, and that each
Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax purposes. The tax discussion summarizes general state tax laws which
are currently in effect and are subject to change by legislative or
administrative action; any such changes may be retroactive with respect to the
applicable Fund's transactions. Investors should consult a tax adviser for more
detailed information about state taxes to which they may be subject.
Georgia
The following is a general, abbreviated summary of certain provisions of the
applicable Georgia tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Georgia Fund.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Georgia Fund transactions.
The following is based on the assumptions that the Georgia Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Georgia Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Georgia Fund's shareholders.
The Georgia Fund will be subject to the Georgia corporate net worth tax and
the Georgia corporate income tax only if it has a sufficient nexus with
Georgia. If it is subject to such taxes, it does not expect to pay a material
amount of either tax.
S-25
<PAGE>
Distributions from the Georgia Fund that are attributable to interest on any
obligation of Georgia or its political subdivisions or on obligations of the
United States, its territories, possessions, or instrumentalities that are
exempt from state taxation under federal law will not be subject to the Georgia
personal income tax or the Georgia corporate income tax. All other
distributions, including distributions attributable to capital gains, will be
subject to the Georgia personal and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the Georgia
Fund will be subject to the Georgia personal and corporate income taxes.
Shares of the Georgia Fund may be subject to the Georgia estate tax if held
by a Georgia decedent at the time of death.
Shareholders should note that the Georgia intangible personal property tax
has been repealed effective January 1, 1997.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Georgia and local tax matters.
Louisiana
The following is a general, abbreviated summary of certain provisions of the
applicable Louisiana tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Louisiana
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Louisiana Fund transactions.
The following is based on the assumptions that the Louisiana Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Louisiana Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Louisiana Fund's
shareholders.
The Louisiana Fund will be subject to the Louisiana corporate franchise tax
and corporate income tax only if it has a sufficient nexus with Louisiana. If
it is subject to such taxes, it does not expect to pay a material amount of
either tax.
Distributions by the Louisiana Fund that are attributable to interest on any
obligation of Louisiana and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Louisiana personal income tax or the Louisiana corporate
income tax. All other distributions, including distributions attributable to
capital gains, will be subject to the Louisiana personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Louisiana
Fund will be subject to the Louisiana personal and corporate income taxes.
Shares of the Louisiana Fund may be subject to the Louisiana inheritance tax
and the Louisiana estate tax if held by a Louisiana decedent at the time of
death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Louisiana tax matters.
North Carolina
The following is a general, abbreviated summary of certain provisions of the
applicable North Carolina tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of
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<PAGE>
the North Carolina Fund. This summary does not address the taxation of other
shareholders nor does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to North Carolina Fund
transactions.
The following is based on the assumptions that the North Carolina Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause North Carolina Fund
distributions to qualify as exempt-interest dividends to shareholders, and that
it will distribute all interest and dividends it receives to the North Carolina
Fund's shareholders.
The North Carolina Fund will be subject to the North Carolina corporation
income tax and the North Carolina franchise tax only if it has a sufficient
nexus with North Carolina. If it is subject to such taxes, it does not expect
to pay a material amount of either tax.
Distributions from North Carolina Fund that are attributable to interest on
any obligation of North Carolina or its political subdivisions or to interest
on obligations of the United States, its territories, possessions, or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the North Carolina personal income tax or the North Carolina
corporation income tax. All other distributions, including distributions
attributable to capital gains, will be subject to the North Carolina personal
and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the North
Carolina Fund will be subject to the North Carolina personal and corporate
income taxes.
Shares of the North Carolina Fund may be subject to the North Carolina
inheritance tax and the North Carolina estate tax if owned by a North Carolina
decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning North Carolina and local tax matters.
Tennessee
The following is a general, abbreviated summary of certain provisions of the
applicable Tennessee tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Tennessee
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Tennessee Fund transactions.
The following is based on the assumptions that the Tennessee Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will invest at least 75% of its assets in obligations of Tennessee and its
political subdivisions ("Tennessee Obligations") or obligations of the United
States, its territories, possessions, or instrumentalities that are exempt from
state taxation under federal law ("Federal Obligations"), that it will satisfy
the conditions which will cause Tennessee Fund distributions to qualify as
exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Tennessee Fund's shareholders.
The Tennessee Fund is not subject to Tennessee taxes.
Distributions from the Tennessee Fund that are attributable to interest on
Tennessee Obligations or to interest on Federal Obligations will not be subject
to the Tennessee individual income tax (also known as the "Hall income tax").
In addition, under current administrative practice of the Tennessee Department
of Revenue, dividends attributable to gains realized from the sale or exchange
of Tennessee Obligations or Federal Obligations will not be subject to the
Tennessee individual income tax. All other distributions will be subject to
such tax.
S-27
<PAGE>
All distributions from the Tennessee Fund, regardless of source, will be
subject to the Tennessee corporate excise tax.
Gain on the sale, exchange, or other disposition of shares of the Tennessee
Fund will not be subject to the Tennessee individual income tax but will be
subject to the Tennessee corporate excise tax.
Shares of the Tennessee Fund may be subject to the Tennessee inheritance tax
and the Tennessee estate tax if owned by a Tennessee decedent at the time of
death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Tennessee and local tax matters.
PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each
of which will be calculated separately for each class of shares.
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20%.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
S-28
<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>
Georgia Municipal Bond Fund
Class A Shares............. 4.01% 43.00% 7.04%
Class B Shares............. 3.43% 43.00% 6.02%
Class C Shares............. 3.63% 43.00% 6.37%
Class R Shares............. 4.38% 43.00% 7.68%
Louisiana Municipal Bond Fund
Class A Shares............. 4.32% 42.00% 7.45%
Class B Shares............. 3.76% 42.00% 6.48%
Class C Shares............. 3.96% 42.00% 6.83%
Class R Shares............. 4.71% 42.00% 8.12%
North Carolina Municipal Bond
Fund
Class A Shares............. 4.51% 44.50% 8.13%
Class B Shares............. 3.96% 44.50% 7.14%
Class C Shares............. 4.16% 44.50% 7.50%
Class R Shares............. 4.92% 44.50% 8.86%
Tennessee Municipal Bond Fund
Class A Shares............. 3.92% 43.00% 6.88%
Class B Shares............. 3.35% 43.00% 5.88%
Class C Shares............. 3.55% 43.00% 6.23%
Class R Shares............. 4.30% 43.00% 7.54%
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields table in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen 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.
S-29
<PAGE>
The distribution rates as of the date 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 A Class B Class C Class R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Georgia Municipal Bond Fund............... 4.54% 3.97% 4.20% 4.97%
Louisiana Municipal Bond Fund............. 4.65% 4.12% 4.33% 5.06%
North Carolina Municipal Bond Fund ....... 4.59% 3.98% 4.23% 4.97%
Tennessee Municipal Bond Fund............. 4.63% 4.09% 4.25% 5.05%
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Total returns for the Class A Shares of each fund reflect actual performance
for all periods. For the Class B, C and R Shares, total returns reflect actual
performance for periods since class inception, and the Class A Shares'
performance for periods prior to inception, adjusted for the differences in
sales charges (and for Class B and C, fees) between the classes.
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
Inception Dates
------------------
<S> <C>
Georgia Municipal Bond Fund
Class A Shares....................................... March 27, 1986
Class B Shares....................................... February 1, 1997
Class C Shares....................................... January 4, 1994
Class R Shares....................................... February 1, 1997
Louisiana Municipal Bond Fund
Class A Shares....................................... September 12, 1989
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 2, 1994
Class R Shares....................................... February 1, 1997
North Carolina Municipal Bond Fund
Class A Shares....................................... March 27, 1986
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
Tennessee Municipal Bond Fund
Class A Shares....................................... November 2, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
</TABLE>
S-30
<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, were:
<TABLE>
<CAPTION>
Annual Total Return
--------------------------------------------
One year Five years Ten years From inception
ended ended ended through
May 31, May 31, May 31, May 31,
1999 1999 1999 1999
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Georgia Municipal Bond Fund
Class A Shares............ -0.99% 6.12% 6.63% 7.03%
Class B Shares............ -1.37% 6.22% 6.61% 7.03%
Class C Shares............ 2.80% 6.47% 6.48% 6.79%
Class R Shares............ 3.67% 7.10% 7.11% 7.41%
Louisiana Municipal Bond
Fund
Class A Shares............ -0.66% 6.44% N/A 7.54%
Class B Shares............ -0.96% 6.53% N/A 7.51%
Class C Shares............ 3.20% 6.77% N/A 7.42%
Class R Shares............ 4.03% 7.48% N/A 8.07%
North Carolina Municipal
Bond Fund
Class A Shares............ -0.95% 5.28% 6.27% 6.44%
Class B Shares............ -1.18% 5.37% 6.26% 6.43%
Class C Shares............ 2.85% 5.60% 6.12% 6.18%
Class R Shares............ 3.61% 6.27% 6.77% 6.82%
Tennessee Municipal Bond
Fund
Class A Shares............ -0.85% 5.47% 6.47% 7.15%
Class B Shares............ -1.23% 5.55% 6.45% 7.15%
Class C Shares............ 2.97% 5.79% 6.33% 6.96%
Class R Shares............ 3.68% 6.43% 6.95% 7.58%
</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-31
<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 as follows:
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------
From
One year Five years Ten years inception
ended ended ended through
May 31, May 31, May 31, May 31,
1999 1999 1999 1999
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Georgia Municipal Bond
Fund
Class A Shares.......... -0.99% 34.60% 89.99% 144.90%
Class B Shares.......... -1.37% 35.25% 89.65% 144.79%
Class C Shares.......... 2.80% 36.79% 87.43% 137.51%
Class R Shares.......... 3.67% 40.88% 98.78% 156.41%
Louisiana Municipal Bond
Fund
Class A Shares.......... -0.66% 36.63% N/A 102.59%
Class B Shares.......... -0.96% 37.22% N/A 102.04%
Class C Shares.......... 3.20% 38.74% N/A 100.42%
Class R Shares.......... 4.03% 43.41% N/A 112.58%
North Carolina Municipal
Bond Fund
Class A Shares.......... -0.95% 29.34% 83.70% 127.59%
Class B Shares.......... -1.18% 29.87% 83.48% 127.37%
Class C Shares.......... 2.85% 31.31% 81.14% 120.42%
Class R Shares.......... 3.61% 35.54% 92.52% 138.46%
Tennessee Municipal Bond
Fund
Class A Shares.......... -0.85% 30.53% 87.10% 122.49%
Class B Shares.......... -1.23% 30.99% 86.83% 122.31%
Class C Shares.......... 2.97% 32.47% 84.79% 117.87%
Class R Shares.......... 3.68% 36.57% 95.81% 132.86%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using a 43.0% combined marginal federal and State tax rate for 1999, the
annual taxable equivalent total return for the Georgia Municipal Bond Fund's
Class A shares at net asset value for the one-year period ended May 31, 1999
was 7.07%.
S-32
<PAGE>
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Funds primarily invest in investment grade Municipal
Obligations in pursuing their objective of as high a level of current interest
income which is exempt from federal and state income tax as is consistent, in
the view of the Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury
securities funds, corporate bond funds (either investment grade or high yield),
or Ginnie Mae funds. These types of funds, because of the character of their
underlying securities, differ from municipal bond funds in several respects.
The susceptibility of the price of treasury bonds
S-33
<PAGE>
to credit risk is far less than that of municipal bonds, but the price of
treasury bonds tends to be slightly more susceptible to change resulting from
changes in market interest rates. The susceptibility of the price of investment
grade corporate bonds and municipal bonds to market interest rate changes and
general credit changes is similar. High yield bonds are subject to a greater
degree of price volatility than municipal bonds resulting from changes in
market interest rates and are particularly susceptible to volatility from
credit changes. Ginnie Mae bonds are generally subject to less price volatility
than municipal bonds from credit concerns, due primarily to the fact that the
timely payment of monthly installments of principal and interest are backed by
the full faith and credit of the U.S. Government, but Ginnie Mae bonds of
equivalent coupon and maturity are generally more susceptible to price
volatility resulting from market interest rate changes. In addition, the
volatility of Ginnie Mae bonds due to changes in market interest rates may
differ from municipal bonds of comparable coupon and maturity because bonds of
the sensitivity of Ginnie Mae prepayment experience to change in interest
rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
The minimum initial investment is $3,000 per fund share class ($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 Georgia 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......................................... $11.02
Per Share Sales Charge--4.20% of public offering price (4.36% of
net asset value per share)....................................... .48
------
Per Share Offering Price to the Public............................ $11.50
</TABLE>
S-34
<PAGE>
The Funds receive the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
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 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.
S-35
<PAGE>
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;
. 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;
S-36
<PAGE>
. 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 e initial purchase to which such shares relate. For
this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. A
Class B Shares that are converted to Class A Shares will remain subject to an
annual service fee that is identical in amount for both Class B Shares and
Class A Shares. Since net asset value per share of the Class B Shares and the
Class A Shares may differ at the time of conversion, a shareholder may receive
more or fewer Class A Shares than the number of Class B Shares converted. Any
conversion of Class B Shares into Class A Shares will be subject to the
continuing availability of an opinion of counsel or a private letter ruling
from the Internal Revenue Service to the effect that the conversion of shares
would not constitute a taxable event under federal income tax law. Conversion
of Class B Shares into Class A Shares might be suspended if such an opinion or
ruling were no longer available.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
S-37
<PAGE>
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 of Nuveen unit investment trusts had elected
to reinvest distributions in Nuveen Fund shares (before June 13, 1995 for
Nuveen Municipal Bond Fund shares). Shareholders may exchange their Class R
Shares of any Nuveen Fund into Class R Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 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 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
S-38
<PAGE>
shares held for the longest period, unless the shareholder specifies another
order. No CDSC is charged upon shares purchased as a result of automatic
reinvestment of dividends or capital gains paid. In addition, no CDSC will be
charged on exchanges of shares into another Nuveen Mutual Fund or Nuveen money
market fund. 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 systematic 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 advanced 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.
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
S-39
<PAGE>
the Funds, and will not change the price an investor pays for shares or the
amount 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.
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 III, 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
S-40
<PAGE>
statement of the Trust. Pursuant to the Distribution Agreement, Nuveen, at its
own expense, finances certain activities incident to the sale and distribution
of the Funds' shares, including printing and distributing of prospectuses and
statements of additional information to other than existing shareholders, the
printing and distributing of sales literature, advertising and payment of
compensation and giving of concessions to Dealers. Nuveen receives for its
services the excess, if any, of the sales price of the Funds' shares less the
net asset value of those shares, and reallows a majority or all of such amounts
to the Dealers who sold the shares; Nuveen may act as such a Dealer. Nuveen
also receives compensation pursuant to a distribution plan adopted by the Trust
pursuant to Rule 12b-1 and described herein under "Distribution and Service
Plan." Nuveen receives any CDSCs imposed on redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Financial Inc., which Nuveen acquired on
January 1, 1997) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
May 31, 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>
Georgia Fund............ 387 19 300 41 293 39
Louisiana Fund.......... 303 -- 367 39 254 33
North Carolina Fund..... 308 37 289 40 358 49
Tennessee Fund.......... 752 67 662 67 639 88
</TABLE>
S-41
<PAGE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended May 31, 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>
Georgia Municipal Bond Fund
Class A................................................ $250,073
Class B................................................ $ 71,822
Class C................................................ $164,125
Louisiana Municipal Bond Fund
Class A................................................ $185,203
Class B................................................ $128,440
Class C................................................ $129,015
North Carolina Municipal Bond Fund
Class A................................................ $373,199
Class B................................................ $ 67,989
Class C................................................ $ 91,426
Tennessee Municipal Bond Fund
Class A................................................ $572,541
Class B................................................ $ 93,467
Class C................................................ $183,788
</TABLE>
S-42
<PAGE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast in person at a meeting called for the
purpose of considering such amendments. During the continuance of the Plan, the
selection and nomination of the non-interested trustees of the Trust will be
committed to the discretion of the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
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 will provide consultation and
assistance on accounting, internal control, tax and related matters. The
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for prior periods set forth under
"Financial Highlights" in the Prospectus have been audited by the auditors as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of those auditors in giving their reports.
The custodian of the 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.
S-43
<PAGE>
APPENDIX A
Ratings of Investments
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
A-1
<PAGE>
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
Futures and Index Transactions
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
B-1
<PAGE>
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
Index Contracts
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash--rather than any security--equal to specified dollar amount times the
difference between the index value at the close of the last trading day of the
contract and the price at which the index future was originally written. Thus,
an index future is similar to traditional financial futures except that
settlement is made in cash.
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
Repurchase Agreements
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or
B-2
<PAGE>
delays. If the seller becomes insolvent and subject to liquidation or
reorganization under applicable bankruptcy or other laws, the Fund's ability to
dispose of the underlying securities may be restricted. Finally, it is possible
that the Fund may not be able to substantiate its interest in the underlying
securities. To minimize this risk, the securities underlying the repurchase
agreement will be held by the custodian at all times in an amount at least
equal to the repurchase price, including accrued interest. If the seller fails
to repurchase the securities, the Fund may suffer a loss to the extent proceeds
from the sale of the underlying securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-3
VAI-MS3 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]
Georgia
Louisiana
North Carolina
Tennessee
Featuring Portfolio Management By Nuveen Investment Advisory Services
A Premier Adviser/SM/ for Income Investing
<PAGE>
Contents
1 Dear Shareholder
3 Nuveen Flagship Georgia Municipal Bond Fund
6 Nuveen Flagship Louisiana Municipal
Bond Fund
9 Nuveen Flagship North Carolina Municipal Bond Fund
12 Nuveen Flagship Tennessee Municipal Bond Fund
15 Portfolio of Investments
33 Statement of Net Assets
35 Statement of Operations
36 Statement of Changes in Net Assets
38 Notes to Financial Statements
43 Financial Highlights
47 Report of Independent Public
Accountants
48 Building a Better Portfolio
49 Fund Information
<PAGE>
DEAR
Shareholder
[Photo of Timothy R. Schwertfeger Appears Here]
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 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 FLAGSHIP GEORGIA 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 Georgia 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 Georgia's economy? With an unemployment rate of just 3.7% in May,
Georgia's economy is among the strongest in the nation. It is also among the
fastest growing high-technology states in the U.S., adding 45,000 jobs during
the 1990s.
The state enjoys one of the highest population growth rates in the country,
attracting new college graduates in fields such as finance and high technology.
As a result of the strength of Georgia's expanding economy, municipalities
have looked to the municipal bond market to finance their 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.
Issuance has continued strong in 1999, as the city of Atlanta issued $1.1
billion worth of water and sewer bonds. Atlanta is privatizing the management of
its water system, and is the largest city in the nation to have done so.
How did Nuveen Flagship Georgia Municipal Bond Fund perform during its fiscal
year? Nuveen Flagship Georgia Municipal Bond Fund generated a total return on
net asset value of 3.34%, outperforming the 3.24% average annual total return
posted by the Lipper Georgia 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 taxable equivalent return, for investors in the 35%
combined federal and state income tax bracket, was 6%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.18%. For investors in
the combined 35% federal and state income tax bracket, that is equivalent to a
yield of 6.43% 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
into the future--or better yet, that are noncallable. Only 4.66% of the Georgia
portfolio is callable between now and the year 2001.
On the heels of Atlanta's successful sale of $1.1 billion of water and sewer
revenue bonds during the first quarter of 1999, many Georgia issuers brought new
bonds to market during the second quarter. Unlike the overall municipal market,
which has experienced a market decline in new issue supply, Georgia's new
issuance was up considerably during the period.
We took advantage of this market opportunity by buying Georgia bonds while
supply was strong and prices were relatively inexpensive. Purchases such as
Ginnie Mae-backed Atlanta Housing Authority Multifamily Housing Revenue bonds
and insured Private Colleges and Universities Authority Student Housing Revenue
bonds provide very good yield on a risk-adjusted basis.
We expect other purchases, such as DeKalb County Water & Sewer bonds, will
generate substantial retail interest for a long time to come and, as a result,
will provide the fund with good liquidity.
* The Lipper Peer Group return represents the average annualized total
return of the 34 funds in the Lipper Georgia 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.
3
<PAGE>
In addition to call protection, we continued to search for bonds that offered
attractive yields and sound underlying credit quality. Nuveen Research helps
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.
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 Georgia 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 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
effective maturity would be beneficial.
With Georgia'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.
"Unlike the overall municipal market, which has experienced a market decline in
new issue supply, Georgia's new issuance was up considerably during the period.
We took advantage of this market opportunity by buying Georgia bonds while
supply was strong and prices were relatively inexpensive."
4
<PAGE>
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $11.02 $11.03 $11.00 $10.99
- ----------------------------------------------------------------------------------------------------
May's Declared Dividend* $0.0435 $0.0365 $0.0385 $0.0455
- ----------------------------------------------------------------------------------------------------
Fund Symbol FGATX N/A FGACX N/A
- ----------------------------------------------------------------------------------------------------
CUSIP 67065P501 67065P600 67065P709 67065P808
- ----------------------------------------------------------------------------------------------------
Inception Date 3/86 2/97 1/94 2/97
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Paid June 1, 1999
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 3.34% -0.99% 2.57% 2.80% 3.67%
- ----------------------------------------------------------------------------------------------------
1-Year TER** 6.00% 1.56% 4.81% 5.16% 6.46%
- ----------------------------------------------------------------------------------------------------
5-Year 7.04% 6.12% 6.38% 6.47% 7.10%
- ----------------------------------------------------------------------------------------------------
10-Year 7.08% 6.63% 6.61% 6.48% 7.11%
</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]
Nuveen Flagship Nuveen Flagship Lehman Brothers
Georgia Municipal Georgia Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
<TABLE>
<CAPTION>
May
---
<S> <C> <C> <C>
1989 9,580 10,000 10,000
1990 10,017 10,456 10,731
1991 11,007 11,490 11,813
1992 11,977 12,502 12,974
1993 13,274 13,856 14,526
1994 13,518 14,111 14,885
1995 14,642 15,284 16,240
1996 15,087 15,748 16,982
1997 16,502 17,225 18,391
1998 18,381 19,187 20,117
1999 18,992 19,825 21,058
</TABLE>
Nuveen Flagship Georgia Municipal Bond Fund (Offer) $18,922
Nuveen Flagship Georgia Municipal Bond Fund (NAV) $19,825
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]
460
460
460
460
450
450
450
450
450
435
435
500
400
300
200
100
0
Portfolio Statistics
Fund Net Assets $164.9 million
- ----------------------------------------------------------------------
Effective Maturity 22.63 years
- ----------------------------------------------------------------------
Average
Effective Duration 8.89
- ----------------------------------------------------------------------
Top Five Sectors/1/
Housing (Multifamily) 16%
- ----------------------------------------------------------------------
Tax Obligation (Limited) 16%
- ----------------------------------------------------------------------
Water and Sewer 16%
- ----------------------------------------------------------------------
U.S. Guaranteed 13%
- ----------------------------------------------------------------------
Health Care 11%
- ----------------------------------------------------------------------
Bond Credit Quality/1/
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed......69%
AA..............12%
A...............12%
BBB/NR.......... 7%
/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 LOUISIANA MUNICIPAL BOND FUND
Report from the Portfolio Manager
Portfolio Manager Mike Davern discusses fund performance, the municipal market
and key investment strategies for the Louisiana 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.
What's driving the Louisiana economy?
The Louisiana economy is heavily dependent on the energy industry, so the level
of oil and gas prices can have a major effect. While energy prices plummeted in
the second half of 1998 as it appeared that global demand would weaken, prices
recovered in early 1999, which bodes well for the state.
Overall, Louisiana's unemployment rate is quite low at 4.4% as of May 31.
The state's other important industry is tourism, which fuels sales tax and
gaming revenues.
With low interest rates and growing infrastructure and school financing
needs, the state's municipal bond issuance was robust 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 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 Louisiana Municipal Bond Fund perform during its fiscal
year?
Nuveen Flagship Louisiana Municipal Bond Fund generated a total return on net
asset value of 3.73%, compared to the 3.50% average annual total return posted
by the Lipper Louisiana 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 taxable equivalent return, for investors in the 34%
combined federal and state income tax bracket, was 6.31%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.51%. For investors in
the combined 34% federal and state income tax bracket, that is equivalent to a
yield of 6.83% 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.
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality.
Nuveen Research also helps us monitor events in the municipal market and
analyze how those events affect individual state and national municipal markets.
*The Lipper Peer Group return represents the average annualized total return of
the 11 funds in the Lipper Louisiana 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>
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 lower-rated and higher-rated credits, we took the opportunity to
investigate lower-rated issues.
For example, we purchased a portion of the BBB+ rated Louisiana Public
Facility Hospital Revenue bonds for the Touro Infirmary project in New Orleans,
at a 5.72% yield, maturing in 2029.
Using the expertise of Nuveen Research, we considered only those bonds that
offered adequate compensation for the level of risk. 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 Louisiana 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 effective maturity
would be beneficial.
The fund will continue to seek out undervalued securities that provide
income and the opportunity for price appreciation through credit rating
upgrades.
"Using the expertise of Nuveen Research, we considered only those bonds
that offered adequate compensation for the level of risk."
7
<PAGE>
NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
NAV $11.38 $ 11.37 $ 11.36 $ 11.38
- --------------------------------------------------------------------------------
May's Declared Dividend* $0.046 $0.0390 $0.0410 $0.0480
- --------------------------------------------------------------------------------
Fund Symbol FTLAX N/A FTLCX N/A
- --------------------------------------------------------------------------------
CUSIP 67065P881 67065P873 67065P865 67065P857
- --------------------------------------------------------------------------------
Inception Date 9/89 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 3.73% -0.66% 2.98% 3.20% 4.03%
- --------------------------------------------------------------------------------
1-Year TER** 6.31% 1.82% 5.18% 5.51% 6.73%
- --------------------------------------------------------------------------------
5-Year 7.36% 6.44% 6.69% 6.77% 7.48%
- --------------------------------------------------------------------------------
Since Inception 8.01% 7.54% 7.51% 7.42% 8.07%
+ 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%).
Index Comparison*
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship Lehman Brothers
Louisiana Municipal Louisiana Municipal Municipal
September Bond Fund (Offer) Bond Fund (NAV) Bond Index
<S> <C> <C> <C>
1989 9,580 10,000 10,000
May
1990 10,117 10,592 10,680
1991 11,624 12,134 12,088
1992 12,929 13,496 13,352
1993 14,765 15,412 15,053
1994 14,208 14,831 14,686
1995 15,752 16,442 16,329
1996 16,941 17,684 17,316
1997 18,549 19,362 18,879
1998 20,226 21,113 20,524
1999 20,304 21,194 20,762
</TABLE>
Nuveen Flagship Louisiana Municipal Bond Fund (Offer) $20,304
Nuveen Flagship Louisiana Municipal Bond Fund (NAV) $21,194
Lehman Brothers Municipal Bond Index $20,762
* 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 .0480
July .0480
August .0480
September .0480
October .0470
November .0470
December .0470
January .0470
February .0470
March .0470
April .0460
May .0460
</TABLE>
* The fund also paid shareholders capital gains distributions in December of
$0.0409 per share.
Morningstar Rating/TM 1/
****
Overall rating among 1,586
municipal bond funds as
of 5/31/99.
Portfolio Statistics
Fund Net Assets $141.8 million
- -------------------------------------------------
Effective Maturity 22.10 years
- -------------------------------------------------
Average
Effective Duration 9.15
- -------------------------------------------------
Top Five Sectors/2/
Health Care 20%
- -------------------------------------------------
Housing (Single Family) 16%
- -------------------------------------------------
Tax Obligation (General) 11%
- -------------------------------------------------
Tax Obligation (Limited) 11%
- -------------------------------------------------
Utilities 10%
- -------------------------------------------------
Bond Credit Quality/2/
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed.....67%
AA..............6%
A..............10%
BBB/NR.........17%
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. 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 NORTH CAROLINA 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 North Carolina 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 North Carolina's economy? North Carolina has one of the nation's
lowest unemployment rates at 3.1% as of May 31. Growth in the high technology
and pharmaceutical industries continues to outpace job losses in the textile,
apparel and furniture industries. Population and job growth are driven by the
state's low cost of doing business and its excellent university system.
Despite North Carolina's expanding economy, municipal bond issuance was
relatively quiet during the past fiscal year. 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 North Carolina Municipal Bond Fund perform during its
fiscal year? Nuveen Flagship North Carolina Municipal Bond Fund generated a
total return on net asset value of 3.43%. That compares to the 3.37% average
annual total return posted by the Lipper North Carolina Municipal Debt Peer
Group.* The fund's taxable equivalent total return, for investors in the 36.5%
combined federal and state income tax bracket, was 6.26%.** The fund ranked 18th
out of 40 municipal bond funds in its Lipper peer group for the fiscal year
period. 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 4.71%. For investors in
the combined 36.5% federal and state income tax bracket, that is equivalent to a
yield of 7.42% 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.
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality. From the limited
supply available, we purchased several housing bonds because they continue to
provide good yield and high credit quality.
For example, the highly rated North Carolina Housing Finance Agency Home
Ownership Revenue bonds offered a 5.3% yield, which compared favorably with
yields available during the period for comparable maturity and quality.
In addition, we continued to make selective buys in the healthcare sector,
adding North Carolina Medical Care Commission Health Care Facilities for Duke
University Health System bonds. The Duke system is among the strongest
healthcare providers in the state and carries high ratings from the major credit
rating agencies.
* The Lipper Peer Group return represents the average annualized total return
of the 40 funds in the Lipper North Carolina 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>
Nuveen Research helps us assess the credit quality of individual issuers,
and it also monitors events in the overall municipal market and analyzes how
those events affect individual state and national municipal markets.
For example, Moody's Investors Services, a credit rating agency, lowered
its rating on one of the state's largest issuers, North Carolina Eastern
Municipal Power Authority. The downgrade can be attributed to the failure of
state legislation that would have protected the electric utility industry in its
increasingly deregulated environment.
The fund did not have uninsured exposure to this issuer, but the
uncertainty created in the municipal market by this and other credit-related
situations prompted investors to demand higher yields for lower-rated issues,
causing the yield "spread," or the difference between the highest credit quality
securities and those of lower credit quality, to widen.
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 North Carolina 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
effective maturity would be beneficial.
Because the fund is among Nuveen's largest and oldest funds, many bonds in
the portfolio were purchased during a much higher interest rate environment and
have substantially higher coupon rates than are available in today's market.
At the same time, retail demand for North Carolina municipal bonds is often
greater than supply. Many retail-type bond firms are showing a significant
interest in 5% or better coupon bonds in order to meet their retail clients'
needs. As supply in the North Carolina market allows, we will take advantage of
this demand to sell bonds commanding high prices.
In addition, we will continue to seek out undervalued securities that
provide income and the opportunity for price appreciation through credit rating
upgrades.
"From the limited supply available, we purchased
several housing bonds because they continue to provide good yield and
high credit quality."
10
<PAGE>
NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
NAV $ 10.38 $ 10.39 $ 10.36 $ 10.38
- --------------------------------------------------------------------------------
May's Declared Dividend* $0.0415 $0.0345 $0.0365 $0.0430
- --------------------------------------------------------------------------------
Fund Symbol FLNCX N/A FCNCX N/A
- --------------------------------------------------------------------------------
CUSIP 67065P840 67065P832 67065P824 67065P816
- --------------------------------------------------------------------------------
Inception Date 3/86 2/97 10/93 2/97
- --------------------------------------------------------------------------------
* Paid June 1, 1999
Total Returns (Annualized)/+/
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.43% -0.95% 2.73% 2.85% 3.61%
- --------------------------------------------------------------------------------
1-Year TER** 6.26% 1.76% 5.10% 5.35% 6.54%
- --------------------------------------------------------------------------------
5-Year 6.18% 5.28% 5.53% 5.60% 6.27%
- --------------------------------------------------------------------------------
10-Year 6.73% 6.27% 6.26% 6.12% 6.77%
/+/ 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]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
North Carolina North Carolina 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 10,074 10,516 10,731
1991 11,010 11,492 11,813
1992 12,032 12,560 12,974
1993 13,434 14,023 14,526
1994 13,606 14,202 14,885
1995 14,619 15,260 16,240
1996 15,154 15,819 16,982
1997 16,334 17,050 18,391
1998 17,754 18,533 20,117
1999 18,363 19,168 21,058
</TABLE>
Nuveen Flagship North Carolina Municipal Bond Fund (Offer) $18,363
Nuveen Flagship North Carolina Municipal Bond Fund (NAV) $19,168
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 .0445
July .0430
August .0430
September .0430
October .0430
November .0430
December .0430
January .0415
February .0415
March .0415
April .0415
May .0415
</TABLE>
* The fund also paid shareholders capital gains and net ordinary income
distributions in December of $0.0920 per share.
Portfolio Statistics
Fund Net Assets $212.8 million
- -------------------------------------------------
Effective Maturity 21.00 years
- -------------------------------------------------
Average
Effective Duration 8.54
- -------------------------------------------------
Top Five Sectors/1/
Health Care 21%
- -------------------------------------------------
Housing (Single Family) 17%
- -------------------------------------------------
Utilities 15%
- -------------------------------------------------
Tax Obligation (Limited) 14%
- -------------------------------------------------
U.S. Guaranteed 9%
- -------------------------------------------------
Bond Credit Quality/1/
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed.....30%
AA.............44%
A..............16%
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>
NUVEEN FLAGSHIP TENNESSEE 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 Tennessee 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 Tennessee's economy? The state's economy is fundamentally sound,
although it has more exposure to national economic cycles due to increased
automotive manufacturing within its borders, including plants owned by Nissan,
Peterbilt and Saturn. Growth in the service, trade and manufacturing sectors has
offset losses in the textile and apparel industries. The state's unemployment
rate in May was 3.8%, down from 4.2% a year ago.
Although Tennessee is not known as a leading state for high technology,
Dell Computer, attracted to Tennessee's central location, recently announced
that it would build a new facility near the Nashville airport.
In spite of these strong economic conditions, municipal bond issuance was
very limited during the period.
How did Nuveen Flagship Tennessee Municipal Bond Fund perform during its fiscal
year? Nuveen Flagship Tennessee Municipal Bond Fund generated a total return on
net asset value of 3.47%, compared to the 3.65% average annual total return
posted by the Lipper Tennessee 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 taxable equivalent total return, for investors in
the 35% combined federal and state income tax bracket, was 6.14%.**
As of May 31, 1999, the fund's SEC 30-day yield was 4.10%. For investors in
the combined 35% federal and state income tax bracket, that is equivalent to a
yield of 6.31% 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.
In addition to call protection, we continued to search for bonds that
offered attractive yields and sound underlying credit quality.
Purchases included high quality bonds with competitive yields such as the
Tennessee Housing Development Agency Homeownership Program bonds. The program is
one of the few regular sources of issuance for the state.
In such a limited supply environment, market participants often approach
the fund seeking bonds. Because demand outstrips supply, we can often negotiate
very attractive prices for its bonds. However, bonds will not be sold out of the
fund unless they can be replaced. We have an advantage because we can capitalize
on Nuveen's extensive dealer network to locate and purchase attractive bonds to
replace those sold into strong demand.
* The Lipper Peer Group return represents the average annualized total return
of the funds in the Lipper Tennessee 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.
12
<PAGE>
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 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.
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 Tennessee 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 effective maturity
would be beneficial.
Although Tennessee's economy is becoming stronger and more diversified, the
supply of available bonds continues to be thin. Nevertheless, we will continue
to seek out undervalued securities that provide income and the opportunity for
price appreciation through credit rating upgrades.
"In such a limited supply environment, market participants often approach the
fund seeking bonds. Because demand outstrips supply, we can often
negotiate very attractive prices for its bonds."
13
<PAGE>
NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND
Highlights as of May 31, 1999
Quick Facts
A Shares B Shares C Shares R Shares
NAV $ 11.30 $ 11.30 $ 11.30 $ 11.28
- --------------------------------------------------------------------------------
May's Declared Dividend* $0.0455 $0.0385 $0.0400 $0.0475
- --------------------------------------------------------------------------------
Fund Symbol FTNTX FTMBX FTNCX N/A
- --------------------------------------------------------------------------------
CUSIP 67065P758 67065P741 67065P733 67065P725
- --------------------------------------------------------------------------------
Inception Date 11/87 2/97 10/93 2/97
- --------------------------------------------------------------------------------
* Paid June 1, 1999
Total Returns (Annualized)/+/
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
1-Year 3.47% -0.85% 2.72% 2.97% 3.68%
- --------------------------------------------------------------------------------
1-Year TER** 6.14% 1.70% 4.97% 5.32% 6.46%
- --------------------------------------------------------------------------------
5-Year 6.38% 5.47% 5.71% 5.79% 6.43%
- --------------------------------------------------------------------------------
10-Year 6.92% 6.47% 6.45% 6.33% 6.95%
/+/ 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
Tennessee Mutual Tennessee Municipal Lehman Brothers
May Bond Fund (Offer) Bond Fund (NAV) Municipal Bond Index
<S> <C> <C> <C>
1989 9,580 10,000 10,000
1990 10,086 10,528 10,731
1991 11,054 11,538 11,813
1992 12,011 12,537 12,974
1993 13,524 14,117 14,526
1994 13,734 14,336 14,885
1995 14,839 15,489 16,240
1996 15,399 16,075 16,982
1997 16,587 17,314 18,391
1998 18,086 18,879 20,117
1999 18,717 19,537 21,058
</TABLE>
Nuveen Flagship Tennessee Municipal Bond Fund (Offer) $18,717
Nuveen Flagship Tennessee Municipal Bond Fund (NAV) $19,537
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]
Month
- -----
June .0470
July .0470
August .0470
September .0470
October .0460
November .0460
December .0460
January .0460
February .0460
March .0460
April .0455
May .0455
Portfolio Statistics
Fund Net Assets $327.0 million
- -------------------------------------------------
Effective Maturity 20.16 years
- -------------------------------------------------
Average
Effective Duration 8.08
- -------------------------------------------------
Top Five Sectors/1/
U.S. Guaranteed 16%
- -------------------------------------------------
Health Care 15%
- -------------------------------------------------
Tax Obligation (Limited) 13%
- -------------------------------------------------
Housing (Single Family) 12%
- -------------------------------------------------
Utilities 10%
- -------------------------------------------------
Bond Credit Quality/1/
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed....47%
AA............31%
A.............13%
BBB/
NR.............9%
/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.
14
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Cyclical - 0.3%
$ 500,000 White County (Georgia), Development Authority, Industrial Development 6/02 at 102 BBB+ $ 528,330
Revenue Bonds (Springs Industries, Inc.), 6.850%, 6/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 4.0%
3,500,000 Albany Dougherty Payroll Development Authority (Georgia), Solid Waste No Opt. Call AA 3,445,855
Disposal Revenue Bonds (The Procter & Gamble Paper Products Company
Project), Series 1999, 5.200%, 5/15/28 (Alternative Minimum Tax)
1,000,000 Development Authority of Cartersville (Georgia), Water and Wastewater 5/02 at 102 A+ 1,082,120
Facilities Revenue Bonds, Series 1992 (Anheuser-Busch Project),
6.750%, 2/01/12 (Alternative Minimum Tax)
2,000,000 Development Authority of Cartersville (Georgia), Sewage Facilities 5/07 at 101 A+ 2,138,620
Refunding Revenue Bonds, Series 1997 (Anheuser-Busch Project),
6.125%, 5/01/27 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 1.0%
1,000,000 Private Colleges and Universities Authority (Georgia), Revenue Bonds No Opt. Call AAA 1,177,170
(Mercer University Project), Series 1991, 6.500%, 11/01/15
500,000 Private Colleges and Universities Authority (Georgia), Revenue Refunding 6/04 at 102 AAA 548,455
Bonds (Spelman College Project), Series 1994, 6.200%, 6/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.5%
1,500,000 Brunswick and Glynn County (Georgia), Development Authority, Revenue 3/08 at 102 Baa2 1,486,650
Refunding Bonds, Series 1998 (Georgia Pacific Corporation Project),
5.550%, 3/01/26 (Alternative Minimum Tax)
1,000,000 Savannah (Georgia), Economic Development Authority, Pollution Control No Opt. Call A1 1,102,420
Revenue Refunding Bonds (Union Camp Corporation Project), Series 1995,
6.150%, 3/01/17
500,000 Wayne County (Georgia), Development Authority, Solid Waste Disposal 7/00 at 102 BBB+ 524,775
Revenue Bonds (ITT Rayonier, Inc. Project), Series 1990,
8.000%, 7/01/15 (Alternative Minimum Tax)
1,000,000 Wayne County (Georgia) Development Authority, Pollution Control Revenue 5/03 at 102 BBB+ 1,052,780
Refunding Bonds (ITT Rayonier Inc. Project), Series 1993,
6.100%, 11/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 10.5%
5,000,000 Baldwin County Hospital Authority (Georgia), Revenue Bonds (Oconee 12/08 at 102 BBB 4,735,100
Regional Medical Center), Series 1998, 5.375%, 12/01/28
3,000,000 Chatham County Hospital Authority (Savannah, Georgia), Hospital Revenue 1/07 at 102 AAA 2,991,630
Refunding and Improvement Bonds (Memorial Medical Center, Inc.),
Series 1996A, 5.250%, 1/01/16
500,000 Hospital Authority of Cherokee County (Georgia), Revenue Certificates, 12/00 at 102 AAA 534,030
Tax Exempt Series 1990, 7.250%, 12/01/15
1,000,000 Coffee County Hospital Authority (Georgia), Revenue Anticipation 12/06 at 102 N/R 1,050,780
Certificates (Coffee Regional Medical Center, Inc. Project), Series
1997A, 6.750%, 12/01/16
Development Authority of the City of Dalton (Georgia), Revenue
Certificates (Hamilton Health Care System), Series 1996:
2,000,000 5.250%, 8/15/26 2/07 at 102 AAA 1,981,240
2,000,000 5.500%, 8/15/26 No Opt. Call AAA 2,088,160
2,000,000 Development Authority of the City of Dalton (Georgia), Revenue 2/08 at 101 Aaa 1,906,920
Certificates, Hamilton Health Care System (HLTC, Inc. Project), Series
1998, 5.000%, 8/15/28
1,000,000 The Hospital Authority of Hall County and the City of Gainesville, 10/05 at 102 AAA 1,063,590
Revenue Anticipation Certificates (Northeast Georgia Healthcare
Project), Series 1995, 6.000%, 10/01/20
1,000,000 Hospital Authority of Gwinnett County, Georgia, Revenue Anticipation 9/07 at 101 AAA 990,460
Certificates (Gwinnett Hospital System, Inc. Project), Series 1997A,
5.250%, 9/01/27
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia 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 - 16.0%
$ 755,000 Housing Authority of Clayton County, Georgia, Multifamily Housing 12/05 at 102 AAA $ 775,981
Revenue Bonds, Series 1995 (The Advantages Project),
5.700%, 12/01/16
1,000,000 Housing Authority of the County of DeKalb, Georgia, Multifamily Housing 1/05 at 102 AAA 1,089,160
Revenue Bonds (The Lakes at Indian Creek Apartments Project), Series
1994, 7.150%, 1/01/25 (Alternative Minimum Tax)
3,470,000 Housing Authority of the County of DeKalb, Georgia, Multifamily Housing 1/06 at 102 A 3,668,345
Revenue Bonds (Regency Woods I and II Project), Senior Series 1996A,
6.500%, 1/01/26
4,000,000 Housing Authority of Fulton County, Georgia, Multifamily Housing 7/06 at 102 A 4,227,000
Revenue Bonds (Concorde Place Apartments Project), Series 1996A,
6.375%, 1/01/27 (Alternative Minimum Tax)
4,715,000 Housing Authority of the City of Lawrenceville, Georgia, Multifamily 6/07 at 102 AAA 5,124,969
Housing Revenue Bonds (Knollwood Park Apartments Project), Series
1997, 6.250%, 12/01/29 (Alternative Minimum Tax)
1,295,000 Housing Authority of the City of Macon, Georgia, Multifamily Mortgage 10/04 at 102 Aaa 1,378,605
Revenue Refunding Bonds, Series 1994A (FHA Insured Mortgage Loan The
Vistas), 6.450%, 4/01/26
The Housing Authority of the City of Atlanta, Georgia, Multifamily
Housing Revenue Bonds (The Village at Castleberry Hill Project), GNMA
Collateralized Series 1999:
3,000,000 5.300%, 2/20/29 (Alternative Minimum Tax) 2/09 at 102 AAA 2,981,970
5,000,000 5.400%, 2/20/39 (Alternative Minimum Tax) 2/09 at 102 AAA 4,967,150
1,840,000 Housing Authority of the City of Augusta, Georgia, Mortgage Revenue 5/05 at 102 Aa 1,971,118
Refunding Bonds, Series 1995A (FHA Insured Mortgage Loan - River Glen
Apartments, Section 8 Assisted Project), 6.500%, 5/01/27
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 8.3%
Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Bonds (GNMA Mortgage-Backed Securities Program), Series 1995A:
310,000 6.550%, 3/01/18 (Alternative Minimum Tax) 3/05 at 102 AAA 330,699
105,000 6.600%, 3/01/28 (Alternative Minimum Tax) 3/05 at 102 AAA 110,177
Housing Authority of Fulton County, Georgia, Single Family Mortgage
Revenue Refunding Bonds (GNMA Mortgage-Backed Securities Program),
Series 1996A:
415,000 6.125%, 9/01/18 (Alternative Minimum Tax) 9/06 at 102 AAA 436,962
655,000 6.200%, 9/01/27 (Alternative Minimum Tax) 9/06 at 102 AAA 690,770
Georgia Housing and Finance Authority, Single Family Mortgage Bonds,
1994 Series A (FHA Insured or VA Guaranteed Mortgage Loans):
1,215,000 6.500%, 12/01/17 (Alternative Minimum Tax) 6/04 at 102 AAA 1,291,569
750,000 6.600%, 12/01/23 (Alternative Minimum Tax) 6/04 at 102 AAA 799,155
1,000,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 3/05 at 102 AAA 1,065,860
1995 Series A, Subseries A-2, 6.400%, 12/01/15 (Alternative Minimum
Tax)
2,500,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/05 at 102 AAA 2,676,825
1995 Series B, Subseries B-2, 6.550%, 12/01/27 (Alternative Minimum Tax)
3,355,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/06 at 102 AAA 3,579,013
1996 Series A, Subseries A-2, 6.450%, 12/01/27 (Alternative Minimum Tax)
1,000,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 12/08 at 101 AAA 986,600
1998 Series B2, 5.200%, 12/01/26 (Alternative Minimum Tax)
175,000 Georgia Residential Finance Authority, Home Ownership Mortgage Bonds, 12/99 at 103 AA+ 181,365
1989 Series D (Conventional Mortgage Loans), 7.800%, 6/01/21
(Alternative Minimum Tax)
235,000 Georgia Residential Finance Authority, Home Ownership Mortgage Bonds, 12/00 at 103 AA+ 245,925
1990 Series A (FHA Insured or VA Guaranteed Mortgage Loans),
7.750%, 6/01/18 (Alternative Minimum Tax)
1,235,000 Georgia Residential Finance Authority, Home Ownership Mortgage Bonds, 12/01 at 103 AA+ 1,304,469
1991 Series A (FHA Insured or VA Guaranteed Mortgage Loans),
7.250%, 12/01/21 (Alternative Minimum Tax)
55,000 Georgia Residential Finance Authority, Single Family Mortgage Bonds, 6/99 at 103 AA+ 56,767
1988 Series B (FHA Insured or VA Guaranteed Mortgage Loans),
8.000%, 12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 3.6%
3,810,000 Peach County School District (Georgia), General Obligation School Bonds, 2/05 at 102 AAA 4,290,289
Series 1994, 6.400%, 2/01/19
1,500,000 Washington County School District (Georgia), General Obligation School 1/05 at 102 AAA 1,722,225
Bonds, Series 1994, 6.875%, 1/01/14
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited - 15.7%
$ 570,000 Development Authority of Burke County (Georgia), Industrial Development 2/01 at 102 A $ 605,500
Revenue Bonds (Georgia Safe Corporation Project), Series 1991, 7.500%,
2/01/11 (Alternative Minimum Tax)
1,150,000 Burke County Economic Development Authority (Georgia), Revenue Bonds 12/02 at 102 A 1,255,156
(Ritz Instrument Transformers, Inc. Project), Series 1991A, 7.250%,
12/01/11 (Alternative Minimum Tax)
1,750,000 Association County Commissioners of Georgia Leasing Program (Butts 12/04 at 102 AAA 1,968,050
County, Georgia Public Purpose Project), Series 1994 Certificates of
Participation, 6.750%, 12/01/14
1,000,000 The Hospital Authority of Clarke County (Georgia), Hospital Revenue 1/07 at 100 AAA 956,020
Certificates (Athens Regional Medical Center Project), Series 1996,
5.000%, 1/01/27
1,215,000 Clayton County Solid Waste Management Authority (Georgia), Revenue Bonds, 2/02 at 102 AA 1,299,467
Series 1992A, 6.500%, 2/01/12
3,000,000 Cobb-Marietta Coliseum and Exhibit Hall Authority (Georgia), Revenue 10/19 at 100 AAA 3,214,470
Refunding Bonds, Series 1993, 5.625%, 10/01/26
1,000,000 Downtown Smyrna Development Authority (Georgia), Revenue Bonds, 2/05 at 102 AAA 1,136,060
Series 1994, 6.600%, 2/01/17
2,765,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax No Opt. Call AA- 3,141,538
Revenue Bonds, Refunding Series N, 6.250%, 7/01/18
500,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax No Opt. Call AAA 572,680
Revenue Bonds, Refunding Series P, 6.250%, 7/01/20
2,000,000 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/06 at 101 1/2 A 2,043,660
Bonds, Series 1996Y, 5.500%, 7/01/26
125,000 Puerto Rico Infrastructure Finance Authority, Special Tax Revenue 7/99 at 101 BBB+ 127,895
Bonds, Series 1988A, 7.750%, 7/01/08
8,055,000 Upper Oconee Basin Water Authority (Georgia), Revenue Bonds, 7/08 at 102 AAA 8,078,118
Series 1997, 5.250%, 7/01/27
1,250,000 Hospital Authority of Ware County (Georgia), Revenue Anticipation 3/02 at 102 AAA 1,351,213
Certificates, Series 1992A (Satilla Park Hospital), 6.625%, 3/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.6%
1,000,000 City of Atlanta, Georgia, Airport Facilities Revenue Refunding 1/07 at 101 AAA 1,037,390
Bonds, Series 1996, 5.250%, 1/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 12.3%
Chatham County Hospital Authority, Hospital Revenue Bonds (Memorial
Medical Center, Inc.) (Savannah, Georgia), Series 1990A:
100,000 7.000%, 1/01/10 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 106,962
1,130,000 7.000%, 1/01/21 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 1,208,671
505,000 Cherokee County Water and Sewer Authority (Georgia), Revenue Bonds, No Opt. Call AAA 683,063
Series 1985, 9.750%, 8/01/09
500,000 Hospital Authority of Colquitt County (Georgia), Hospital Revenue 3/02 at 102 AAA 546,540
Certificates, Series 1992, 6.700%, 3/01/12 (Pre-refunded to 3/01/02)
1,000,000 City of Conyers (Georgia), Water and Sewer Revenue Bonds, Series 7/04 at 102 AAA 1,135,140
1994A, 6.600%, 7/01/15
800,000 Downtown Marietta Development Authority (Georgia), Revenue Bonds, 1/02 at 102 Aaa 868,544
Series 1992, 6.600%, 1/01/19 (Pre-refunded to 1/01/02)
Fulco Hospital Authority, Revenue Anticipation Certificates (Georgia
Baptist Health Care System Project), Series 1992A:
3,000,000 6.250%, 9/01/13 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 3,264,030
2,600,000 6.375%, 9/01/22 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 2,838,680
2,250,000 Fulco Hospital Authority, Refunding Revenue Anticipation Certificates 9/02 at 102 Baa1*** 2,456,550
(Georgia Baptist Health Care System Project), Series 1992B, 6.375%,
9/01/22 (Pre-refunded to 9/01/02)
500,000 City of Gainesville, Georgia, Water and Sewer Revenue Bonds, 11/00 at 102 AAA 536,360
Series 1990B, 7.200%, 11/15/10 (Pre-refunded to 11/15/00)
1,855,000 Development Authority of the City of Marietta (Georgia), Revenue 12/99 at 102 AAA 1,928,885
Bonds (Life College, Inc.), Series 1989, 7.250%, 12/01/19
(Pre-refunded to 12/01/99)
1,200,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax 7/99 at 102 AAA 1,228,092
Revenue Bonds, Series L, 7.200%, 7/01/20 (Pre-refunded to 7/01/99)
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia 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)
$ 1,650,000 Metropolitan Atlanta Rapid Transit Authority (Georgia), Sales Tax 7/04 at 102 AAA $ 1,889,184
Revenue Bonds, Second Indenture Series 1994A, 6.900%, 7/01/20
(Pre-refunded to 7/01/04)
1,015,000 Peach County School District (Georgia), General Obligation School 2/05 at 102 AAA 1,137,876
Bonds, Series 1994, 6.300%, 2/01/14 (Pre-refunded to 2/01/05)
500,000 Hospital Authority of Ware County (Georgia), Revenue Anticipation 3/01 at 102 AAA 524,080
Certificates, Series 1991, 7.125%, 3/01/15 (Pre-refunded to 3/01/01)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 7.7%
1,800,000 Development Authority of Appling County (Georgia), Pollution Control 1/04 at 101 AAA 2,003,742
Revenue Bonds (Oglethorpe Power Corporation Hatch Project), Series
1994, 7.150%, 1/01/21
1,500,000 Municipal Electric Authority of Georgia, General Power Revenue Bonds, 1/15 at 100 A 1,702,335
1992B Series, 6.375%, 1/01/16
Municipal Electric Authority of Georgia, Power Revenue Bonds,
Series Z:
1,000,000 5.500%, 1/01/12 1/10 at 100 AAA 1,061,150
1,000,000 5.500%, 1/01/20 No Opt. Call AAA 1,051,230
Development Authority of Monroe County (Georgia), Pollution Control
Revenue Bonds (Oglethorpe Power Corporation, Scherer Project),
Series 1992A:
500,000 6.750%, 1/01/10 No Opt. Call A 578,610
1,000,000 6.800%, 1/01/12 No Opt. Call A 1,168,780
2,000,000 Municipal Electric Authority of Georgia, Project One Subordinated 1/07 at 101 AAA 1,984,460
Bonds, Series 1997A, 5.125%, 1/01/16
1,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 7/04 at 100 BBB+ 1,271,825
5.500%, 7/01/20
4,500,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series O, No Opt. Call AAA 1,831,860
0.000%, 7/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 15.5%
12,000,000 City of Atlanta, Georgia, Water and Wastewater Revenue 5/09 at 101 AAA 11,321,760
Bonds, Series 1999A, 5.000%, 11/01/38
City of Brunswick, Georgia, Water and Sewer Revenue Refunding and
Improvement Bonds, Series 1992:
500,000 6.000%, 10/01/11 No Opt. Call AAA 558,070
400,000 6.100%, 10/01/19 No Opt. Call AAA 452,156
2,000,000 Cherokee County, Georgia, Water and Sewer Authority, Water and No Opt. Call AAA 2,105,980
Sewer Revenue Bonds, Refunding and Improvements Series 1993,
5.500%, 8/01/23
8,500,000 DeKalb County, Georgia, Water and Sewer Revenue Bonds, Series 1999, 10/09 at 101 AA 8,177,000
5.000%, 10/01/28
1,500,000 Henry County Water and Sewer Authority, Georgia, Water and Sewer No Opt. Call AAA 1,702,782
Revenue Bonds, Series 1996, 6.150%, 2/01/20
1,000,000 City of Milledgeville, Georgia, Water and Sewer Revenue No Opt. Call AAA 1,118,870
and Refunding Bonds, Series 1996, 6.000%, 12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
$157,825,000 Total Investments - (cost $153,619,706) - 98.0% 161,612,537
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.0% 3,239,126
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $164,851,663
====================================================================================================================
</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.
18
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 1.5%
$ 1,500,000 Parish of St. Charles, State of Louisiana, Pollution Control Revenue Bonds 11/02 at 102 BBB $1,633,215
(Union Carbide Corporation), Series 1992, 7.350%, 11/01/22 (Alternative
Minimum Tax)
500,000 Parish of St. John the Baptist, State of Louisiana, Environmental 12/08 at 101 Baa2 491,585
Improvement Revenue Bonds (USX Corporation Project), Refunding Series
of 1998, 5.350%, 12/01/13
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 4.2%
750,000 Louisiana Public Facilities Authority, College and University Equipment 10/99 at 102 A+ 774,075
and Capital Facilities Revenue Refunding Bonds (Loyola University
Project), Series 1989A, 7.250%, 10/01/09
380,000 Louisiana Public Facilities Authority, College and University Equipment 4/02 at 102 A+ 412,642
and Capital Facilities Revenue Refunding Bonds (Loyola University
Project), Series 1992, 6.750%, 4/01/10
775,000 Louisiana Public Facilities Authority, Student Loan Revenue Bonds, 9/02 at 102 Aaa 824,678
Series 1992A-2, 6.600%, 3/01/03 (Alternative Minimum Tax)
1,000,000 Louisiana Public Facilities Authority, Revenue Bonds (Tulane University 12/07 at 102 AAA 1,034,180
of Louisiana), Series 1997, 5.600%, 12/15/27
1,000,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 9/07 at 102 AAA 989,020
(Xavier University of Louisiana Project), Series 1997, 5.250%, 9/01/27
1,000,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 2/08 at 102 AAA 955,240
(Dillard University Project), Series 1998, 5.000%, 2/01/28
960,000 Board of Supervisors of Louisiana State University and Agricultural and 10/08 at 102 AAA 914,026
Mechanical College, Revenue and Refunding Bonds (University of New
Orleans Project), Series 1998, 5.000%, 10/01/30
- -----------------------------------------------------------------------------------------------------------------------------------
Energy - 4.5%
1,000,000 Lake Charles, Louisiana, Harbor and Terminal District, Port Facilities 12/02 at 102 BBB 1,085,630
Refunding Revenue Bonds, Series 1992 (Occidental Petroleum Corporation
Project), 7.200%, 12/01/20
500,000 Louisiana Offshore Terminal Authority, Deepwater Port Refunding Revenue 9/01 at 102 A 539,700
Bonds (LOOP Inc. Project), First Stage Series 1991B, 7.200%, 9/01/08
475,000 Louisiana Offshore Terminal Authority, Deepwater Port Refunding Revenue 9/00 at 102 A 503,989
Bonds (LOOP Inc.), First Stage Series E, 7.600%, 9/01/10
1,000,000 Louisiana Offshore Terminal Authority, Deepwater Port Refunding Revenue 10/08 at 100 A 977,860
Bonds, Series 1998 (LOOP LLC Project), 5.200%, 10/01/18
3,150,000 Parish of St. Bernard, Louisiana, Exempt Facility Revenue Bonds (Mobil 11/06 at 102 AA 3,345,048
Oil Corporation Project), Series 1996, 5.900%, 11/01/26 (Alternative
Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 4.3%
1,640,000 Parish of DeSoto, Louisiana, Environmental Improvement Revenue Refunding 6/05 at 102 A3 1,776,645
Bonds, 1995 Series B (International Paper Company Project), 6.550%,
4/01/19 (Alternative Minimum Tax)
1,250,000 Parish of DeSoto, Louisiana, Environmental Improvement Revenue Bonds, 11/08 at 101 A3 1,258,775
1998 Series A (International Paper Company Project), 5.600%,
11/01/22 (Alternative Minimum Tax)
3,000,000 Parish of Natchitoches, Louisiana, Solid Waste Disposal Revenue Bonds 12/03 at 102 A- 3,081,450
(Willamette Industries Project), Series 1993, 5.875%, 12/01/23
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 20.4%
1,000,000 Jefferson Parish Hospital District No. 1, Louisiana, Fixed Rate 1/09 at 101 AAA 954,840
Hospital Revenue Bonds (West Jefferson Medical Center),
Series 1998A, 5.000%, 1/01/21
3,000,000 Jefferson Parish Hospital Service District No. 2, Louisiana, Hospital 7/09 at 101 AAA 2,835,270
Revenue Bonds, Series 1998, 5.000%, 7/01/28
1,000,000 Louisiana Public Facilities Authority, Hospital Revenue and Refunding Bonds 7/07 at 101 AAA 994,660
(Woman's Hospital Foundation Project), Series 1997, 5.375%, 10/01/22
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$ 1,000,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds (Franciscan No Opt. Call AAA $1,069,800
Missionaries of Our Lady Health System Project), Series 1998A, 5.750%,
7/01/25
5,000,000 Louisiana Public Facilities Authority, Hospital Revenue and Refunding Bonds 1/08 at 102 BBB+ 4,683,300
(Lincoln Health System Project), Series 1998, 5.150%, 1/01/19
2,300,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds (Touro 8/09 at 101 BBB+ 2,265,270
Infirmary Project), Series 1999A, 5.625%, 8/15/29
1,325,000 Louisiana Public Facilities Authority, Revenue Bonds (Alton Ochsner Medical 5/02 at 102 AAA 1,427,674
Foundation Project), Series 1992-B, 6.500%, 5/15/22
3,400,000 Louisiana Public Facilities Authority, Health Facilities Revenue Refunding No Opt. Call AA+ 3,324,316
Bonds (Sisters of Mercy Health System, St. Louis, Inc.), Series 1993A,
5.000%, 6/01/19
2,500,000 Louisiana Public Facilities Authority, Revenue Bonds (General Health, Inc. 11/04 at 102 AAA 2,763,875
Project), Series 1994, 6.375%, 11/01/24
500,000 Louisiana Public Facilities Authority, Revenue Bonds (Mary Bird Perkins 1/05 at 102 AAA 543,030
Cancer Center Project), Series 1994, 6.200%, 1/01/19
2,180,000 St. Tammany Parish Hospital Service District No. 2, Louisiana, Hospital 10/04 at 102 AAA 2,395,210
Revenue Bonds, Series 1994, 6.250%, 10/01/14
885,000 Hospital Service District No. 1, Parish of Tangipahoa, Louisiana, Hospital 2/04 at 102 AAA 963,358
Revenue Bonds, Series 1994, 6.250%, 2/01/24
4,570,000 Hospital Service District No. 1, Parish of Terrebonne, Louisiana, Hospital 4/08 at 102 AAA 4,543,128
Revenue and Refunding Bonds (Terrebonne General Medical Center Project),
Series 1998, 5.375%, 4/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 1.5%
750,000 Lake Charles, Louisiana, Non Profit Housing Development Corporation, 10/99 at 100 AAA 758,250
Mortgage Revenue Refunding Bonds, Series 1990A (FHA Insured Mortgage
Loan - Section 8 Assisted Chateau Project), 7.875%, 2/15/25
735,000 Louisiana Public Facilities Authority, Revenue Bonds (Walmsley Housing 6/03 at 103 AAA 790,610
Corporation), Series 1989A, 7.500%, 6/01/21
500,000 Louisiana Public Facilities Authority, Multifamily Housing Revenue Bonds 11/01 at 102 AA 534,020
(VOA National Housing Corporation Projects), Series 1991, 7.750%,
11/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 15.8%
990,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage Revenue 8/00 at 102 Aaa 1,026,511
Bonds (GNMA Mortgage Backed Securities Program), Series 1990A, 7.875%,
8/01/23 (Alternative Minimum Tax)
2,235,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 10/07 at 102 Aaa 2,320,690
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities
Program), Series 1997D, 5.900%, 10/01/30 (Alternative Minimum Tax)
3,000,000 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage Revenue 10/08 at 101 Aaa 2,967,120
Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities Program), Series
1998C-1, 5.200%, 10/01/23
265,000 Louisiana Housing Finance Agency, Single Family Mortgage Revenue Bonds, 6/05 at 102 Aaa 282,297
Series 1995A-2, 6.550%, 12/01/26 (Alternative Minimum Tax)
Louisiana Housing Finance Agency, Tax Exempt Bonds, Single Family Mortgage
Revenue Bonds, Series 1997B-2:
975,000 5.600%, 6/01/17 (Alternative Minimum Tax) 6/07 at 102 Aaa 998,244
2,445,000 5.750%, 12/01/28 (Alternative Minimum Tax) 6/07 at 102 Aaa 2,504,780
2,440,000 Louisiana Housing Finance Agency, Tax Exempt Bonds, Single Family Mortgage 12/07 at 102 Aaa 2,501,878
Revenue Bonds, Series 1997C-1, 5.750%, 12/01/28 (Alternative Minimum Tax)
Louisiana Housing Finance Agency, Tax Exempt Bonds, Single Family Mortgage
Revenue Bonds (Home Ownership Program), Series 1998B-2:
1,695,000 5.200%, 12/01/26 12/07 at 101 Aaa 1,690,068
1,500,000 5.250%, 6/01/29 (Alternative Minimum Tax) 12/07 at 101 Aaa 1,493,250
480,000 New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage 1/00 at 102 Aaa 493,978
Revenue Bonds, Series 1988-C1, 7.750%, 12/01/22 (Alternative Minimum Tax)
1,000,000 New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage 12/06 at 102 Aaa 1,048,490
Revenue Bonds, Series 1996A, 6.100%, 12/01/29 (Alternative Minimum Tax)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
$1,000,000 New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage 12/07 at 102 Aaa $1,033,290
Revenue Bonds, Series 1997A, 5.850%, 12/01/30 (Alternative Minimum Tax)
1,000,000 New Orleans, Louisiana, Home Mortgage Authority, Single Family Mortgage 12/08 at 101 Aaa 990,830
Revenue Refunding Bonds, Series 1998B-2, 5.200%, 12/01/21 (Alternative
Minimum Tax)
Rapides Finance Authority, Louisiana, Single Family Mortgage Revenue
Refunding Bonds (GNMA and Fannie Mae Mortgage-Backed Securities Program),
Series 1998B:
2,000,000 5.450%, 12/01/30 (Alternative Minimum Tax) 6/08 at 102 Aaa 2,012,260
800,000 5.350%, 6/01/26 6/08 at 102 Aaa 804,304
166,189 St. Bernard Parish, Louisiana, Home Mortgage Authority, Single Family No Opt. Call A1 183,483
Mortgage Revenue Refunding Bonds, Series 1991A, 8.000%, 3/25/12
58,428 St. Mary, Louisiana, Public Trust Financing Authority, Single Family No Opt. Call Aaa 65,100
Mortgage Revenue Refunding Bonds, Series 1991A, 7.625%, 3/25/12
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 3.6%
3,000,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds (GNMA 9/05 at 103 AAA 3,280,560
Collateralized Mortgage Loan -- St. Dominic Assisted Care Facility),
Series 1995, 6.950%, 9/01/36
1,740,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds (GNMA 1/04 at 101 AAA 1,868,047
Collateralized Mortgage Loan -- Villa Maria Retirement Center Project),
Series 1993, 7.100%, 1/20/35
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 10.5%
500,000 State of Louisiana, General Obligation Bonds, Series 1993-B, 5.625%, No Opt. Call AAA 538,555
8/01/13
City of New Orleans, Louisiana, General Obligation Refunding Bonds,
Series 1991:
2,000,000 0.000%, 9/01/10 No Opt. Call AAA 1,158,400
5,785,000 0.000%, 9/01/16 No Opt. Call AAA 2,361,321
3,000,000 Parishwide School District of the Parish of Orleans, Louisiana, General 3/06 at 100 AAA 2,895,060
Obligation School Bonds, Series 1996, 5.000%, 9/01/20
1,000,000 Parishwide School District of the Parish of Orleans, Louisiana, General 3/08 at 100 Aaa 978,640
Obligation School Bonds, Series 1998A, 5.125%, 9/01/22
13,875,000 Orleans Parish, Louisiana, School Board Public School Refunding Bonds, No Opt. Call AAA 6,064,763
Series 1991, 0.000%, 2/01/15
1,000,000 East Ouachita School District of the Parish of Ouachita, Louisiana, 3/09 at 100 AAA 963,220
General Obligation School Bonds, Series 1999, 5.000%, 3/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 10.5%
1,000,000 Jefferson Sales Tax District, Jefferson Parish, Louisiana, Special 12/02 at 100 AAA 1,092,770
Sales Tax Revenue Bonds, Series 1991B, 6.750%, 12/01/06
2,000,000 Parish School Board, Jefferson Parish, Louisiana, Sales Tax School No Opt. Call AAA 1,260,160
Bonds, Refunding Series 1998, 0.000%, 3/01/09
1,000,000 City of Lafayette, Louisiana, Public Improvement Sales Tax Bonds, 3/07 at 101 AAA 960,670
Series 1998A, 5.000%, 5/01/22
3,000,000 Louisiana Local Government Environmental Facilities and Community No Opt. Call AAA 2,752,080
Development Authority, Revenue Bonds (Capital Projects and Equipment
Acquisition Program), Series 1999, 4.500%, 12/01/18
1,870,000 Louisiana Stadium and Exposition District, Hotel Occupancy Tax Refunding 7/09 at 102 AAA 1,738,109
Bonds, Series 1998B, 4.750%, 7/01/21
1,500,000 Office Facilities Corporation (A Louisiana Non Profit Corporation), 12/01 at 103 BBB+ 1,642,410
Capital Facilities Bonds (Statewide Lease/Purchase Program), Series
1990, 7.750%, 12/01/10
750,000 Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds, 7/16 at 100 A 771,375
Series 1996Y, 5.500%, 7/01/36
250,000 Puerto Rico Public Buildings Authority, Government Facilities Revenue 7/07 at 101 1/2 A 248,533
Bonds, Series B, Guaranteed by the Commonwealth of Puerto Rico,
5.250%, 7/01/21
1,500,000 Parish of St. John the Baptist, Louisiana, Sales Tax District, Public 12/99 at 103 Baa 1,570,815
Improvement Refunding Bonds, Series ST-1989, 7.800%, 12/01/14
2,995,000 City of Shreveport, Louisiana, Certificates of Indebtedness, Series 10/09 at 102 AAA 2,918,538
1998A, 5.000%, 10/01/16
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation -- 1.8%
$ 505,000 New Orleans (Louisiana), Aviation Board Revenue Bonds, Series 10/07 at 102 AAA $ 505,556
1997B-1, 5.450%, 10/01/27 (Alternative Minimum Tax)
2,100,000 City of Shreveport (Louisiana), Airport System Revenue Bonds, 1/08 at 102 AAA 2,081,709
Series 1997A (SMT-Subject), 5.375%, 1/01/28 (Alternative
Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 9.2%
745,000 Louisiana Public Facilities Authority, Hospital Revenue No Opt. Call AAA 900,735
Refunding Bonds (Southern Baptist Hospitals, Inc. Project),
Series 1986, 8.000%, 5/15/12
1,125,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds 10/02 at 102 A3*** 1,256,996
(Woman's Hospital Foundation Project), Series 1992, 7.250%,
10/01/22 (Pre-refunded to 10/01/02)
Louisiana Public Facilities Authority, Hospital Revenue Refunding
Bonds (Lafayette General Medical Center Project), Series 1992:
1,000,000 6.400%, 10/01/12 (Pre-refunded to 10/01/02) 10/02 at 102 AAA 1,095,300
2,000,000 6.500%, 10/01/22 (Pre-refunded to 10/01/02) 10/02 at 102 AAA 2,196,800
10,000,000 Louisiana Public Facilities Authority, Revenue Bonds, Custodial No Opt. Call AAA 3,475,700
Receipts, Series 1990B, 0.000%, 12/01/19
2,000,000 City of New Orleans, Audubon Park Commission, Aquarium Revenue 4/02 at 102 N/R*** 2,246,440
Bonds, Series 1992, 8.000%, 4/01/12 (Pre-refunded to 4/01/02)
1,400,000 Ouachita Parish (Louisiana), Hospital Service District No. 1, 7/01 at 102 A*** 1,527,092
Revenue Bonds (Glenwood Regional Medical Center), Series 1991,
7.500%, 7/01/21 (Pre-refunded to 7/01/01)
250,000 Shreveport (Louisiana), Home Mortgage Authority, Single Family No Opt. Call Aaa 279,745
Mortgage Revenue Bonds, Series 1979A, 6.750%, 9/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 10.2%
3,000,000 Lake Charles Harbor and Terminal District, Louisiana, Port 8/02 at 103 A3 3,380,550
Facilities Revenue Refunding Bonds, Series 1992 (Trunkline
LNG Company Project), Panhandle Eastern Corporation,
7.750%, 8/15/22
6,910,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/08 at 101 1/2 BBB+ 6,628,625
Series DD, 5.000%, 7/01/28
250,000 Puerto Rico Electric Power Authority, Power Revenue 7/05 at 100 BBB+ 249,178
Refunding Bonds, Series Z, 5.250%, 7/01/21
1,000,000 Parish of St. Charles, Louisiana, Environmental Improvement 11/02 at 102 BBB 1,035,480
Revenue, Louisiana Power and Light Company Project, Series A,
6.200%, 5/01/23 (Alternative Minimum Tax)
1,000,000 Parish of St. Charles, State of Louisiana Environmental 11/00 at 102 BBB- 1,025,330
Revenue Bonds (Louisiana Power and Light Company Project),
Series 1995, 6.375%, 11/01/25 (Alternative Minimum Tax)
500,000 Parish of St. Charles, Louisiana, Pollution Control Revenue 12/99 at 103 Baa3 522,885
Bonds (Louisiana Power and Light Company), 2nd Series 1984,
8.000%, 12/01/14
1,500,000 Parish of St. Charles, Louisiana, Solid Waste Disposal Revenue 12/02 at 102 BBB 1,618,901
Bonds (Louisiana Power and Light Company Project), Series 1992A,
7.000%, 12/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 1.1%
1,500,000 Louisiana Public Facilities Authority, Revenue Bonds, Series 1992, 2/03 at 101 AA- 1,611,600
Baton Rouge Water Works Company Project, 6.400%, 2/01/10
(Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
$157,124,617 Total Investments (cost $133,510,305) -- 99.1% 140,563,590
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.9% 1,285,413
-------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $141,849,003
===================================================================================================================
</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.
22
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina 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 - 5.4%
North Carolina Educational Facilities Finance Agency, Revenue Bonds
(High Point College Project), Series 1989:
$ 165,000 7.050%, 12/01/05 12/99 at 102 A3 $ 170,930
175,000 7.100%, 12/01/06 12/99 at 102 A3 181,333
4,220,000 North Carolina Educational Facilities Finance Agency, Refunding Revenue 10/06 at 102 AA+ 4,182,231
Bonds (Duke University Project), Series 1996B, 5.000%, 10/01/17
1,250,000 North Carolina Educational Facilities Finance Agency, Revenue Bonds 11/07 at 102 AA 1,231,463
(Wake Forest University), Series 1997, 5.000%, 11/01/17
1,000,000 State of North Carolina, State Education Assistance Authority, 7/05 at 102 A 1,047,960
Guaranteed Student Loan Revenue Bonds, 1995 Series A (Subordinate
Lien), 6.300%, 7/01/15 (Alternative Minimum Tax)
295,000 Board of Governors of the University of North Carolina at Chapel Hill, 6/01 at 102 AAA 319,408
Student Fee Revenue Bonds, Series 1991 (Student Recreation Center),
7.000%, 6/01/08
Board of Governors of the University of North Carolina at Chapel Hill,
Utilities System Revenue Refunding Bonds, Series 1997:
4,000,000 0.000%, 8/01/15 No Opt. Call AA 1,765,720
4,265,000 0.000%, 8/01/18 No Opt. Call AA 1,581,889
2,750,000 0.000%, 8/01/20 No Opt. Call AA 912,175
- ------------------------------------------------------------------------------------------------------------------------------------
Energy - 0.6%
1,100,000 New Hanover County, North Carolina Industrial Facilities and Pollution 7/02 at 102 BBB 1,173,898
Control Financing Authority,Revenue Refunding Bonds (Occidental
Petroleum Corporation Project), Series 1992, 6.700%, 7/01/19
- ------------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 8.6%
1,400,000 The Haywood County Industrial Facilities and Pollution Control 9/05 at 102 Baa1 1,478,778
Financing Authority (North Carolina), Environmental Improvement
Revenue Bonds (Champion International Corporation Project), Series
1995, 6.250%, 9/01/25 (Alternative Minimum Tax)
4,000,000 The Haywood County Industrial Facilities & Pollution Control 10/03 at 102 Baa1 3,941,200
Financing Authority (North Carolina), Solid Waste Disposal Revenue
Bonds (Champion International Corporation Project), Series 1993,
5.500%, 10/01/18 (Alternative Minimum Tax)
3,100,000 The Haywood County Industrial Facilities and Pollution Control 3/06 at 102 Baa1 3,207,694
Financing Authority (North Carolina), Variable Rate Demand Pollution
Control Refunding Revenue Bonds (Champion International Corporation
Project), Series 1995, 6.000%, 3/01/20
1,900,000 The Martin County Industrial Facilities and Pollution Control 9/01 at 103 A 2,049,435
Financing Authority (North Carolina), Solid Waste Revenue Disposal
Revenue Bonds (Weyerhaeuser Company Project), Series 1991,
7.250%, 9/01/14 (Alternative Minimum Tax)
6,000,000 The Martin County Industrial Facilities and Pollution Control Financing 5/04 at 102 A 6,520,320
Authority (North Carolina), Solid Waste Disposal Revenue Bonds
(Weyerhaeuser Company Project), Series 1994, 6.800%, 5/01/24
(Alternative Minimum Tax)
1,000,000 The Martin County Industrial Facilities and Pollution Control Financing 11/05 at 102 A 1,037,050
Authority (North Carolina), Solid Waste Disposal Revenue Bonds
(Weyerhaeuser Company Project), Series 1995 6.000%, 11/01/25
(Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 21.1%
The Charlotte-Mecklenburg Hospital Authority (North Carolina),
Health Care System Revenue Refunding Bonds, Series A:
5,300,000 5.750%, 1/15/21 1/06 at 102 AA 5,535,850
5,500,000 5.875%, 1/15/26 1/06 at 102 AA 5,792,270
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$ 6,000,000 The Charlotte-Mecklenburg Hospital Authority (North Carolina), 1/07 at 102 AA $ 5,789,340
Health Care System Revenue Bonds, Series 1997A, Doing Business as
Carolina Healthcare System, 5.125%, 1/15/22
4,000,000 County of Cumberland (North Carolina), Hospital Facility Revenue 10/09 at 101 A- 3,827,360
Bonds (Cumberland County Hospital System, Inc.), Series 1999,
5.250%, 10/01/29
North Carolina Medical Care Commission, Health Care Facilities
Revenue Bonds (Duke University Health System), Series 1998A:
5,000,000 5.000%, 6/01/23 6/08 at 101 AA 4,787,750
4,500,000 4.750%, 6/01/28 6/08 at 101 AA 4,064,670
1,000,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 2/02 at 102 Baa3 1,107,180
(Annie Penn Memorial Hospital Project), Series 1991, 7.500%, 8/15/21
4,000,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 12/08 at 101 AA- 3,876,440
(Pitt County Memorial Hospital), Series 1998A, 5.000%, 12/01/18
2,000,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 10/08 at 101 AAA 1,946,600
(Mission - St. Joseph's Health System) Series 1998, 5.125%, 10/01/28
2,500,000 Northern Hospital District, Surry County (North Carolina), Health 10/01 at 102 BBB 2,675,400
Care Facilities Revenue Refunding Bonds, Series 1991,
7.875%, 10/01/21
5,750,000 Board of Governors of the University of North Carolina, University of 2/06 at 102 AA 5,656,218
North Carolina Hospitals at Chapel Hill, Revenue Bonds, Series
1996, 5.250%, 2/15/26
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 1.0%
1,340,000 Housing Authority of the City of Asheville (North Carolina), 11/07 at 102 AAA 1,385,801
Multifamily Housing Revenue Bonds (GNMA Collateralized Woodridge
Apartments), Series 1997, 5.750%, 11/20/29 (Alternative Minimum Tax)
620,000 North Carolina Housing Finance Agency, Multifamily Revenue Refunding 7/02 at 102 AA 663,226
Bonds (1992 Refunding Bond Resolution), Series B, 6.900%, 7/01/24
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 16.6%
610,000 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/01 at 102 AA 641,256
Series O (1985 Resolution), 7.600%, 3/01/21 (Alternative Minimum
Tax)
North Carolina Housing Finance Agency, Single Family Revenue Bonds,
Series Y, (1985 Resolution):
2,000,000 6.300%, 9/01/15 9/04 at 102 AA 2,136,160
1,845,000 6.350%, 3/01/18 9/04 at 102 AA 1,969,519
1,865,000 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/05 at 102 AA 1,982,514
Series BB, (1985 Resolution), 6.500%, 9/01/26 (Alternative Minimum
Tax)
3,405,000 North Carolina Housing Finance Agency, Single Family Revenue Bond, 3/05 at 102 AA 3,566,669
Series DD, (1985 Resolution), 6.200%, 9/01/27 (Alternative Minimum Tax)
4,360,000 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/06 at 102 AA 4,587,984
Series LL (1985 Resolution), 6.200%, 3/01/26 (Alternative Minimum
Tax)
6,550,000 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/07 at 101 1/2 AA 6,800,865
Series RR (1985 Resolution), 5.850%, 9/01/28 (Alternative Minimum
Tax)
1,635,000 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/08 at 101 AA 1,630,259
Series VV (1985 Resolution), 5.250%, 3/01/17 (Alternative Minimum
Tax)
2,500,000 North Carolina Housing Finance Agency, Home Ownership Revenue Bonds, 7/08 at 101 AA 2,478,450
Series 2-A (1998 Trust Agreement), 5.250%, 7/01/26
(Alternative Minimum Tax)
4,370,000 North Carolina Housing Finance Agency, Home Ownership Revenue Bonds, 1/09 at 101 AA 4,325,907
Series 3-A (1998 Trust Agreement), 5.200%, 7/01/26
(Alternative Minimum Tax)
5,000,000 North Carolina Housing Finance Agency, Home Ownership Revenue Bonds, 1/09 at 100 AA 4,978,350
Series 4-A (1998 Trust Agreement), 5.300%, 7/01/26
(Alternative Minimum Tax)
505,000 Winston Salem, North Carolina, Single Family Mortgage Revenue Bonds, 9/00 at 102 A1 521,519
Series 1990, 8.000%, 9/01/07 (Alternative Minimum Tax)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial/Other - 0.7%
$ 1,400,000 Gaston County, Industrial Facilities and Pollution Control Financing 11/01 at 103 N/R $ 1,497,300
Authority North Carolina, Industrial Development Revenue Bonds,
Series 1985 (ABB-Combustion Engineering Inc.), 8.850%, 11/01/15
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 13.9%
500,000 City of Asheville, North Carolina, Certificates of Participation, 2/02 at 102 A1 536,440
Series 1992, 6.500%, 2/01/08
1,000,000 City of Asheville, North Carolina, Certificates of Participation, 6/07 at 101 AAA 996,390
Series 1997A, 5.125%, 6/01/18
City of Charlotte, North Carolina, General Obligation Water and Sewer
Bonds, Series 1995A:
500,000 5.400%, 4/01/19 4/05 at 102 AAA 515,550
3,445,000 5.400%, 4/01/20 4/05 at 102 AAA 3,548,625
600,000 City of Durham, North Carolina, Certificates of Participation, 6/05 at 102 AA 641,766
Series 1995, 5.800%, 6/01/15
County of Harnett, North Carolina Certificates of Participation,
Series 1994 (Harnett County Projects):
1,000,000 6.200%, 12/01/06 12/04 at 102 AAA 1,103,970
1,750,000 6.200%, 12/01/09 12/04 at 102 AAA 1,931,948
500,000 6.400%, 12/01/14 12/04 at 102 AAA 556,705
County of Pitt, North Carolina Certificates of Participation
(Pitt County Public Facilities Project) Series 1997A:
1,250,000 5.550%, 4/01/12 4/07 at 102 AAA 1,316,450
1,000,000 5.850%, 4/01/17 4/07 at 102 AAA 1,069,290
10,000,000 Puerto Rico Commonwealth Highway and Transportation Authority, Highway 7/16 at 100 A 10,285,000
Revenue Bonds, Series 1996Y, 5.500%, 7/01/36
555,000 Puerto Rico Infrastructure Finance Authority, Special Tax Revenue 7/99 at 101 BBB+ 567,854
Bonds, Series 1988A, 7.750%, 7/01/08
1,000,000 Puerto Rico Public Buildings Authority, Revenue Refunding Bonds, No Opt. Call A 1,047,840
Series L, Guaranteed by the Commonwealth of Puerto Rico,
5.500%, 7/01/21
Town of Ramseur, North Carolina General Obligation Water Refunding Bonds,
Series 1997:
120,000 5.750%, 6/01/18 6/07 at 102 N/R 122,725
125,000 5.750%, 6/01/19 6/07 at 102 N/R 127,314
125,000 5.750%, 6/01/20 6/07 at 102 N/R 126,911
130,000 5.750%, 6/01/21 6/07 at 102 N/R 131,658
105,000 5.750%, 6/01/22 6/07 at 102 N/R 106,261
715,000 County of Stokes, North Carolina, Certificates of Participation, Series 3/01 at 102 AAA 766,037
1991, 7.000%, 3/01/06
1,410,000 County of Union, North Carolina, Certificates of Participation, Series 4/03 at 102 AAA 1,534,080
1992, 6.375%, 4/01/12
2,375,000 City of Winston-Salem, North Carolina, Special Obligation Bonds 4/05 at 102 AA 2,450,311
(Solid Waste Management Project), Series 1995, 5.500%, 4/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 9.4%
135,000 Asheville, North Carolina, Housing Development Corporation, First Lien 11/09 at 100 N/R*** 176,791
Revenue Bonds, Series 1980, 10.500%, 5/01/11 (Pre-refunded to 11/01/09)
1,500,000 County of Buncombe, North Carolina, Certificates of Participation (1992 12/02 at 102 Aa3*** 1,660,845
Buncombe County Project), 6.625%, 12/01/10 (Pre-refunded to 12/01/02)
1,900,000 Craven Regional Medical Authority, North Carolina, Insured Health Care 10/00 at 102 AAA 2,029,694
Facilities Revenue Bonds, Series 1990, 7.200%, 10/01/19 (Pre-refunded
to 10/01/00)
705,000 City of Durham, North Carolina, Certificates of Participation (1990 9/00 at 102 Aa*** 751,629
Financing Project), 7.250%, 9/01/10 (Pre-refunded to 9/01/00)
1,000,000 City of Durham, North Carolina, Certificates of Participation, Series 12/01 at 102 Aa3*** 1,090,540
1991, 6.750%, 12/01/11 (Pre-refunded to 12/01/01)
2,055,000 North Carolina Medical Care Commission, Health Care Facilities 10/99 at 102 AAA 2,126,596
Revenue Bonds (Stanly Memorial Hospital Project), Series 1989,
7.800%, 10/01/19 (Pre-refunded to 10/01/99)
995,000 North Carolina Eastern Municipal Power Agency, Power System Revenue No Opt. Call AAA 1,174,936
Refunding Bonds, Series 1991A, 6.500%, 1/01/18
75,000 North Carolina Medical Care Commission, Hospital Revenue Bonds No Opt. Call AAA 86,882
(Memorial Mission Hospital Project), Series A, 7.625%, 10/01/08
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina 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)
North Carolina Medical Care Commission, Hospital
Revenue Bonds (Halifax Memorial Hospital
Project) Series 1992:
$ 1,275,000 6.750%, 8/15/14 (Pre-refunded to 8/15/02) 8/02 at 102 Baa1*** $ 1,403,138
1,000,000 6.750%, 8/15/24 (Pre-refunded to 8/15/02) 8/02 at 102 Baa1*** 1,100,500
2,200,000 North Carolina Medical Care Commission, Hospital Revenue Bonds (Roanoke, 10/99 at 102 Aaa 2,276,274
Chowan Hospital Project), Series 1989, 7.750%, 10/01/19 (Pre-refunded
to 10/01/99)
600,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 10/99 at 102 N/R*** 620,988
(Transylvania Community Hospital Project), Series 1989, 8.000%,
10/01/19 (Pre-refunded to 10/01/99)
3,400,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 10/00 at 102 AA*** 3,669,280
(Community General Hospital of Thomasville), Series 1990, 8.100%,
10/01/15 (Pre-refunded to 10/01/00)
700,000 County of Pender, North Carolina, Certificates of Participation, 6/01 at 102 Baa1*** 767,179
Series 1991, 7.700%, 6/01/11 (Pre-refunded to 6/01/01)
1,000,000 County of Pitt, North Carolina, Certificates of Participation, 6.900%, 4/00 at 102 AAA 1,049,680
4/01/08 (Pre-refunded to 4/01/00)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 14.9%
Coastal Regional Solid Waste Management Authority, North Carolina, Solid
Waste System Revenue Bonds, Series 1992:
1,000,000 6.500%, 6/01/08 6/02 at 102 A 1,071,710
1,000,000 6.300%, 6/01/04 6/02 at 102 A 1,071,790
1,000,000 City of Concord, North Carolina, Utilities Systems Revenue Bonds, Series 12/05 at 102 AAA 1,030,460
1995, 5.500%, 12/01/19
3,000,000 City of Concord, North Carolina, Utilities Systems Refunding Revenue 12/08 at 101 AAA 2,955,480
Bonds, Series 1998B, 5.000%, 12/01/17
City of Fayetteville, North Carolina, Public Works
Commission Revenue Bonds, Series 1995A:
1,845,000 5.250%, 3/01/16 3/05 at 102 AAA 1,864,170
1,000,000 5.375%, 3/01/20 3/05 at 102 AAA 1,010,650
5,900,000 City of Fayetteville, North Carolina, Public Works Commission Revenue 3/07 at 101 AAA 5,810,025
Bonds, Series 1997, 5.125%, 3/01/24
1,500,000 City of Gastonia, North Carolina, Combined Utilities System Revenue 5/08 at 102 AAA 1,455,090
Bonds, Series 1998, 4.750%, 5/01/15
2,000,000 City of Greenville, North Carolina, Utilities Commission Combined 9/04 at 102 A+ 2,146,680
Enterprise System Revenue Bonds, Series 1994, 6.000%, 9/01/16
5,300,000 North Carolina Eastern Municipal Power Agency, Power System Revenue No Opt. Call AAA 5,844,681
Bonds, Refunding Series 1993B, 6.000%, 1/01/18
5,250,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series DD, 7/08 at 101 1/2 BBB+ 5,036,220
5.000%, 7/01/28
870,000 City of Shelby, North Carolina, Combined Enterprise System Revenue 5/05 at 102 A- 883,067
Bonds, Series 1995A, 5.500%, 5/01/17
1,470,000 City of Shelby, North Carolina, Combined Enterprise System Revenue 5/05 at 102 A- 1,492,079
Refunding Bonds, Series 1995B, 5.500%, 5/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 6.9%
2,000,000 City of Asheville, North Carolina, Water System Revenue Bonds, 8/06 at 102 AAA 2,102,920
Series 1996, 5.700%, 8/01/25
1,000,000 County of Dare, North Carolina, Utilities System Revenue Bonds, Series 6/08 at 102 AAA 930,160
1998A, 4.750%, 6/01/24
3,400,000 City of Greensboro, North Carolina, Combined Enterprise System Revenue 6/05 at 102 AA- 3,457,460
Bonds, Series 1995A, 5.375%, 6/01/19
2,500,000 City of Raleigh, North Carolina, Combined Enterprise System Revenue 3/09 at 101 AA+ 2,326,075
Bonds, Series 1999, 4.750%, 3/01/24
3,000,000 County of Union, North Carolina, Enterprise Systems Revenue Bonds, 6/06 at 102 AAA 3,097,830
Series 1996, 5.500%, 6/01/17
City of Winston-Salem, North Carolina Water and Sewer System Revenue
Bonds Series 1995B:
750,000 5.600%, 6/01/14 6/05 at 102 AA+ 781,658
1,500,000 5.700%, 6/01/17 6/05 at 102 AA+ 1,569,090
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer (continued)
$ 406,337 Woodfin Treatment Facility, Inc., North Carolina, Proportionate Interest No Opt. Call N/R $ 408,212
Certificates, 5.500%, 12/01/03
- -----------------------------------------------------------------------------------------------------------------------------------
$212,611,337 Total Investments - (cost $201,689,801) - 99.1% 210,839,925
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.9% 1,957,604
-------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $212,797,529
===================================================================================================================
</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.
27
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Basic Materials - 5.0%
$3,000,000 Industrial Development Board of the City of Chattanooga (Tennessee), 7/03 at 103 AA- $ 3,257,160
Pollution Control Revenue Bonds, Series 1982A (E.I. du Pont de
Nemours & Company), 6.350%, 7/01/22
12,000,000 The Industrial Development Board of Humphreys County, Tennessee, Solid 5/04 at 102 AA- 13,187,280
Waste Disposal Facility Bonds (E.I. du Pont de Nemours and Company
Project), 6.700%, 5/01/24 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical - 2.3%
7,000,000 The Industrial Development Board of Maury County, Tennessee, Multi-Modal 9/04 at 102 A 7,657,370
Interchangeable Rate Pollution Control Refunding Revenue Bonds (Saturn
Corporation Project), Series 1994, 6.500%, 9/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 0.5%
250,000 Memphis, Shelby County, Tennessee, Industrial Development Board No Opt. Call A1 268,935
Industrial Development Revenue Bonds (Colonial Baking Company Memphis
Project), Series 1981, 9.500%, 4/01/01
1,245,000 Industrial Development Board of the City of South Fulton, Tennessee, 10/05 at 102 A3 1,335,574
Industrial Development Revenue Bonds (Tyson Foods, Inc. Project),
Series 1995, 6.400%, 10/01/20 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 1.9%
3,705,000 Tennessee State School Bond Authority, Higher Educational Facilities 5/02 at 101 1/2 AAA 3,999,955
Bonds, 1992 Series A, 6.250%, 5/01/22
2,000,000 Tennessee State School Bond Authority, Higher Educational Facilities 5/06 at 101 1/2 AA+ 2,099,320
Bonds, 1996 Series C, 5.700%, 5/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products - 4.7%
6,750,000 The Industrial Development Board of Loudon County (Tennessee), Solid 2/03 at 102 AA 7,183,688
Waste Disposal Revenue Bonds (Kimberly-Clark Corporation Project),
Series 1993, 6.200%, 2/01/23 (Alternative Minimum Tax)
2,500,000 The Industrial Development Board of the County of McMinn (Tennessee), 3/01 at 102 Baa1 2,666,300
Pollution Control Facilities Revenue Bonds, Series 1991 (Calhoun
Newsprint Company Project-Bowater Incorporated Obligor) (The
Construction Bonds), 7.625%, 3/01/16 (Alternative Minimum Tax)
4,950,000 The Industrial Development Board of the County of McMinn (Tennessee) 12/02 at 102 Baa1 5,438,912
Solid Waste Recycling Facilities Revenue Bonds, Series 1992 (Calhoun
Newsprint Company Project-Bowater Incorporated Obligor), 7.400%,
12/01/22 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 15.3%
3,060,000 Blount County, Tennessee, Hospital Revenue Improvement Bonds, Series 7/08 at 100 Baa1 2,857,520
1998B, 5.125%, 7/01/19
4,000,000 The Health, Educational and Housing Facility Board, the City of 6/08 at 101 A- 3,738,000
Chattanooga, Tennessee, Hospital Improvement and Refunding
Revenue Bonds, Series 1998 (Siskin Hospital for Physical
Rehabilitation, Inc. Project), 5.250%, 6/01/28
1,550,000 The Industrial Development Board of the City of Cookeville, Tennessee, 10/03 at 102 A 1,629,577
Hospital Refunding Revenue Bonds, Series 1993 (Cookeville General
Hospital Project), 5.750%, 10/01/10
7,350,000 The City of Jackson, Tennessee, Hospital Revenue Refunding and 4/05 at 102 AAA 7,589,096
Improvement Bonds, Series 1995 (Jackson-Madison County General
Hospital Project), 5.625%, 4/01/15
2,090,000 The Health and Educational Facilities Board of the City of Johnson 7/01 at 102 AAA 2,242,612
City, Tennessee, Hospital Revenue Refunding and Improvement Bonds,
Series 1991 (Johnson City Medical Center Hospital), 6.750%, 7/01/16
The Health and Educational Facilities Board of the City of Johnson City,
Tennessee, Hospital Revenue Refunding and Improvement Bonds, Series 1998C
(Johnson City Medical Center Hospital):
5,000,000 5.125%, 7/01/25 1/09 at 101 AAA 4,859,600
5,000,000 5.250%, 7/01/28 1/09 at 101 AAA 4,922,750
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Health Care (continued)
The Health, Educational and Housing Facilities Board of the County
of Knox, Tennessee, Hospital Revenue Bonds, Series 1993A
(Fort Sanders Alliance Obligated Group):
$ 1,000,000 6.250%, 1/01/13 No Opt. Call AAA $ 1,130,110
3,000,000 5.250%, 1/01/15 No Opt. Call AAA 3,072,210
1,250,000 The Health and Educational Facilities Board of the Metropolitan 11/05 at 102 AAA 1,308,325
Government of Nashville and Davidson Counties, Tennessee, Hospital
Revenue Bonds, Series 1995 (Adventist Health Group),
5.750%, 11/15/25
2,395,000 The Health and Educational Facilities Board of the Metropolitan 11/01 at 102 AAA 2,604,275
Government of Nashville and Davidson Counties, Tennessee, Hospital
Revenue Bonds, Series 1991 (Adventist Health System -
Sunbelt, Inc.), 7.000%, 11/15/16
7,500,000 The Health and Educational Facilities Board of the Metropolitan 5/09 at 101 AA+ 7,154,625
Government of Nashville and Davidson Counties, Tennessee, Hospital
Revenue Bonds (Charity Obligated Group), Series 1999A,
5.125%, 11/01/27
4,000,000 Shelby County, Tennessee, Health, Educational and Housing Facility Board, 8/05 at 100 AAA 4,017,480
Formerly Shelby County, Health System Inc., 5.250%, 8/01/15
2,500,000 Sumner County Tennessee Health, Educational and Housing Facilities Board, 11/04 at 102 A- 2,799,550
Revenue Refunding Bonds, Sumner Regional Health System Inc.,
Series 1994, 7.500%, 11/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 1.7%
1,200,000 The Health, Educational and Housing Facility Board of the City of 7/03 at 102 Aaa 1,248,948
Chattanooga, Tennessee, Multifamily Mortgage Revenue Refunding Bonds,
Series 1993A (Windridge Apartments-FHA Insured Mortgage),
5.950%, 7/01/14
3,500,000 The Industrial Development Board of the City of Franklin, Tennessee, 10/06 at 102 AAA 3,667,895
Multifamily Housing Revenue Refunding Bonds (The Landings Apartments
Project), Senior Series 1996A, 6.000%, 10/01/26
Metropolitan Government Nashville and Davidson Counties, Tennessee,
Health and Educational Facilities Board, Revenue Board, Housing,
Mortgage, Herman Street:
250,000 7.000%, 6/01/17 6/02 at 103 AAA 268,300
495,000 7.250%, 6/01/32 6/02 at 103 AAA 533,625
- -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 11.5%
235,000 County of Hamilton, Tennessee, Single Family Mortgage Revenue Bonds 9/00 at 102 AAA 244,275
(Home Purchase and Rehabilitation Program), Series 1990, 8.000%,
9/01/23 (Alternative Minimum Tax)
6,000,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/06 at 102 AA 6,388,980
Issue 4A, 6.375%, 7/01/22 (Alternative Minimum Tax)
990,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/07 at 102 AA 1,031,293
Issue 1996-3, 5.850%, 7/01/17 (Alternative Minimum Tax)
120,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/01 at 102 AA 125,658
Issue U, 7.400%, 7/01/16
3,900,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/01 at 102 AA 4,075,695
Issue T, 7.375%, 7/01/23 (Alternative Minimum Tax)
2,695,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/02 at 102 AA 2,840,341
Issue WR, 6.800%, 7/01/17
Tennessee Housing Development Agency, Homeownership Program Bonds,
Issue 1998-2:
4,000,000 5.350%, 7/01/23 (Alternative Minimum Tax) 1/09 at 101 AA 4,015,840
10,145,000 5.375%, 7/01/29 (Alternative Minimum Tax) 1/09 at 101 AA 10,164,783
7,700,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 1/09 at 101 AA 7,727,335
Issue 1996-5B (Remarketing), 5.375%, 7/01/23 (Alternative Minimum Tax)
1,000,000 Tennessee Housing Development Agency, Mortgage Finance Program Bonds, 7/04 at 102 A+ 1,068,720
1994 Series A, 6.900%, 7/01/25 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 2.3%
2,925,000 The Health and Educational Facilities Board of the Metropolitan Government 2/08 at 102 AA 2,961,270
of Nashville and Davidson Counties, Tennessee, Multi-Modal
Interchangeable Rate, Health Facility Revenue Bonds (Richland Place, Inc.
Project), Series 1993, 5.500%, 5/01/23
4,700,000 The Health and Educational Facilities Board of the Metropolitan 7/08 at 102 N/R 4,508,287
Government of Nashville and Davidson Counties, Tennessee, Revenue
Refunding Bonds, Series 1998 (The Blakford at Green Hills),
5.650%, 7/01/24
</TABLE>
29
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee 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 -- 5.1%
Hamilton County, Tennessee, General Obligation Bonds,
Series 1995:
$ 2,025,000 6.300%, 2/01/25 2/05 at 102 Aa2 $ 2,266,866
1,000,000 6.250%, 2/01/20 2/05 at 102 Aa2 1,116,940
4,000,000 The Metropolitan Government of Nashville and Davidson 5/07 at 102 AA 3,882,600
Counties, Tennessee, General Obligation Refunding Bonds,
Series 1997, 5.125%, 5/15/25
8,000,000 The Metropolitan Government of Nashville and Davidson 5/06 at 101 AA 8,505,200
Counties, Tennessee, General Obligation
Public Improvement Bonds, Series 1996, 5.875%, 5/15/21
750,000 Shelby County, Tennessee, General Obligation Refunding Bonds, 4/05 at 101 AA+ 781,898
1995 Series A, 5.625%, 4/01/14
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 12.6%
3,500,000 The Industrial Development Board of Fayetteville and Lincoln 5/08 at 100 Aaa 3,487,015
Counties, Tennessee, Hospital Facility Lease Revenue and Tax
Bonds, Series 1998 (ULT), 5.300%, 5/01/28
The Health and Educational Facilities Board of the Metropolitan
Government of Nashville and Davidson Counties, Tennessee,
Revenue Refunding and Improvement Bonds (Meharry Medical
College Project), Series 1996:
1,000,000 6.000%, 12/01/19 12/17 at 100 AAA 1,114,320
4,000,000 5.000%, 12/01/24 6/09 at 100 AAA 3,835,880
5,000,000 The Sports Authority of the Metropolitan Government of 7/06 at 101 AAA 5,267,900
Nashville and Davidson Counties, Public Improvement Revenue
Bonds (Stadium Project), Series 1996, 5.750%, 7/01/26
6,275,000 Puerto Rico Commonwealth Highway and Transportation 7/16 at 100 A 6,453,838
Authority, Highway Revenue Bonds, Series 1996Y, 5.500%,
7/01/36
500,000 Puerto Rico Commonwealth Highway and Transportation No Opt. Call AAA 534,545
Authority, Highway Revenue Bonds, Series W, 5.500%,
7/01/15
13,300,000 Puerto Rico Public Buildings Authority, Revenue Refunding No Opt. Call A 13,936,272
Bonds, Series L, Guaranteed by the Commonwealth of Puerto
Rico, 5.500%, 7/01/21
Tennessee State Local Development Authority, Revenue Bonds,
State Loan Program Series A:
1,325,000 7.000%, 3/01/12 3/01 at 102 AA 1,422,520
1,175,000 7.000%, 3/01/21 3/01 at 102 AA 1,261,480
2,660,000 Tennessee State Local Development Authority, Revenue Bonds, 10/02 at 102 A 2,899,852
Community Provider Loan Program, 7.000%, 10/01/21
1,000,000 Wilson County, Tennessee, Certificates of Participation, 3/08 at 102 AAA 992,250
Series 1998, School Facilities Lease Agreement with Wilson
County Educational Facilities Development Corporation,
5.250%, 3/30/18
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.7%
5,545,000 Memphis-Shelby County Airport Authority (Tennessee), 9/01 at 103 BBB 6,081,091
Special Facilities Revenue Bonds, Series 1984
(Federal Express Corporation), 7.875%, 9/01/09
4,100,000 Memphis-Shelby County Airport Authority (Tennessee), 9/02 at 102 BBB 4,445,958
Special Facilities Revenue Refunding Bonds, Series 1992
(Federal Express Corporation), 6.750%, 9/01/12
Metropolitan Nashville Airport Authority (Tennessee), Airport
Improvement Revenue Bonds, Refunding Series 1991C:
145,000 6.625%, 7/01/07 7/01 at 102 AAA 155,562
4,385,000 6.600%, 7/01/15 7/01 at 102 AAA 4,696,686
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 15.5%
1,000,000 City of Chattanooga, Tennessee, General Obligation Bonds, 5/00 at 102 AA*** 1,055,080
Series 1990, Various Purpose, 7.250%, 5/01/12
(Pre-refunded to 5/01/00)
1,930,000 The Health, Educational and Housing Facility Board of the 9/01 at 102 AAA 2,084,921
City of Chattanooga, Tennessee, Hospital Revenue Bonds,
Series 1991A (Memorial Hospital Project), 6.600%, 9/01/12
(Pre-refunded to 9/01/01)
City of Clarksville, Tennessee, Hospital Revenue Refunding and
Improvement Bonds, Series 1993 (Clarksville Memorial Hospital
Project):
1,000,000 6.250%, 7/01/08 (Pre-refunded to 7/01/03) 7/03 at 102 Baa1*** 1,096,930
1,775,000 6.250%, 7/01/13 (Pre-refunded to 7/01/03) 7/03 at 102 Baa1*** 1,947,051
1,250,000 6.375%, 7/01/18 (Pre-refunded to 7/01/03) 7/03 at 102 Baa1*** 1,376,988
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Guaranteed (continued)
$ 1,125,000 Eastside Utility District of Hamilton County, Tennessee, Water System 11/01 at 102 A*** $ 1,225,665
Revenue Bonds, Series 1992, 6.750%, 11/01/11 (Pre-refunded to 11/01/01)
1,455,000 Gladeville Utility District of Wilson County, Tennessee, Waterworks 10/00 at 100 AAA 1,531,198
Revenue Bonds, Series 1990, 7.400%, 10/01/10 (Pre-refunded to 10/01/00)
5,000,000 City of Johnson City, Tennessee, School Sales Tax Revenue and Unlimited 5/06 at 100 AAA 5,723,200
Tax Bonds, Series 1994, 6.700%, 5/01/21 (Pre-refunded to 5/01/06)
3,000,000 The Health, Educational and Housing Facilities Board of the County of 9/99 at 102 AAA 3,092,010
Knox, Tennessee, Hospital Facilities Revenue Bonds, Series 1989A
(Mercy Health System, Province of Cincinnati), 7.600%, 9/01/19
(Pre-refunded to 9/01/99)
3,065,000 The Health, Educational and Housing Facilities Board of the County of 1/00 at 102 AAA 3,192,473
Knox (Tennessee), Hospital Revenue Bonds, Series 1990C (Fort Sanders
Alliance Obligated Group), 7.000%, 1/01/15 (Pre-refunded to 1/01/00)
41,570,000 The Health and Educational Facilities Board of the Metropolitan No Opt. Call Aaa 11,976,733
Government of Nashville and Davidson Counties, Tennessee, Revenue
Bonds, Series 1988 (Volunteer Healthcare), Subordinate Lien,
0.000%, 6/01/21
1,200,000 The Health and Educational Facilities Board of the Metropolitan 10/07 at 105 N/R*** 1,596,768
Government of Nashville and Davidson Counties, Tennessee, Revenue
Bonds, Series 1992A (Mur-Ci Homes Inc. Project), 9.000%, 10/01/22
(Pre-refunded to 10/01/07)
2,500,000 The Public Building Authority of the City of Mt. Juliet, Tennessee, 2/04 at 110 AAA 3,098,100
Revenue Bonds (Utility District Loan Program), Series B, the Madison
Suburban Utility District, 7.800%, 2/01/19 (Pre-refunded to 2/01/04)
1,500,000 Northeast Knox, Tennessee, Utility District Water Revenue Bonds, 1/00 at 102 AAA 1,563,030
7.000%, 1/01/20 (Pre-refunded to 1/01/00)
250,000 Shelby County, Tennessee, General Obligation Refunding Bonds, 1995 4/05 at 101 AA+*** 269,895
Series A, 5.625%, 4/01/14 (Pre-refunded to 4/01/05)
4,000,000 The Health, Educational and Housing Facilities Board of the County of 2/00 at 102 AAA 4,189,760
Sullivan, Tennessee, Hospital Revenue Bonds, Series 1990 (Holston
Valley Health Care, Inc.), 7.250%, 2/15/20 (Pre-refunded to 2/15/00)
2,300,000 The White House Utility District of Robertson and Sumner Counties, 1/02 at 102 AAA 2,484,414
Tennessee, Water Revenue Refunding and Improvement Bonds, Series
1992B, 6.375%, 1/01/22 (Pre-refunded to 1/01/02)
Wilson County, Tennessee, Certificates of Participation (Wilson County
Educational Facilities Corporation), Series 1994:
1,500,000 6.125%, 6/30/10 (Pre-refunded to 6/30/04) 6/04 at 102 A2*** 1,654,185
1,500,000 6.250%, 6/30/15 (Pre-refunded to 6/30/04) 6/04 at 102 A2*** 1,662,690
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 10.2%
1,520,000 City of Clarksville, Tennessee, Water, Sewer and Gas Revenue Refunding No Opt. Call AAA 642,626
and Improvement Bonds, Series 1992, 0.000%, 2/01/16
2,160,000 The City of Dickson, Tennessee, Electric System Revenue Bonds, Series 9/08 at 102 AAA 2,243,441
1996, 5.500%, 9/01/16
The City of Jackson, Tennessee, Electric System Revenue Bonds, Series E:
315,000 6.300%, 8/01/09 8/00 at 102 A1 330,366
335,000 6.300%, 8/01/10 8/00 at 102 A1 351,341
355,000 6.300%, 8/01/11 8/00 at 102 A1 371,728
380,000 6.300%, 8/01/12 8/00 at 102 A1 398,107
3,000,000 The City of Jackson, Tennessee, Natural Gas System Revenue Bonds, 4/07 at 100 AAA 2,944,140
Series 1997, 5.000%, 4/15/18
4,475,000 Lawrenceburg, Tennessee, Electric Revenue Bonds, Series 7/09 at 100 AAA 4,627,105
5.500%, 7/01/26
The Metropolitan Government of Nashville and Davidson Counties,
Tennessee, Electric Revenue Bonds, Series 1996A:
7,800,000 0.000%, 5/15/11 No Opt. Call AAA 4,340,310
8,500,000 0.000%, 5/15/12 No Opt. Call AAA 4,464,030
</TABLE>
31
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 1999
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Utilities (continued)
The Metropolitan Government of Nashville and Davidson Counties,
Tennessee, Electric System Revenue Bonds, 1998 Series A:
$ 11,000,000 0.000%, 5/15/19 No Opt. Call AAA $ 3,841,310
4,000,000 5.200%, 5/15/23 5/08 at 102 AA 3,948,640
1,000,000 The Middle Tennessee Utility District of Cannon, Cumberland, DeKalb, 10/02 at 102 AAA 1,092,620
Putnam, Rhea, Rutherford, Smith, Warren, White and Wilson Counties,
Tennessee, Gas System Revenue Bonds, Series 1992, 6.250%, 10/01/12
2,000,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, 7/08 at 101 1/2 BBB+ 1,857,380
Series EE, 4.750%, 7/01/24
2,000,000 The Tennergy Corporation, Tennessee, Gas Revenue Bonds, Series 1999, No Opt. Call AAA 2,046,660
5.000%, 6/01/09
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 6.4%
8,000,000 Harpeth Valley Utilities District of Davidson and Williamson Counties, 9/08 at 100 AAA 7,719,440
Tennessee, Utilities Improvement Revenue Bonds, Series 1998,
5.000%, 9/01/28
5,445,000 City of Knoxville, Tennessee, Waste Water System Refunding and 4/07 at 101 AA 5,277,076
Improvement Bonds, Series 1998, 5.125%, 4/01/23
3,000,000 Madison Suburban Utility District, Water Revenue Refunding Bonds, 2/08 at 100 AAA 2,921,010
5.000%, 2/01/19
1,000,000 Milcrofton Utility District of Williamson County, Tennessee, Waterworks 2/06 at 102 N/R 1,024,820
Revenue Refunding Bonds, Series 1996 (Junior Lien), 6.000%, 2/01/24
1,100,000 The Consolidated Utility District of Rutherford County, Tennessee, 2/08 at 100 Aaa 1,101,056
Waterworks Revenue Refunding and Improvement Bonds, Series 1997A,
5.250%, 2/01/27
1,100,000 The White House Utility District of Robertson and Sumner Counties, 1/07 at 100 Aaa 1,116,342
Tennessee, Water and Sewer Revenue Refunding Bonds, Series 1997B,
5.300%, 1/01/15
1,500,000 Wilson County, Tennessee, Water and Wastewater Authority, Waterworks 3/08 at 102 Baa1 1,625,460
Revenue Refunding and Improvement Bonds Series 1993, 6.000%, 3/01/14
- -----------------------------------------------------------------------------------------------------------------------------------
$359,540,000 Total Investments - (cost $308,771,148) - 99.7% 326,136,241
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.3% 871,022
-------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $327,007,263
===================================================================================================================
</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.
32
<PAGE>
Statement of Net Assets
May 31, 1999
<TABLE>
<CAPTION>
Georgia Louisiana
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $161,612,537 $140,563,590
Receivables:
Interest 2,997,675 2,325,088
Investments sold 205,000 175,000
Shares sold 1,422,602 6,615,085
Other assets 139,097 117,768
- ------------------------------------------------------------------------------------------------------------
Total assets 166,376,911 149,796,531
- ------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 993,175 669,887
Payables:
Investments purchased -- 6,722,893
Shares redeemed 131,815 248,387
Accrued expenses:
Management fees (note 6) 65,085 24,643
12b-1 distribution and service fees (notes 1 and 6) 46,683 43,837
Other 38,592 44,450
Dividends payable 249,898 193,431
- ------------------------------------------------------------------------------------------------------------
Total liabilities 1,525,248 7,947,528
- ------------------------------------------------------------------------------------------------------------
Net assets (note 7) $164,851,663 $141,849,003
============================================================================================================
Class A Shares (note 1)
Net assets $128,137,926 $ 99,176,129
Shares outstanding 11,628,099 8,717,343
Net asset value and redemption price per share $ 11.02 $ 11.38
Offering price per share (net asset value per share plus maximum
sales charge of 4.20% of offering price) $ 11.50 $ 11.88
============================================================================================================
Class B Shares (note 1)
Net assets $ 11,991,319 $ 18,869,746
Shares outstanding 1,087,011 1,659,222
Net asset value, offering and redemption price per share $ 11.03 $ 11.37
============================================================================================================
Class C Shares (note 1)
Net assets $ 24,357,963 $ 21,352,207
Shares outstanding 2,214,908 1,879,084
Net asset value, offering and redemption price per share $ 11.00 $ 11.36
============================================================================================================
Class R Shares (note 1)
Net assets $ 364,455 $ 2,450,921
Shares outstanding 33,174 215,380
Net asset value, offering and redemption price per share $ 10.99 $ 11.38
============================================================================================================
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
Statement of Net Assets (continued)
May 31, 1999
<TABLE>
<CAPTION>
North Carolina Tennessee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $210,839,925 $326,136,241
Cash -- 80,005
Receivables:
Fund manager (note 6) 9,545 --
Interest 3,549,762 5,162,285
Investments sold -- 719,892
Shares sold 402,444 452,709
Other assets 278,162 247,702
- ------------------------------------------------------------------------------------------------------------
Total assets 215,079,838 332,798,834
- ------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 1,571,531 --
Payables:
Investments purchased -- 4,051,527
Shares redeemed 73,295 908,168
Accrued expenses:
Management fees (note 6) -- 146,835
12b-1 distribution and service fees (notes 1 and 6) 50,657 76,744
Other 162,544 40,672
Dividends payable 424,282 567,625
- ------------------------------------------------------------------------------------------------------------
Total liabilities 2,282,309 5,791,571
- ------------------------------------------------------------------------------------------------------------
Net assets (note 7) $212,797,529 $327,007,263
============================================================================================================
Class A Shares (note 1)
Net assets $183,369,994 $285,934,816
Shares outstanding 17,667,751 25,311,130
Net asset value and redemption price per share $ 10.38 $ 11.30
Offering price per share (net asset value per share plus maximum
sales charge of 4.20% of offering price) $ 10.84 $ 11.80
============================================================================================================
Class B Shares (note 1)
Net assets $ 10,609,033 $ 12,409,697
Shares outstanding 1,021,189 1,097,936
Net asset value, offering and redemption price per share $ 10.39 $ 11.30
============================================================================================================
Class C Shares (note 1)
Net assets $ 17,506,808 $ 28,134,237
Shares outstanding 1,689,147 2,490,680
Net asset value, offering and redemption price per share $ 10.36 $ 11.30
============================================================================================================
Class R Shares (note 1)
Net assets $ 1,311,694 $ 528,513
Shares outstanding 126,340 46,850
Net asset value, offering and redemption price per share $ 10.38 $ 11.28
============================================================================================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
Statement of Operations
Year Ended May 31, 1999
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income (note 1) $ 8,609,268 $ 7,057,315 $11,463,316 $18,140,465
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 847,461 688,665 1,129,150 1,732,982
12b-1 service fees - Class A (notes 1 and 6) 250,073 185,203 373,199 572,541
12b-1 distribution and service fees - Class B (notes 1 and 6) 71,822 128,440 67,989 93,467
12b-1 distribution and service fees - Class C (notes 1 and 6) 164,125 129,015 91,426 183,788
Shareholders' servicing agent fees and expenses 60,454 33,389 90,850 133,336
Custodian's fees and expenses 68,557 52,267 64,955 76,957
Trustees' fees and expenses (note 6) 2,542 2,598 3,714 6,469
Professional fees 18,643 13,947 21,428 15,090
Shareholders' reports - printing and mailing expenses 47,918 46,840 81,566 59,940
Federal and state registration fees 3,243 8,569 2,061 7,142
Other expenses 7,295 5,829 12,624 18,643
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,542,133 1,294,762 1,938,962 2,900,355
Custodian fee credit (note 1) (11,657) (4,773) (18,793) (499)
Expense reimbursement (note 6) (212,546) (164,948) (286,712) (3,700)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 1,317,930 1,125,041 1,633,457 2,896,156
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 7,291,338 5,932,274 9,829,859 15,244,309
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain from investment transactions 1,743,273 542,532 104,431 557,919
Net change in unrealized appreciation or depreciation of investments (4,263,258) (2,258,787) (3,181,988) (5,201,506)
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (2,519,985) (1,716,255) (3,077,557) (4,643,587)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 4,771,353 $ 4,216,019 $ 6,752,302 $10,600,722
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Georgia Louisiana
--------------------------- ---------------------------
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>
Operations
Net investment income $ 7,291,338 $ 6,768,866 $ 5,932,274 $ 4,905,021
Net realized gain from investment transactions (notes 1 and 4) 1,743,273 1,432,222 542,532 141,609
Net change in unrealized appreciation or depreciation of investments (4,263,258) 5,917,362 (2,258,787) 3,885,856
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 4,771,353 14,118,450 4,216,019 8,932,486
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (6,036,625) (5,990,008) (4,530,236) (4,236,624)
Class B (302,465) (64,796) (554,071) (179,990)
Class C (938,110) (704,588) (749,521) (486,474)
Class R (13,736) (8,432) (98,115) (844)
From accumulated net realized gains from investment transactions:
Class A -- -- (327,196) (274,625)
Class B -- -- (46,841) (13,410)
Class C -- -- (60,212) (36,540)
Class R -- -- (8,993) (77)
- ----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (7,290,936) (6,767,824) (6,375,185) (5,228,584)
- ----------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 39,029,909 23,251,629 42,859,091 30,672,632
Net proceeds from shares issued to shareholders due to reinvestment of
distributions 2,897,417 4,132,821 2,607,781 3,175,043
- ----------------------------------------------------------------------------------------------------------------------------------
41,927,326 27,384,450 45,466,872 33,847,675
Cost of shares redeemed (17,634,491) (15,113,415) (13,310,878) (10,292,295)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 24,292,835 12,271,035 32,155,994 23,555,380
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 21,773,252 19,621,661 29,996,828 27,259,282
Net assets at the beginning of year 143,078,411 123,456,750 111,852,175 84,592,893
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $164,851,663 $143,078,411 $141,849,003 $111,852,175
==================================================================================================================================
Balance of undistributed net investment income at the end of year $ 1,490 $ 1,088 $ 1,619 $ 1,288
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
North Carolina Tennessee
----------------------------- ---------------------------
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>
Operations
Net investment income $ 9,829,859 $ 9,818,009 $ 15,244,309 $ 14,669,556
Net realized gain from investment transactions (notes 1 and 4) 104,431 2,602,198 557,919 1,206,421
Net change in unrealized appreciation or depreciation of investments (3,181,988) 3,819,600 (5,201,506) 8,713,135
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 6,752,302 16,239,807 10,600,722 24,589,112
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (8,995,903) (9,438,035) (13,826,854) (13,691,307)
Class B (283,644) (56,790) (398,784) (105,904)
Class C (514,487) (342,967) (1,039,949) (783,552)
Class R (60,402) (34,750) (27,716) (18,350)
From accumulated net realized gains from investment transactions:
Class A (1,598,066) (28,220) -- --
Class B (60,411) (137) -- --
Class C (99,492) (1,157) -- --
Class R (11,127) (109) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (11,623,532) (9,902,165) (15,293,303) (14,599,113)
- ----------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 34,546,447 18,647,466 47,588,847 41,278,818
Net proceeds from shares issued to shareholders due to reinvestment
of distributions 5,975,298 5,610,070 6,661,847 7,905,778
- ----------------------------------------------------------------------------------------------------------------------------------
40,521,745 24,257,536 54,250,694 49,184,596
Cost of shares redeemed (21,940,534) (20,843,771) (27,763,938) (27,270,877)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 18,581,211 3,413,765 26,486,756 21,913,719
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 13,709,981 9,751,407 21,794,175 31,903,718
Net assets at the beginning of year 199,087,548 189,336,141 305,213,088 273,309,370
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $212,797,529 $199,087,548 $327,007,263 $305,213,088
==================================================================================================================================
Balance of undistributed net investment income at the end of year $ 4,982 $ 29,559 $ 24,884 $ 73,878
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust III (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Flagship Georgia Municipal Bond Fund ("Georgia"), the
Nuveen Flagship Louisiana Municipal Bond Fund ("Louisiana"), the Nuveen Flagship
North Carolina Municipal Bond Fund ("North Carolina"), and the Nuveen Flagship
Tennessee Municipal Bond Fund ("Tennessee") (collectively, the "Funds"). 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.
38
<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>
Georgia
--------------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
--------------------------- -------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,719,183 $ 19,217,921 999,370 $ 11,052,211
Class B 806,630 9,032,174 326,545 3,623,322
Class C 953,740 10,667,189 754,384 8,321,447
Class R 10,082 112,625 23,229 254,649
Shares issued to shareholders due to reinvestment of distributions:
Class A 216,299 2,426,448 332,037 3,634,474
Class B 11,396 127,876 2,642 29,369
Class C 29,544 330,616 42,144 461,364
Class R 1,116 12,477 689 7,614
- -------------------------------------------------------------------------------------------------------------------------------
3,747,990 41,927,326 2,481,040 27,384,450
- -------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,084,049) (12,116,347) (1,106,180) (12,206,698)
Class B (45,215) (503,665) (25,707) (286,183)
Class C (449,451) (5,014,371) (234,595) (2,575,425)
Class R (10) (108) (4,054) (45,109)
- -------------------------------------------------------------------------------------------------------------------------------
(1,578,725) (17,634,491) (1,370,536) (15,113,415)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase 2,169,265 $ 24,292,835 1,110,504 $ 12,271,035
===============================================================================================================================
</TABLE>
- ----------
39
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Louisiana
----------------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
-------------------------- --------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,716,601 $ 19,817,323 1,434,264 $ 16,414,741
Class B 914,530 10,557,807 695,080 7,947,255
Class C 865,510 9,983,365 551,499 6,283,912
Class R 215,752 2,500,596 2,348 26,724
Shares issued to shareholders due to reinvestment of distributions:
Class A 175,520 2,033,853 240,527 2,733,739
Class B 24,928 288,244 6,824 78,150
Class C 16,348 189,229 31,852 362,355
Class R 8,320 96,455 70 799
- ----------------------------------------------------------------------------------------------------------------------------------
3,937,509 45,466,872 2,962,464 33,847,675
- ----------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (893,149) (10,322,469) (808,970) (9,237,098)
Class B (59,695) (688,490) (5,147) (58,547)
Class C (188,463) (2,173,160) (87,146) (996,590)
Class R (11,114) (126,759) (5) (60)
- ----------------------------------------------------------------------------------------------------------------------------------
(1,152,421) (13,310,878) (901,268) (10,292,295)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase 2,785,088 $ 32,155,994 2,061,196 $ 23,555,380
==================================================================================================================================
North Carolina
----------------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
-------------------------- --------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
Class A 1,497,738 $ 15,852,866 1,219,335 $ 12,822,305
Class B 765,417 8,109,386 313,974 3,317,845
Class C 945,187 9,986,996 192,020 2,022,009
Class R 56,314 597,199 46,162 485,307
Shares issued to shareholders due to reinvestment of distributions:
Class A 510,481 5,422,357 506,157 5,310,271
Class B 16,356 173,663 2,287 24,150
Class C 30,647 324,719 24,082 252,068
Class R 5,136 54,559 2,244 23,581
- ----------------------------------------------------------------------------------------------------------------------------------
3,827,276 40,521,745 2,306,261 24,257,536
- ----------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,889,845) (19,995,567) (1,846,947) (19,438,714)
Class B (100,335) (1,061,551) (2,877) (30,241)
Class C (68,759) (724,414) (122,639) (1,290,365)
Class R (14,938) (159,002) (7,984) (84,451)
- ----------------------------------------------------------------------------------------------------------------------------------
(2,073,877) (21,940,534) (1,980,447) (20,843,771)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase 1,753,399 $ 18,581,211 325,814 $ 3,413,765
==================================================================================================================================
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Tennessee
-----------------------------------------------------------
Year Ended Year Ended
5/31/99 5/31/98
--------------------------- ---------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 2,608,976 $ 29,959,161 2,614,021 $ 29,710,291
Class B 645,177 7,415,547 456,706 5,193,888
Class C 887,754 10,185,551 538,381 6,116,529
Class R 2,492 28,588 22,800 258,110
Shares issued to shareholders due to reinvestment of distributions:
Class A 525,327 6,045,014 641,169 7,255,500
Class B 17,555 202,163 3,774 42,976
Class C 34,095 392,181 52,336 590,588
Class R 1,957 22,489 1,474 16,714
- ----------------------------------------------------------------------------------------------------------------------------------
4,723,333 54,250,694 4,330,661 49,184,596
- ----------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,109,544) (24,227,337) (2,250,196) (25,540,334)
Class B (68,504) (782,931) (5,300) (59,853)
Class C (236,242) (2,705,131) (147,264) (1,670,240)
Class R (4,257) (48,539) (39) (450)
- ----------------------------------------------------------------------------------------------------------------------------------
(2,418,547) (27,763,938) (2,402,799) (27,270,877)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase 2,304,786 $ 26,486,756 1,927,862 $ 21,913,719
==================================================================================================================================
</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>
North
Georgia Louisiana Carolina Tennessee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend per share:
Class A $ .0435 $ .0460 $ .0415 $ .0455
Class B .0365 .0390 .0350 .0385
Class C .0385 .0410 .0365 .0400
Class R .0455 .0480 .0430 .0470
=================================================================================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal secruities for the fiscal year ended May 31,
1999, were as follows:
<TABLE>
<CAPTION>
North
Georgia Louisiana Carolina Tennessee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases:
Long-term municipal securities $70,671,532 $43,583,118 $41,349,768 $74,524,629
Short-term municipal securities 19,000,000 5,000,000 49,400,000 31,700,000
Sales:
Long-term municipal securities 49,248,668 13,972,466 21,358,893 50,669,165
Short-term municipal securities 19,000,000 5,900,000 49,400,000 31,700,000
==================================================================================================================================
</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, Tennessee had an unused capital loss carryforward of $2,228,819
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforward will expire in the year 2003.
41
<PAGE>
Notes to Financial Statements (continued)
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at May 31, 1999, were as follows:
<TABLE>
<CAPTION>
North
Georgia Louisiana Carolina Tennessee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized:
appreciation $8,554,585 $7,659,298 $9,767,765 $18,419,436
depreciation (561,754) (606,013) (617,641) (1,054,343)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation $7,992,831 $7,053,285 $9,150,124 $17,365,093
=====================================================================================================================
</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.
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 $387,300,
$303,300, $307,600 and $751,500 for Georgia, Louisiana, North Carolina and
Tennessee, respectively, of which approximately $368,200, $303,300, $270,800 and
$684,700, respectively, 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 with approximately $474,700, $612,700, $452,700 and $467,300
in commission advances at the time of purchase for Georgia, Louisiana, North
Carolina and Tennessee, respectively. 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 $148,300,
$184,400, $107,900 and $165,100 in such 12b-1 fees for Georgia, Louisiana, North
Carolina and Tennessee, respectively. The remaining 12b-1 fees charged to the
Funds were paid to compensate authorized dealers for providing services to
shareholders relating to their investments. The Distributor also retained
approximately $39,500, $22,800, $33,900 and $32,400 of CDSC on share redemptions
for Georgia, Louisiana, North Carolina and Tennessee, respectively, during the
fiscal year ended May 31, 1999.
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>
North
Georgia Louisiana Carolina Tennessee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital paid-in $156,289,893 $134,753,874 $203,772,398 $311,846,319
Balance of undistributed net
investment income 1,490 1,619 4,982 24,884
Accumulated net realized gain (loss)
from investment transactions 567,449 40,225 (129,975) (2,229,033)
Net unrealized appreciation of investments 7,992,831 7,053,285 9,150,124 17,365,093
- -------------------------------------------------------------------------------------------------------------
Net assets $164,851,663 $141,849,003 $212,797,529 $327,007,263
=============================================================================================================
</TABLE>
42
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
---------------------------------- -----------------------------
GEORGIA** 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 $11.19 $.54 $(.17) $ .37 $(.54) $ -- $(.54) $11.02 3.34%
1998 10.57 .56 .62 1.18 (.56) -- (.56) 11.19 11.37
1997 10.20 .57 .37 .94 (.57) -- (.57) 10.57 9.39
1996 10.46 .57 (.25) .32 (.58) -- (.58) 10.20 3.05
1995 10.23 .58 .23 .81 (.58) -- (.58) 10.46 8.31
Class B (2/97)
1999 11.20 .46 (.17) .29 (.46) -- (.46) 11.03 2.57
1998 10.57 .48 .63 1.11 (.48) -- (.48) 11.20 10.66
1997 (c) 10.66 .14 (.11) .03 (.12) -- (.12) 10.57 .31
Class C (1/94)
1999 11.17 .48 (.17) .31 (.48) -- (.48) 11.00 2.80
1998 10.55 .50 .62 1.12 (.50) -- (.50) 11.17 10.79
1997 10.18 .51 .37 .88 (.51) -- (.51) 10.55 8.80
1996 10.44 .51 (.25) .26 (.52) -- (.52) 10.18 2.48
1995 10.21 .52 .23 .75 (.52) -- (.52) 10.44 7.72
Class R (2/97)
1999 11.15 .56 (.15) .41 (.57) -- (.57) 10.99 3.67
1998 10.57 .58 .59 1.17 (.59) -- (.59) 11.15 11.23
1997 (c) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
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
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 (3/86)
1999 $128,138 .88% 4.69% .74% 4.83% 32%
1998 120,545 .87 4.88 .66 5.09 25
1997 111,518 1.02 5.20 .78 5.44 39
1996 107,862 1.08 5.18 .80 5.46 59
1995 113,354 1.09 5.53 .83 5.79 40
Class B (2/97)
1999 11,991 1.64 3.94 1.50 4.08 32
1998 3,518 1.62 4.08 1.38 4.32 25
1997 (c) 113 1.63* 4.49* 1.32* 4.80* 39
Class C (1/94)
1999 24,358 1.44 4.13 1.29 4.28 32
1998 18,770 1.42 4.33 1.21 4.54 25
1997 11,803 1.56 4.63 1.32 4.87 39
1996 9,433 1.63 4.61 1.34 4.90 59
1995 6,973 1.64 4.92 1.38 5.18 40
Class R (2/97)
1999 364 .68 4.89 .54 5.03 32
1998 245 .67 5.04 .45 5.26 25
1997 (c) 22 .68* 5.41* .38* 5.71* 39
==============================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(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.
43
<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
---------------------------------- -----------------------------
LOUISIANA** 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 (9/89)
1999 $11.55 $.57 $(.13) $ .44 $(.57) $(.04) $(.61) $11.38 3.73%
1998 11.10 .59 .49 1.08 (.59) (.04) (.63) 11.55 9.88
1997 10.71 .59 .39 .98 (.59) -- (.59) 11.10 9.37
1996 10.80 .59 (.08) .51 (.60) -- (.60) 10.71 4.77
1995 10.48 .60 .32 .92 (.60) -- (.60) 10.80 9.20
Class B (2/97)
1999 11.55 .48 (.14) .34 (.48) (.04) (.52) 11.37 2.98
1998 11.09 .50 .50 1.00 (.50) (.04) (.54) 11.55 9.18
1997 (c) 11.10 .16 -- .16 (.17) -- (.17) 11.09 1.44
Class C (2/94)
1999 11.54 .50 (.13) .37 (.51) (.04) (.55) 11.36 3.20
1998 11.09 .52 .50 1.02 (.53) (.04) (.57) 11.54 9.32
1997 10.70 .53 .39 .92 (.53) -- (.53) 11.09 8.78
1996 10.80 .53 (.09) .44 (.54) -- (.54) 10.70 4.12
1995 10.48 .54 .32 .86 (.54) -- (.54) 10.80 8.59
Class R (2/97)
1999 11.55 .59 (.13) .46 (.59) (.04) (.63) 11.38 4.03
1998 11.09 .61 .50 1.11 (.61) (.04) (.65) 11.55 10.21
1997 (c) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
===========================================================================================================================
</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
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 (9/89)
1999 $99,176 .88% 4.76% .75% 4.89% 11%
1998 89,143 .88 5.00 .75 5.13 15
1997 76,030 1.03 5.14 .79 5.38 25
1996 72,005 1.09 5.17 .80 5.46 26
1995 68,145 1.18 5.45 .83 5.80 44
Class B (2/97)
1999 18,870 1.64 4.00 1.49 4.15 11
1998 8,999 1.62 4.21 1.45 4.38 15
1997 (c) 917 1.65* 4.50* 1.46* 4.69* 25
Class C (2/94)
1999 21,352 1.43 4.20 1.29 4.34 11
1998 13,682 1.42 4.45 1.29 4.58 15
1997 7,645 1.57 4.59 1.33 4.83 25
1996 5,658 1.64 4.58 1.35 4.87 26
1995 3,220 1.73 4.85 1.37 5.21 44
Class R (2/97)
1999 2,451 .68 4.97 .55 5.10 11
1998 28 .67 5.17 .52 5.32 15
1997 (c) -- .08* 5.27* .04* 5.31* 25
===============================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(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.
44
<PAGE>
Selected data for a share outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
---------------------------------- -----------------------------
NORTH CAROLINA** 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 $10.62 $.51 $(.15) $.36 $(.51) $(.09) $(.60) $10.38 3.43%
1998 10.28 .53 .34 .87 (.53) -- (.53) 10.62 8.69
1997 10.05 .54 .23 .77 (.54) -- (.54) 10.28 7.79
1996 10.23 .55 (.18) .37 (.55) -- (.55) 10.05 3.67
1995 10.08 .57 .15 .72 (.57) -- (.57) 10.23 7.45
Class B (2/97)
1999 10.62 .44 (.15) .29 (.43) (.09) (.52) 10.39 2.73
1998 10.28 .45 .35 .80 (.46) -- (.46) 10.62 7.89
1997 (c) 10.33 .12 (.06) .06 (.11) -- (.11) 10.28 .64
Class C (10/93)
1999 10.60 .46 (.16) .30 (.45) (.09) (.54) 10.36 2.85
1998 10.26 .47 .34 .81 (.47) -- (.47) 10.60 8.09
1997 10.03 .48 .23 .71 (.48) -- (.48) 10.26 7.20
1996 10.22 .49 (.18) .31 (.50) -- (.50) 10.03 3.01
1995 10.06 .51 .16 .67 (.51) -- (.51) 10.22 6.97
Class R (2/97)
1999 10.62 .53 (.15) .38 (.53) (.09) (.62) 10.38 3.61
1998 10.28 .55 .34 .89 (.55) -- (.55) 10.62 8.88
1997 (c) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Ratio Ratio
NORTH CAROLINA** 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
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 (3/86)
1999 $183,370 .88% 4.66% .74% 4.80% 11%
1998 186,340 .86 5.06 .86 5.06 29
1997 181,595 1.00 5.24 .93 5.31 23
1996 185,016 1.03 5.19 .90 5.32 54
1995 191,850 1.06 5.58 .91 5.73 35
Class B (2/97)
1999 10,609 1.64 3.91 1.44 4.11 11
1998 3,609 1.61 4.23 1.61 4.23 29
1997 (c) 271 1.62* 4.60* 1.62* 4.60* 23
Class C (10/93)
1999 17,507 1.44 4.11 1.24 4.31 11
1998 8,291 1.41 4.50 1.41 4.50 29
1997 7,065 1.54 4.70 1.48 4.76 23
1996 6,589 1.58 4.64 1.45 4.77 54
1995 6,049 1.61 4.98 1.46 5.13 35
Class R (2/97)
1999 1,312 .68 4.86 .53 5.01 11
1998 848 .66 5.24 .66 5.24 29
1997 (c) 405 .66* 5.57* .66* 5.57* 23
====================================================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship North Carolina.
(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.
<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
---------------------------------- -----------------------------
TENNESSEE** 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 (11/87)
1999 $11.46 $.55 $ (.15) $ .40 $(.56) $ -- $(.56) $11.30 3.47%
1998 11.06 .58 .40 .98 (.58) -- (.58) 11.46 9.01
1997 10.83 .59 .23 .82 (.59) -- (.59) 11.06 7.71
1996 11.01 .59 (.18) .41 (.59) -- (.59) 10.83 3.78
1995 10.78 .60 .23 .83 (.60) -- (.60) 11.01 8.04
Class B (2/97)
1999 11.46 .47 (.16) .31 (.47) -- (.47) 11.30 2.72
1998 11.06 .49 .40 .89 (.49) -- (.49) 11.46 8.21
1997 (c) 11.14 .14 (.09) .05 (.13) -- (.13) 11.06 .42
Class C (10/93)
1999 11.45 .49 (.15) .34 (.49) -- (.49) 11.30 2.97
1998 11.05 .52 .39 .91 (.51) -- (.51) 11.45 8.39
1997 10.82 .53 .23 .76 (.53) -- (.53) 11.05 7.12
1996 11.00 .53 (.18) .35 (.53) -- (.53) 10.82 3.22
1995 10.78 .54 .22 .76 (.54) -- (.54) 11.00 7.35
Class R (2/97)
1999 11.44 .57 (.15) .42 (.58) -- (.58) 11.28 3.68
1998 11.04 .60 .40 1.00 (.60) -- (.60) 11.44 9.20
1997 (c) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Ratio Ratio
of Net of Net
TENNESSEE** 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 (11/87)
1999 $285,935 .84% 4.81% .84% 4.81% 16%
1998 278,232 .84 5.09 .82 5.11 15
1997 257,475 .97 5.23 .85 5.35 23
1996 250,886 1.01 5.17 .88 5.30 38
1995 241,778 1.07 5.46 .89 5.64 23
Class B (2/97)
1999 12,410 1.59 4.08 1.59 4.08 16
1998 5,775 1.59 4.30 1.58 4.31 15
1997 (c) 537 1.60* 4.49* 1.37* 4.72* 23
Class C (10/93)
1999 28,134 1.39 4.27 1.39 4.27 16
1998 20,673 1.39 4.53 1.37 4.55 15
1997 15,049 1.53 4.67 1.40 4.80 23
1996 15,483 1.56 4.62 1.43 4.75 38
1995 12,494 1.62 4.90 1.44 5.08 23
Class R (2/97)
1999 529 .64 5.01 .64 5.01 16
1998 534 .64 5.27 .62 5.29 15
1997 (c) 248 .66* 5.55* .46* 5.75* 23
====================================================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Tennessee.
(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.
46
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust III:
We have audited the accompanying statements of net assets, including the
portfolios of investments, of Nuveen Flagship Georgia Municipal Bond Fund,
Nuveen Flagship Louisiana Municipal Bond Fund, Nuveen Flagship North Carolina
Municipal Bond Fund, and Nuveen Flagship Tennessee Municipal Bond Fund
(collectively, the "Funds") (the four portfolios constituting the Nuveen
Flagship Multistate Trust III (a Massachusetts business trust)), as of May 31,
1999, and 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 Georgia Municipal Bond Fund, Nuveen Flagship Louisiana Municipal Bond
Fund, Nuveen Flagship North Carolina Municipal Bond Fund, and Nuveen Flagship
Tennessee Municipal Bond Fund of the Nuveen Flagship Multistate Trust III 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
47
<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.
48
<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
49
#
<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-4-5-99
