<PAGE>
NUVEEN Investments
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Municipal Bond
Funds
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ANNUAL REPORT MAY 31, 2000
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Dependable, tax-free income to help you keep more of what you earn.
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[PHOTOS APPEAR HERE]
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK/SM/
Georgia Municipal Bond Fund
Louisiana Municipal Bond Fund
North Carolina Municipal Bond Fund
Tennessee Municipal Bond Fund
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Contents
1 Dear Shareholder
3 Nuveen Flagship Georgia Municipal Bond Fund
6 Nuveen Flagship Louisiana Municipal Bond Fund
10 Nuveen Flagship North Carolina Municipal Bond Fund
13 Nuveen Flagship Tennessee Municipal Bond Fund
16 Portfolio of Investments
34 Statement of Net Assets
36 Statement of Operations
37 Statement of Changes in Net Assets
39 Notes to Financial Statements
44 Financial Highlights
48 Report of Independent Public Accountants
49 Fund Information
Must be preceded by or accompanied by a prospectus.
<PAGE>
DEAR
Shareholder
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Chairman of the Board
As personal wealth continues to grow at an ever-increasing rate, people are
realizing the power of their investments to do good and to make a difference in
their families and communities now and for generations to come.
Setting financial goals is an important first step toward building wealth. At
Nuveen Investments, we believe those goals should not be considered ends in
themselves. Rather, you and your financial advisor's focus should be on
realizing your life's dreams -- the things that matter most to you and how you
can make them happen -- or make them better.
Through a well-crafted financial plan, you have the chance to shape future
generations -- to broaden your sphere of influence -- to leave your legacy.
As you develop that plan, you'll want to consider the different ways your
success can benefit others. You may find that you want to create a new set of
goals to achieve this. Working with your financial advisor, you have the ability
to make those dreams a reality -- for yourself and future generations.
Family Wealth Management Too often, family wealth management is thought of in
one dimension -- as the stewardship of your household's financial resources. At
Nuveen Investments, we think of family wealth management as the map to help you
reach your financial, and your life's, destinations. It's a multi-faceted
strategy to plan for not just your needs, but the needs of future generations.
We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values.
A Trusted Resource As you face some of the most important, lasting decisions you
and your family will make, you'll want to draw upon the support, counsel and
objectivity of a trusted advisor. That's because your financial advisor has the
expertise and access to other professionals who can help you make informed
choices -- choices that affect not only your loved ones today, but those your
legacy will touch in the future.
Your financial advisor can provide sound financial insight, an integrated
approach to your investments and can serve as a knowledgeable friend with your
family's best interests at heart.
ANNUAL REPORT page 1
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In addition, we believe the potential presence of inflation and price
swings in the markets reinforce the importance of working with an advisor,
staying focused on the long term and adhering to your financial plan. With a
sound plan in place, you may be better positioned to weather the markets' ups
and downs.
In fact, you may be reading this report at the suggestion of your financial
advisor. We've prepared the following interview to let you know what the
investment and research management teams have done during your fund's fiscal
period.
For more information on any Nuveen investment, including a prospectus,
contact your financial advisor. Or call Nuveen at (800) 621-7227 or visit our
Internet site at www.nuveen.com. Please read the prospectus carefully before you
invest or send money.
Since 1898, Nuveen has been synonymous with investments that stand the test
of time. We are committed to maintaining that reputation and working with
financial advisors to provide investment solutions that help individuals achieve
their dreams of a lifetime. Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
July 17, 2000
ANNUAL REPORT page 2
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NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
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Nuveen Flagship Georgia Municipal Bond Fund features portfolio management by
Nuveen Investment Management, a team of portfolio managers and research analysts
committed to a disciplined, research-oriented investment strategy. To help you
understand the fund's performance for the fiscal year ended May 31, 2000, we
spoke with Portfolio Manager Tom O'Shaughnessy.
Q Can you begin our discussion by addressing the reasons why municipal bonds,
like most fixed-income securities, performed poorly during the past 12 months?
TOM Sure. In an effort to rein in the economy and the stock market, the Federal
Reserve (the Fed) made six short-term interest rate increases during the past 12
months. The most recent was a half-percentage-point increase in May, the largest
rate hike in five years. That boosted short-term interest rates to their highest
levels since 1991.
One of the basic tenets of bond investing is that when interest rates rise,
bond yields generally follow suit and bond prices, which move in the opposite
direction, decline. The 25-year municipal bond as measured by the Bond Buyer 25,
for example, started the period yielding 5.46% and ended it at 6.27%, a jump of
81 basis points. Amid this rising interest rate environment, demand for most
fixed-income securities -- including municipals -- was weak.
The effects of reduced demand were offset somewhat by a dramatic decrease
in supply as municipal issuers, flush with cash from increased tax collections
and revenues, reduced borrowings. While the strength of the economy curtailed
bond returns by prompting higher interest rates, it actually helped many
municipal issuers in the state.
Georgia remained one of the fastest growing states in the nation thanks to
robust growth in Atlanta and the surrounding areas, which accounted for about
70% of the state's job creation and population growth. The Atlanta metropolitan
area also began to attract venture capital and high-tech firms. The state's
employment grew about twice as fast as for the nation as a whole, while
unemployment was lower than the national average. The state's investments in
port facilities in Savannah enabled Georgia to compete with surrounding port
facilities in Louisiana and Florida.
Q How did Nuveen Flagship Georgia Municipal Bond Fund perform during the fiscal
year ended May 31, 2000?
TOM Nuveen Flagship Georgia Municipal Bond Fund generated a 12-month total
return on net asset value of -4.05%, compared to the -2.97% total return posted
by the Lipper Georgia Municipal Debt Peer Group.* The fund's one-year taxable
equivalent total return, for investors in a 35% combined federal and state
income tax bracket, was -1.42%.**
"Georgia remained one of the fastest growing states in the nation thanks to
robust growth in Atlanta and the surrounding areas."
* The Lipper Peer Group return represents the average annualized total return
of the 34 funds in the Lipper Georgia Municipal Debt category for the one-
year period ended May 31, 2000. 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 income tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the fiscal year ended May 31, 2000. The views expressed reflect those of
the portfolio management team and are subject to change at any time, based on
market and other conditions.
Returns reflect a voluntary expense limitation by the fund's investment advisor
which may be modified or discontinued at anytime without notice.
ANNUAL REPORT page 3
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GEORGIA
Top Five Sectors
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Tax Obligation (Limited) 22%
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Housing (Multifamily) 17%
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U.S. Guaranteed 12%
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Healthcare 9%
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Water and Sewer 8%
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As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
GEORGIA
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed........67%
AA................11%
A.................14%
BBB................6%
NR.................2%
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
Q How did the fund perform against the Lehman Brothers Municipal Bond Index?
TOM The fund underperformed the broader Lehman index, which had a 12-month
average total return of -0.86% for the fiscal year ended May 31, 2000.***
However, we feel Lipper's Georgia-specific benchmark gives investors a truer
comparative picture. We give shareholders both so they can compare their fund to
other Georgia funds as well as to a national benchmark.
Q What was your strategy during this difficult period?
TOM Although the market environment we experienced over the past year could be
distracting, we remained focused on finding attractive opportunities for the
fund. In the first half of the period, that meant engaging in trades known as
swaps, whereby we sold bonds with lower interest rates and bought similar bonds
at higher prevailing rates. In addition to increasing the fund's income-
producing potential, these swaps also help enhance the fund's tax efficiency, as
some sales generated tax losses that can be used to offset any realized capital
gains for up to eight years.
In the second half of the year, we focused on identifying attractively
priced high-yielding, non-rated and lower-quality investment-grade bonds for the
fund. As interest rates and bond yields climbed, the difference in yield -- the
"spread" -- between higher- and lower-quality bonds widened fairly dramatically.
This is because lower-quality bonds needed to pay increasingly higher yields to
attract investors capable and willing to analyze them. Even after these recent
purchases, the fund's overall credit quality remained high, with nearly 67% of
the portfolio in AAA/U.S. Guaranteed bonds as of May 31, 2000.
Using the resources and expertise of our research team, we identified a
number of attractive high-yielding opportunities within the hospital and multi-
family housing sectors. A good example is non-rated bonds issued by Ty Cobb
Healthcare. Our healthcare expertise allowed us to see beyond the lack of
ratings and focus on the consistent track record of the hospital's management.
We also identified some attractive high-yielding opportunities in the public
power sector.
Q What is your outlook for Nuveen Flagship Georgia Municipal Bond Fund?
TOM The bond market appears to be anticipating the end of Fed efforts to slow
the economy by raising interest rates. If that proves to be the case, the
interest-rate backdrop should become more favorable for bonds.
We believe that today's market, characterized by wide spreads between high-
and low-quality bonds, plays to our research strengths. Drawing on Nuveen's
research team, we'll continue to look for opportunities to add lower-quality
bonds that offer adequate compensation, as measured by enough incremental yield,
to compensate for their added credit risk. If the spread between lower- and
higher-quality bonds returns to more historic norms -- which we believe will
happen if interest rates stabilize -- lower-quality bonds should outperform.
***The Lehman Brothers Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses.
ANNUAL REPORT page 4
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NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
Fund Spotlight as of May 31, 2000
<TABLE>
<CAPTION>
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Quick Facts
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A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 10.01 $ 10.02 $ 9.99 $ 9.98
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Latest Monthly Dividend* $0.0440 $0.0375 $0.0390 $0.0455
------------------------------------------------------------------------------------------------------------
Fund Symbol FGATX N/A N/A N/A
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CUSIP 67065P501 67065P600 67065P709 67065P808
------------------------------------------------------------------------------------------------------------
Inception Date 3/86 2/97 1/94 2/97
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</TABLE>
*Paid June 1, 2000
<TABLE>
<CAPTION>
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Total Returns as of 5/31/00+
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A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -4.05% -8.05% -4.79% -8.42% -4.61% -3.89%
------------------------------------------------------------------------------------------------------------
1-Year TER* -1.42% -5.53% -2.56% -6.20% -2.28% -1.15%
------------------------------------------------------------------------------------------------------------
5-Year 4.48% 3.58% 3.79% 3.62% 3.91% 4.57%
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5-Year TER* 7.34% 6.42% 6.27% 6.12% 6.47% 7.51%
------------------------------------------------------------------------------------------------------------
10-Year 6.17% 5.72% 5.69% 5.69% 5.57% 6.21%
------------------------------------------------------------------------------------------------------------
10-Year TER* 9.28% 8.82% 8.54% 8.54% 8.37% 9.37%
------------------------------------------------------------------------------------------------------------
</TABLE>
* Taxable Equivalent Return (based on a combined federal and state income tax
rate of 35%).
<TABLE>
<CAPTION>
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Total Returns as of 3/31/00+
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A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -3.16% -7.23% -3.81% -7.48% -3.72% -2.90%
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5-Year 5.43% 4.53% 4.77% 4.60% 4.86% 5.52%
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10-Year 6.47% 6.02% 6.00% 6.00% 5.87% 6.51%
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</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. Class C shares
have a 1% CDSC for redemptions within one year which is not reflected in the
one-year total return.
<TABLE>
<CAPTION>
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Tax-Free Yields as of 5/31/00
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A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC NAV NAV
<S> <C> <C> <C> <C> <C>
Distribution Rate* 5.27% 5.05% 4.49% 4.68% 5.47%
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SEC 30-Day Yield 3.81% 3.65% 3.06% 3.25% 4.00%
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Taxable Equivalent Yield 5.86% 5.62% 4.71% 5.00% 6.15%
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</TABLE>
* 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 or less
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.
<TABLE>
<CAPTION>
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Index Comparison.
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[MOUNTAIN CHART APPEARS HERE]
SEE PLOT POINTS ATTACHED
Lehmon
Nuveen Flagship Nuveen Flagship Brothers
Georgia Municipal Georgia Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
<S> <C> <C> <C>
5/1990 $ 9,580 $10,000 $10,000
5/1991 10,527 10,989 11,008
5/1992 11,455 11,957 12,089
5/1993 12,695 13,252 13,536
5/1994 12,929 13,496 13,870
5/1995 14,004 14,618 15,133
5/1996 14,429 15,062 15,825
5/1997 15,783 16,474 17,137
5/1998 17,580 18,351 18,746
5/1999 18,166 18,963 19,622
5/2000 17,434 18,198 19,453
</TABLE>
Nuveen Flagship Georgia Municipal Bond Fund (Offer) $17,434
Nuveen Flagship Georgia Municipal Bond Fund (NAV) $18,198
Lehman Brothers Municipal Bond Index $19,453
. 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 Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares (4.20%) and all ongoing fund
expenses.
<TABLE>
<CAPTION>
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Portfolio Statistics
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<S> <C>
Total Net Assets $136.8 million
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Average Effective Maturity 21.92 years
------------------------------------------------------------------------------------------------------------
Average Duration 8.96
------------------------------------------------------------------------------------------------------------
</TABLE>
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Terms To Know
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The following are a few terms used throughout this report.
Distribution Rate Most recent dividend per share (annualized) divided by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Unit Trusts, or the maximum
public offering price).
Duration A mathematical measure of the price sensitivity of a bond fund's
portfolio to changes in interest rates. Typically the shorter the duration, the
less price and return variability you can expect in the fund's price per share
as interest rates change.
Federal Fund Rate The interest rate charged by banks to lend to other banks
needing overnight loans; this figure is the most sensitive indicator of the
direction of short-term interest rates.
Municipal Bond A bond issued by a state, city, or other municipality to finance
public works such as the construction of roads or schools. The interest is
usually free from federal income tax and may be free from state and local taxes
as well.
SEC Yield A standardized measure of the current net market yields on a mutual
fund's investment portfolio. This figure 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.
Taxable Equivalent Yield The yield an investor would have to realize on a fully
taxable investment to equal the stated yield on a tax-exempt investment.
Taxable Equivalent Total Return The total return an investor would have to
realize on a fully taxable investment to equal the stated total return on a tax-
exempt investment.
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 their original cost. Performance of class
will differ. For additional information, please see the fund prospectus.
ANNUAL REPORT page 5
<PAGE>
NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
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Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within its specific
areas of expertise. Nuveen has chosen them for their rigorously disciplined
investment approaches and their consistent long-term performance. Drawing on
decades of experience and specialized knowledge, these skilled asset managers
have earned reputations for excellence in their fields of expertise, whether it
is blue-chip growth stocks, large-cap value stocks, bonds or international
securities. Nuveen's income-oriented funds feature portfolio management by
Nuveen Investment Management (NIM). NIM follows a disciplined, research-driven
investment approach to uncover income securities that combine exceptional
relative value with above-average return potential. Drawing on 300 combined
years of investment experience, the Nuveen team of portfolio managers and
research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence of trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen Municipal Bond Funds.
* The Lipper Peer Group returns represent the average annualized total return
of the 11 funds in the Lipper Louisiana Municipal Debt Category for the year-
to-date and one-year periods ended May 31, 2000. The returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the fiscal year ended May 31, 2000. The views expressed reflect those of
the portfolio management team and are subject to change at any time, based on
market and other conditions.
Returns reflect a voluntary expense limitation by the fund's investment advisor
which may be modified or discontinued at anytime without notice.
Nuveen Flagship Louisiana Municipal Bond Fund features portfolio management by
Nuveen Investment Management, a team of portfolio managers and research analysts
committed to a disciplined, research-oriented investment strategy. To help you
understand the fund's performance for the fiscal year ended May 31, 2000, we
spoke with Portfolio Manager Mike Davern.
Q During the fund's fiscal year ended May 31, 2000, the Federal Reserve (the
Fed) implemented a series of interest rate hikes, which caused bond prices in
general to drop. Meanwhile, the allure of the stock market and technology stocks
in particular attracted many investor dollars. How did municipal bonds react to
this environment during the period?
MIKE The Fed's six interest rate hikes since June 1999 sent rates soaring and
bond prices plummeting. An unexpected rally in U.S. Treasury bonds at the end of
1999 after the government announced an unprecedented buyback of U.S. Treasury
bonds diverted attention away from municipal bonds.
On top of that, the stock market has been making headlines on a regular
basis, taking more investor dollars. All of this combined to decrease demand for
municipal bonds--at least until later in the first quarter of 2000--as the bear
market took hold. When extreme volatility hit the stock market beginning in
January, demand for municipal bonds did pick up a bit. Investors recognized the
potential stability of municipal bonds, not to mention the extremely attractive
yields, as the period progressed.
Q Performance numbers reveal the improvement in municipals. The fund recorded a
total return on net asset value of -4.82% over the fiscal year ended May 31,
2000, in line with its Lipper peer group average*, which reported a -4.11% total
return. But the year-to-date figures are positive: The fund returned 1.63%, and
the Lipper peer group returned 1.65%, on average. Compare that to the S&P 500
Index, which Bloomberg reports was down 2.82% for the same period. Does this
mean the bear market in bonds could be over?
MIKE We don't try to make market calls like that. We focus on trying to
maintain an attractive, stable dividend and taking opportunities to position the
fund for the next market cycle, whenever that may happen. Obviously, bear
markets have a negative effect on prices. But a bear market in bonds is actually
very different from a bear market in stocks.
ANNUAL REPORT page 6
<PAGE>
When you hold a stock, you basically want it to go up in price. You hold a
bond for more than just price--you also want attractive yields, which move in
the opposite direction of bond prices. The other major difference is in price
movements. A bond's price, no matter how much it may drop, eventually must go
back to $100, or "par," since bonds are issued at par and mature at par. On the
flip side, a stock could conceivably drop from $100 per share to one cent, and
never recover. (This discussion applies to a fund's underlying securities--
stocks or bonds; the share price of any mutual fund will fluctuate.)
In the midst of a bond bear market, all other factors being equal, it
doesn't make sense to sell simply because prices have fallen. It's better to buy
a bond now at $86 than to wait for a bull market to come and pay $101 or $102,
knowing the price has to go back to $100. At the fiscal year-end, the average
bond price in the fund was in the mid-$80s.
Q How did the fund perform against the Lehman Brothers Municipal Bond Index?
MIKE The fund, as we would expect, underperformed Lehman's national index.**
Lehman's 12-month average total return was -0.86% for the fiscal year ended May
31, 2000. We feel Lipper's Louisiana-specific benchmark gives investors a truer
comparative picture. However, we give shareholders both so they can compare
their Louisiana fund to other Louisiana funds as well as to a national
benchmark.
Q What were some of those measures you've taken to position the fund for the
next market cycle?
MIKE "Tax-loss selling" was a huge part of what worked well for the fund in
this market. This involves selling bonds at a loss, which can help offset any
capital gains the fund may realize (which are taxable to shareholders) now or in
any of the next eight years.
We also extended the fund's call protection by selling bonds with a call
date in the near future. When rates are falling, many issuers retire bonds
early, then reissue to reduce debt costs. This is known as "call risk" to
bondholders, because it can interrupt their expected income stream. The presence
of call risk in a bond can prevent the price from increasing, as fewer investors
would be interested in buying it. Since rates are high and demand was weak,
bonds with good call protection could be had at attractive prices. As of May 31,
2000, about four percent of the fund's bonds were callable before 2001.
We found many opportunities to pick up additional yield in the Louisiana
municipal market over the year. An issue in the secondary market provided both a
gain in yield and an increase in call protection. And, selling an issue
scheduled to be called in August of this year provided proceeds to purchase
bonds issued by the University of Louisiana for the Cajundome.
"...selling an issue scheduled to be called in August of this year provided
proceeds to purchase bonds issued by the University of Louisiana for the
Cajundome."
** The Lehman Brothers Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses.
ANNUAL REPORT page 7
<PAGE>
LOUISIANA
Top Five Sectors
Tax Obligation (Limited) 21%
-----------------------------
Healthcare 20%
-----------------------------
Housing (Single Family) 12%
-----------------------------
Tax Obligation (General) 10%
-----------------------------
U.S. Guaranteed 10%
-----------------------------
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
LOUISIANA
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed...... 63%
AA....................... 4%
A........................ 16%
BBB...................... 17%
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
Q Are these strategies measures that investors could practically use on their
own with individual bonds?
MIKE Probably not. The amount of research involved, plus the transaction costs
to individuals trading in a bond market that deals in very large blocks, would
make it difficult to impossible for an individual to use these strategies at
all.
As a large institutional investor, Nuveen has the ability to trade in
large blocks and even to negotiate the terms of an entire issue of municipal
bonds. Some very attractive bond issues never even make it to the retail market.
This is particularly important in a state like Louisiana, where new issuance was
down more than twice as much as the overall national market, and the available
bond options were extremely limited over the past year.
Q What is your outlook for the fund for the coming months?
MIKE We feel that the influence of the Fed's interest rate increases should
start emerging, since these measures usually take about 12 to 18 months to have
their intended effect on the economy. If stock market volatility continues, as
we believe it will, consumer confidence should begin to dampen and possibly
encourage more investment in fixed income securities. In Louisiana's weak
economy, where consumer confidence is already hurting, fixed income may look
even more attractive.
We believe the fund's long duration--a measure of interest rate
sensitivity--positions the fund to recapture lost net asset value should the
municipal bond market rally.
ANNUAL REPORT page 8
<PAGE>
NUVEEN FLAGSHIP LOUISIANA MUNICIPAL BOND FUND
Fund Spotlight as of May 31, 2000
Quick Facts
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $10.27 $10.27 $10.26 $10.27
----------------------------------------------------------------------------
Latest Monthly Dividend* $0.0455 $0.0390 $0.0405 $0.0470
----------------------------------------------------------------------------
Fund Symbol FTLAX N/A FTLCX N/A
----------------------------------------------------------------------------
CUSIP 67065P881 67065P873 67065P865 67065P857
----------------------------------------------------------------------------
Inception Date 9/89 2/97 2/94 2/97
----------------------------------------------------------------------------
</TABLE>
*Paid June 1, 2000
Total Returns as of 5/31/00(+)
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -4.82% -8.83% -5.55% -9.16% -5.36% -4.73%
------------------------------------------------------------------------------
1-Year TER* -2.27% -6.39% -3.38% -7.00% -3.09% -2.08%
------------------------------------------------------------------------------
5-Year 4.45% 3.56% 3.75% 3.58% 3.87% 4.58%
------------------------------------------------------------------------------
5-Year TER* 7.20% 6.29% 6.14% 5.98% 6.33% 7.41%
------------------------------------------------------------------------------
10-Year 6.75% 6.30% 6.26% 6.26% 6.17% 6.82%
------------------------------------------------------------------------------
10-Year TER* 9.77% 9.30% 9.03% 9.03% 8.89% 9.88%
------------------------------------------------------------------------------
</TABLE>
*Taxable Equivalent Return (based on a combined federal and state income tax
rate of 34%).
Total Returns as of 3/31/00(+)
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -3.59% -7.60% -4.24% -7.90% -4.04% -3.40%
-------------------------------------------------------------------------
5-Year 5.52% 4.62% 4.82% 4.65% 4.94% 5.65%
-------------------------------------------------------------------------
10-Year 7.07% 6.62% 6.59% 6.59% 6.49% 7.14%
-------------------------------------------------------------------------
</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. Class C shares
have a 1% CDSC for redemptions within one year which is not reflected in the
one-year total return.
Tax-Free Yields as of 5/31/00
<TABLE>
<CAPTION>
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC NAV NAV
<S> <C> <C> <C> <C> <C>
Distribution Rate* 5.32% 5.09% 4.56% 4.74% 5.49%
------------------------------------------------------------------------------
SEC 30-Day Yield 4.27% 4.09% 3.53% 3.73% 4.47%
------------------------------------------------------------------------------
Taxable Equivalent Yield 6.47% 6.20% 5.35% 5.65% 6.77%
------------------------------------------------------------------------------
</TABLE>
*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 or less 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.
Index Comparison[_]
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lehman
Nuveen Flagship Nuveen Flagship Brothers
Louisiana Municipal Louisiana Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
<S> <C> <C> <C>
5/1990 $ 9,580 $10,000 $10,000
5/1991 10,678 11,146 11,008
5/1992 11,782 12,298 12,089
5/1993 13,323 13,907 13,536
5/1994 13,557 14,151 13,870
5/1995 14,805 15,454 15,133
5/1996 15,510 16,190 15,825
5/1997 16,963 17,707 17,137
5/1998 18,639 19,457 18,746
5/1999 19,334 20,182 19,622
5/2000 18,401 19,208 19,453
</TABLE>
Nuveen Flagship Louisiana Municipal Bond Fund (Offer) $18,401
Nuveen Flagship Louisiana Municipal Bond Fund (NAV) $19,208
Lehman Brothers Municipal Bond Index $19,453
[_] 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 Municipal Bond Index is comprised of a
broad range of investment-grade municipal bonds, and does not reflect any
initial or ongoing expenses. The Nuveen fund return depicted in the chart
reflects the initial maximum sales charge applicable to A shares (4.20%)
and all ongoing fund expenses.
Portfolio Statistics
<TABLE>
<CAPTION>
<S> <C>
Total Net Assets $114.8 million
-----------------------------------
Average Effective
Maturity 21.71 years
-----------------------------------
Average Duration 9.39
-----------------------------------
</TABLE>
Terms To Know
The following are a few terms used throughout this report.
Distribution Rate Most recent dividend per share (annualized) divided by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Unit Trusts, or the maximum
public offering price).
Duration A mathematical measure of the price sensitivity of a bond fund's
portfolio to changes in interest rates. Typically the shorter the duration, the
less price and return variability you can expect in the fund's price per share
as interest rates change.
Federal Fund Rate The interest rate charged by banks to lend to other banks
needing overnight loans; this figure is the most sensitive indicator of the
direction of short-term interest rates.
Municipal Bond A bond issued by a state, city, or other municipality to finance
public works such as the construction of roads or schools. The interest is
usually free from federal income tax and may be free from state and local taxes
as well.
SEC Yield A standardized measure of the current net market yields on a mutual
fund's investment portfolio. This figure 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.
Taxable Equivalent Yield The yield an investor would have to realize on a fully
taxable investment to equal the stated yield on a tax-exempt investment.
Taxable Equivalent Total Return The total return an investor would have to
realize on a fully taxable investment to equal the stated total return on a tax-
exempt investment.
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 their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
ANNUAL REPORT page 9
<PAGE>
NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within its specific
areas of expertise. Nuveen has chosen them for their rigorously disciplined
investment approaches and their consistent long-term performance. Drawing on
decades of experience and specialized knowledge, these skilled asset managers
have earned reputations for excellence in their fields of expertise, whether it
is blue-chip growth stocks, large-cap value stocks, bonds or international
securities. Nuveen's income-oriented funds feature portfolio management by
Nuveen Investment Management (NIM). NIM follows a disciplined, research-driven
investment approach to uncover income securities that combine exceptional
relative value with above-average return potential. Drawing on 300 combined
years of investment experience, the Nuveen team of portfolio managers and
research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence of trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen Municipal Bond Funds.
Nuveen Flagship North Carolina Municipal Bond Fund features portfolio management
by Nuveen Investment Management, a team of portfolio managers and research
analysts committed to a disciplined, research-oriented investment strategy. To
help you understand the fund's performance for the fiscal year ended May 31,
2000, we spoke with Portfolio Manager Tom O'Shaughnessy.
Q Can you begin our discussion by addressing the reasons why municipal bonds,
like most fixed-income securities, performed poorly during the past 12 months?
TOM Sure. In an effort to rein in the economy and the stock market, the Federal
Reserve (the Fed) made six short-term interest rate increases during the past 12
months. The most recent was a half-percentage-point increase in May, the largest
rate hike in five years. That boosted short-term interest rates to their highest
levels since 1991.
One of the basic tenets of bond investing is that when interest rates rise,
bond yields generally follow suit and bond prices, which move in the opposite
direction, decline. The 25-year municipal bond as measured by the Bond Buyer 25,
for example, started the period yielding 5.46% and ended it at 6.27%, a jump of
81 basis points. Amid this rising interest rate environment, demand for most
fixed-income securities--including municipals--was weak.
The effects of reduced demand were offset somewhat by a dramatic decrease
in supply, as municipal issuers, flush with cash from increased tax collections
and revenues, have reduced borrowings.
While the strength of the economy curtailed bond returns by prompting
higher interest rates, it actually helped many North Carolina municipal issuers.
The state continued to be one of the fastest growing in the nation, with
employment gains in the high-tech, financial services, retail and construction
sectors. As a result, the state's unemployment rate fell to 3.0% versus the
national average of 4.1%.
Q How did Nuveen Flagship North Carolina Municipal Bond Fund perform during the
fiscal year ended May 31, 2000?
TOM Nuveen Flagship North Carolina Municipal Bond Fund generated a 12-month
total return on net asset value of -3.81%, compared to the -3.03% total return
posted by the Lipper North Carolina Municipal Debt Peer Group*. The fund's one-
year taxable equivalent total return, for investors in a 36.5% combined federal
and state income tax bracket, was -1.01%. **
Performance figures are quoted for Class A shares at net asset value. Comments
cover the fiscal year ended May 31, 2000. The views expressed reflect those of
the portfolio management team and are subject to change at any time, based on
market and other conditions.
* The Lipper Peer Group return represents the average annualized total return
of the 40 funds in the Lipper North Carolina Municipal Debt category for the
one-year period ended May 31, 2000. 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 income tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
ANNUAL REPORT page 10
<PAGE>
Q How did the fund perform against the Lehman Brothers Municipal Bond Index?
TOM The fund underperformed the broader Lehman index, which had a 12-month
average total return of -0.86% for the fiscal year ended May 31, 2000.***
However, we feel Lipper's North Carolina-specific benchmark gives investors a
truer comparative picture. We give shareholders both so they can compare their
North Carolina fund to other North Carolina funds as well as to a national
benchmark.
Q What was your strategy during this difficult period?
TOM Although the market environment we experienced over the past year could be
distracting, we remained focused on finding attractive opportunities for the
fund.
In the first half of the period, that meant engaging in trades known as
swaps, whereby we sold bonds with lower interest rates and bought similar bonds
at higher prevailing rates. In addition to increasing the fund's income-
producing potential, these swaps also helped enhance the fund's tax efficiency,
as some sales generated tax losses that can offset realized capital gains for up
to eight years.
In the second half of the year, we focused on identifying attractively
priced high-yielding, non-rated and lower-quality investment-grade bonds for the
fund. As interest rates and bond yields climbed, the difference in yield--the
"spread"--between higher- and lower-quality bonds widened fairly dramatically.
This is because lower-quality bonds needed to pay increasingly higher yields to
attract investors capable and willing to analyze them. Even with purchases of
high-yield bonds, the fund's overall credit quality remained high, with about
64% of the portfolio invested in AA-rated and AAA/U.S. Guaranteed bonds.
Using the resources and expertise of our research team, we identified a
number of attractive high-yielding opportunities within the healthcare and
public power sectors. A good example is bonds issued by North Carolina Eastern
Municipal Power Agency and North Carolina Municipal Power Number One (Catawba).
These two major power suppliers in the state were receiving unfavorable
publicity and investors appeared to be bracing for their ratings to be
downgraded. Our Nuveen research analysts were more optimistic and, based on our
extensive research, gained greater confidence that the agencies would repay
their debt.
Q What is your outlook for Nuveen Flagship North Carolina Municipal Bond Fund?
TOM The bond market appears to be anticipating the end of Fed efforts to slow
the economy by raising interest rates. If that proves to be the case, the
interest-rate backdrop should become more favorable for bonds.
We believe that today's market, characterized by wide spreads between high-
and low-quality bonds, plays to our research strengths. Drawing on Nuveen's
research team, we'll continue to look for opportunities to add lower-quality
bonds that offer adequate compensation, as measured by enough incremental yield,
to compensate for their added credit risk. If the spread between lower- and
higher-quality bonds returns to more historic norms--which we believe will
happen if interest rates stabilize--lower-quality bonds should outperform.
NORTH CAROLINA
Top Five Sectors
Housing (Single Family) 21%
-----------------------------
Healthcare 18%
-----------------------------
Utilities 17%
-----------------------------
Tax Obligation (Limited) 14%
-----------------------------
Basic Materials 9%
-----------------------------
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
NORTH CAROLINA
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed......26%
AA..............38%
A...............18%
BBB.............17%
NR...............1%
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
*** The Lehman Brothers Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial
or ongoing expenses.
ANNUAL REPORT page 11
<PAGE>
NUVEEN FLAGSHIP NORTH CAROLINA MUNICIPAL BOND FUND
Fund Spotlight as of May 31, 2000
Terms To Know
The following are a few terms used throughout this report.
Distribution Rate Most recent dividend per share (annualized) divided by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Unit Trusts, or the maximum
public offering price).
Duration A mathematical measure of the price sensitivity of a bond fund's
portfolio to changes in interest rates. Typically the shorter the duration, the
less price and return variability you can expect in the fund's price per share
as interest rates change.
Federal Fund Rate The interest rate charged by banks to lend to other banks
needing overnight loans; this figure is the most sensitive indicator of the
direction of short-term interest rates.
Municipal Bond A bond issued by a state, city, or other municipality to finance
public works such as the construction of roads or schools. The interest is
usually free from federal income tax and may be free from state and local taxes
as well.
SEC Yield A standardized measure of the current net market yields on a mutual
fund's investment portfolio. This figure 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.
Taxable Equivalent Yield The yield an investor would have to realize on a fully
taxable investment to equal the stated yield on a tax-exempt investment.
Taxable Equivalent Total Return The total return an investor would have to
realize on a fully taxable investment to equal the stated total return on a tax-
exempt investment.
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 their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
Quick Facts
A Shares B Shares C Shares R Shares
NAV $9.49 $9.51 $9.48 $9.50
--------------------------------------------------------------------------------
Latest Monthly Dividend* $0.0420 $0.0360 $0.0375 $0.0435
--------------------------------------------------------------------------------
Fund Symbol FLNCX N/A N/A N/A
--------------------------------------------------------------------------------
CUSIP 67065P840 67065P832 67065P824 67065P816
--------------------------------------------------------------------------------
Inception Date 3/86 2/97 10/93 2/97
--------------------------------------------------------------------------------
*Paid June 1, 2000
Total Returns as of 5/31/00+
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
1-Year -3.81% -7.89% -4.44% -8.10% -4.28% -3.53%
--------------------------------------------------------------------------------
1-Year TER* -1.01% -5.21% -2.07% -5.73% -1.80% -0.63%
--------------------------------------------------------------------------------
5-Year 3.86% 2.97% 3.19% 3.03% 3.28% 4.00%
--------------------------------------------------------------------------------
5-Year TER* 6.86% 5.94% 5.78% 5.63% 5.95% 7.07%
--------------------------------------------------------------------------------
10-Year 5.78% 5.33% 5.29% 5.29% 5.19% 5.85%
--------------------------------------------------------------------------------
10-Year TER* 9.03% 8.57% 8.27% 8.27% 8.10% 9.14%
--------------------------------------------------------------------------------
* Taxable Equivalent Return (based on a combined federal and state income tax
rate of 36.5%).
Total Returns as of 3/31/00+
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
1-Year -2.58% -6.66% -3.32% -7.03% -3.14% -2.49%
--------------------------------------------------------------------------------
5-Year 4.80% 3.91% 4.12% 3.95% 4.22% 4.92%
--------------------------------------------------------------------------------
10-Year 6.11% 5.66% 5.64% 5.64% 5.52% 6.17%
--------------------------------------------------------------------------------
+ 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. Class C shares have a 1% CDSC for redemptions
within one year which is not reflected in the one-year total return.
Tax-Free Yields as of 5/31/00
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC
Distribution Rate* 5.31% 5.09% 4.54% 4.75% 5.49%
--------------------------------------------------------------------------------
SEC 30-Day Yield 4.34% 4.16% 3.59% 3.80% 4.54%
--------------------------------------------------------------------------------
Taxable Equivalent Yield 6.83% 6.55% 5.65% 5.98% 7.15%
--------------------------------------------------------------------------------
*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 or less 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.
Portfolio Statistics
Total Net Assets $182.0 million
----------------------------------------
Average Effective
Maturity 21.53 years
----------------------------------------
Average Duration 9.85
----------------------------------------
Index Comparison/[_]/
[MOUNTAIN CHART APPEARS HERE]
Nuveen Flagship Nuveen Flagship Lehman Brothers
North Carolina Municipal North Carolina Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
5/1990 $ 9,580 $10,000 $10,000
5/1991 10,470 10,929 11,008
5/1992 11,442 11,944 12,089
5/1993 12,775 13,335 13,536
5/1994 12,938 13,506 13,870
5/1995 13,902 14,512 15,133
5/1996 14,411 15,043 15,825
5/1997 15,533 16,214 17,137
5/1998 16,884 17,624 18,746
5/1999 17,463 18,228 19,622
5/2000 16,796 17,532 19,453
-- Nuveen Flagship North Carolina Municipal Bond Fund (Offer) $16,796
-- Nuveen Flagship North Carolina Municipal Bond Fund (NAV) $17,532
-- Lehman Brothers Municipal Bond Index $19,453
[_] 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 Municipal Bond Index is comprised of a
broad range of investment-grade municipal bonds, and does not reflect any
initial or ongoing expenses. The Nuveen fund return depicted in the chart
reflects the initial maximum sales charge applicable to A shares (4.20%) and
all ongoing fund expenses.
ANNUAL REPORT page 12
<PAGE>
NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
Nuveen Flagship Tennessee Municipal Bond Fund features portfolio management by
Nuveen Investment Management, a team of portfolio managers and research analysts
committed to a disciplined, research-oriented investment strategy. To help you
understand the fund's performance for the fiscal year ended May 31, 2000, we
spoke with Portfolio Manager Tom O'Shaughnessy.
Q Can you begin our discussion by addressing the reasons why municipal bonds,
like most fixed-income securities, performed poorly during the past 12 months?
TOM In an effort to rein in the economy and the stock market, the Federal
Reserve (the Fed) made six short-term interest rate increases during the past 12
months. The most recent was a half-percentage-point increase in May, the largest
rate hike in five years. That boosted short-term interest rates to their highest
levels since 1991.
One of the basic tenets of bond investing is that when interest rates rise,
bond yields generally follow suit and bond prices, which move in the opposite
direction, decline. The 25-year municipal bond as measured by the Bond Buyer 25,
for example, started the period yielding 5.46% and ended it at 6.27%, a jump of
81 basis points. Amid this rising interest rate environment, demand for most
fixed-income securities--including municipals--was weak.
The effects of reduced demand were offset somewhat by a dramatic decrease
in supply as municipal issuers, flush with cash from increased tax collections
and revenues, have reduced borrowings. While the strength of the economy
curtailed bond returns by prompting higher interest rates, it actually helped
the credit quality of many municipal issuers in the state.
The Tennessee economy continued to grow, although at a slower pace than the
nation as a whole. Employment gains in construction and industrial sectors
continued to offset job losses in textiles and manufacturing. With that said,
the state continued to experience budgetary problems, with an estimated budget
gap of about $465 million for its fiscal year 2001 budget.
Q How did Nuveen Flagship Tennessee Municipal Bond Fund perform during the
fiscal year ended May 31, 2000?
TOM Nuveen Flagship Tennessee Municipal Bond Fund generated a 12-month total
return on net asset value of -3.65%, compared to the -3.05% total return posted
by the Lipper Tennessee Municipal Debt Peer Group.* The fund's one-year taxable
equivalent total return, for investors in a 35% combined federal and state
income tax bracket, was -0.97%.**
"The Tennessee economy continued to grow, although
at a slower pace than the nation as a whole.
Employment gains in construction and industrial sectors
continued to offset job losses in textiles and manufacturing."
Performance figures are quoted for Class A shares at net asset value. Comments
cover the fiscal year ended May 31, 2000. The views expressed reflect those of
the portfolio management team and are subject to change at any time, based on
market and other conditions.
* The Lipper Peer Group return represents the average annualized total return
of the 17 funds in the Lipper Tennessee Municipal Debt category for the one-
year period ended May 31, 2000. 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 income tax rate) plus capital gains
distributions, if any, plus or minus changes in net asset value.
ANNUAL REPORT page 13
<PAGE>
TENNESSEE
Top Five Sectors
U.S. Guaranteed 17%
--------------------------------
Healthcare 15%
--------------------------------
Housing (Single Family) 14%
--------------------------------
Basic Materials 11%
--------------------------------
Tax Obligation (Limited) 9%
--------------------------------
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
TENNESSEE
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S.
Guaranteed....43%
AA............26%
A.............13%
BBB...........15%
NR.............3%
As a percentage of total bond holdings as of May 31, 2000. Holdings are subject
to change.
Q How did the fund perform against the Lehman Brothers Municipal Bond Index?
TOM The fund underperformed the broader Lehman index, which had a 12-month
average total return of -0.86% for the fiscal year ended May 31, 2000.***
However, we feel Lipper's Tennessee-specific benchmark gives investors a truer
comparative picture. We give shareholders both so they can compare their
Tennessee fund to other Tennessee funds as well as to a national benchmark.
Q What was your strategy during this difficult period?
TOM Although the market environment we experienced over the past year could be
distracting, we remained focused on finding attractive opportunities for the
fund.
In the first half of the period, that meant engaging in trades known as
swaps, whereby we sold bonds with lower interest rates and bought similar bonds
at higher prevailing rates. In addition to increasing the fund's income-
producing potential, these swaps also helped enhance the fund's tax efficiency,
as some sales generated tax losses that can offset any realized capital gains
for up to eight years.
In the second half of the year, we focused on identifying attractively
priced high-yielding, non-rated and lower-quality investment-grade bonds for the
fund. As interest rates and bond yields climbed, the difference in yield -- the
"spread" -- between higher- and lower-quality bonds widened fairly dramatically.
This is because lower-quality bonds needed to pay increasingly higher yields to
attract investors capable and willing to analyze them.
Using the resources and expertise our of research team, we identified a
number of attractive high-yielding opportunities. Good examples include single-
family housing bonds issued through the Tennessee Housing Development Agency and
airport revenue bonds issued for the Memphis-Shelby County Airport. Nuveen's
research analysts used a proprietary database that captured financial, economic
and demographic data on holdings to evaluate how the issuer's profile had
changed and how it compared to similar issuers.
Q What is your outlook for Nuveen Flagship Tennessee Municipal Bond Fund?
TOM The bond market appears to be anticipating the end of Fed efforts to slow
the economy by raising interest rates. If that proves to be the case, the
interest-rate backdrop should become more favorable for bonds.
We believe that today's market, characterized by wide spreads between high-
and low-quality bonds, plays to our research strengths. Drawing on Nuveen's
research team, we'll continue to look for opportunities to add lower-quality
bonds that offer adequate compensation, as measured by enough incremental yield,
to compensate for their added credit risk. If the spread between lower- and
higher-quality bonds returns to more historic norms -- which we believe will
happen if interest rates stabilize -- lower-quality bonds should outperform.
*** The Lehman Brothers Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds and does not reflect any initial or ongoing
expenses.
ANNUAL REPORT page 14
<PAGE>
NUVEEN FLAGSHIP TENNESSEE MUNICIPAL BOND FUND
Fund Spotlight as of May 31, 2000
Quick Facts
A Shares B Shares C Shares R Shares
NAV $10.34 $10.35 $10.34 $10.33
--------------------------------------------------------------------------------
Latest Monthly Dividend* $0.0460 $0.0395 $0.0410 $0.0475
--------------------------------------------------------------------------------
Fund Symbol FTNTX N/A FTNCX N/A
--------------------------------------------------------------------------------
CUSIP 67065P758 67065P741 67065P733 67065P725
--------------------------------------------------------------------------------
Inception Date 11/87 2/97 10/93 2/97
--------------------------------------------------------------------------------
*Paid June 1, 2000
Total Returns as of 5/31/00+
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
1-Year -3.65% -7.73% -4.29% -7.96% -4.21% -3.40%
--------------------------------------------------------------------------------
1-Year TER* -0.97% -5.17% -2.02% -5.69% -1.85% -0.63%
--------------------------------------------------------------------------------
5-Year 3.97% 3.09% 3.29% 3.12% 3.40% 4.08%
--------------------------------------------------------------------------------
5-Year TER* 6.80% 5.90% 5.74% 5.59% 5.92% 6.98%
--------------------------------------------------------------------------------
10-Year 5.98% 5.53% 5.49% 5.49% 5.39% 6.03%
--------------------------------------------------------------------------------
10-Year TER* 9.05% 8.59% 8.30% 8.30% 8.14% 9.14%
--------------------------------------------------------------------------------
* Taxable Equivalent Return (based on a combined federal and state income tax
rate of 35%).
Total Returns as of 3/31/00+
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC w/CDSC NAV NAV
1-Year -2.69% -6.77% -3.35% -7.05% -3.27% -2.44%
--------------------------------------------------------------------------------
5-Year 4.86% 3.97% 4.18% 4.01% 4.27% 4.96%
--------------------------------------------------------------------------------
10-Year 6.24% 5.79% 5.75% 5.75% 5.65% 6.29%
--------------------------------------------------------------------------------
+ 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. Class C shares have a 1%
CDSC for redemptions within one year which is not reflected in the one-year
total return.
Tax-Free Yields as of 5/31/00
A Shares B Shares C Shares R Shares
NAV Offer w/o CDSC NAV NAV
Distribution Rate* 5.34% 5.12% 4.58% 4.76% 5.52%
--------------------------------------------------------------------------------
SEC 30-Day Yield 4.40% 4.22% 3.65% 3.86% 4.60%
--------------------------------------------------------------------------------
Taxable Equivalent Yield 6.77% 6.49% 5.62% 5.94% 7.08%
--------------------------------------------------------------------------------
*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 be paying out more or less 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.
Portfolio Statistics
Total Net Assets $284.5 million
--------------------------------------
Average Effective
Maturity 19.64 years
--------------------------------------
Average Duration 8.78
--------------------------------------
Index Comparison/[_]/
[MOUNTAIN CHART APPEARS HERE]
Nuveen Flagship Nuveen Flagship Lehman Brothers
Tennessee Municipal Tennessee Municipal Municipal
Bond Fund (Offer) Bond Fund (NAV) Bond Index
5/1990 $ 9,580 $10,000 $10,000
5/1991 10,499 10,960 11,008
5/1992 11,408 11,909 12,089
5/1993 12,846 13,409 13,536
5/1994 13,045 13,617 13,870
5/1995 14,094 14,712 15,133
5/1996 14,627 15,269 15,825
5/1997 15,756 16,446 17,137
5/1998 17,179 17,932 18,746
5/1999 17,778 18,558 19,622
5/2000 17,129 17,880 19,453
-- Nuveen Flagship Tennessee Municipal Bond Fund (Offer) $17,129
-- Nuveen Flagship Tennessee Municipal Bond Fund (NAV) $17,880
-- Lehman Brothers Municipal Bond Index $19,453
[_] 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 Municipal Bond Index is comprised of a
broad range of investment-grade municipal bonds, and does not reflect any
initial or ongoing expenses. The Nuveen fund return depicted in the chart
reflects the initial maximum sales charge applicable to A shares (4.20%) and
all ongoing fund expenses.
Terms To Know
The following are a few terms used throughout this report.
Distribution Rate Most recent dividend per share (annualized) divided by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Unit Trusts, or the maximum
public offering price).
Duration A mathematical measure of the price sensitivity of a bond fund's
portfolio to changes in interest rates. Typically the shorter the duration, the
less price and return variability you can expect in the fund's price per share
as interest rates change.
Federal Fund Rate The interest rate charged by banks to lend to other banks
needing overnight loans; this figure is the most sensitive indicator of the
direction of short-term interest rates.
Municipal Bond A bond issued by a state, city, or other municipality to finance
public works such as the construction of roads or schools. The interest is
usually free from federal income tax and may be free from state and local taxes
as well.
SEC Yield A standardized measure of the current net market yields on a mutual
fund's investment portfolio. This figure 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.
Taxable Equivalent Yield The yield an investor would have to realize on a fully
taxable investment to equal the stated yield on a tax-exempt investment.
Taxable Equivalent Total Return The total return an investor would have to
realize on a fully taxable investment to equal the stated total return on a tax-
exempt investment.
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 their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
ANNUAL REPORT page 15
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 2.4%
$ 1,500 Brunswick and Glynn County Development Authority, Revenue Refunding 3/08 at 102 Baa2 $ 1,248,135
Bonds, Series 1998 (Georgia Pacific Corporation Project),
5.550%, 3/01/26 (Alternative Minimum Tax)
1,000 Savannah Economic Development Authority, Pollution Control Revenue No Opt. Call A3 990,610
Refunding Bonds (Union Camp Corporation Project), Series 1995,
6.150%, 3/01/17
1,000 Wayne County Development Authority, Pollution Control Revenue Refunding 5/03 at 102 Baa 985,500
Bonds (ITT Rayonier Inc. Project), Series 1993, 6.100%, 11/01/07
-----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals - 0.4%
500 White County Development Authority, Industrial Development Revenue Bonds 6/02 at 102 BBB+ 502,680
(Springs Industries, Inc.), 6.850%, 6/01/10
-----------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 3.8%
2,500 Albany Dougherty Payroll Development Authority, Solid Waste Disposal No Opt. Call AA 2,141,950
Revenue Bonds (The Procter & Gamble Paper Products Company Project),
1999 Series, 5.200%, 5/15/28 (Alternative Minimum Tax)
1,000 Development Authority of Cartersville, Water and Wastewater Facilities 5/02 at 102 A+ 1,040,390
Revenue Bonds (Anheuser-Busch Project), Series 1992, 6.750%, 2/01/12
(Alternative Minimum Tax)
2,000 Development Authority of Cartersville, Sewage Facilities Refunding 5/07 at 101 A+ 1,956,040
Revenue Bonds (Anheuser-Busch Project), Series 1997, 6.125%, 5/01/27
(Alternative Minimum Tax)
-----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 6.1%
1,000 Private Colleges and Universities Authority, Revenue Bonds (Mercer No Opt. Call AAA 1,082,030
University Project), Series 1991, 6.500%, 11/01/15
8,000 Private Colleges and Universities Authority, Student Housing Revenue 6/09 at 102 A 6,694,320
Bonds (Mercer Housing Corporation Project), Tax-Exempt Series 1999A,
5.375%, 6/01/31
500 Private Colleges and Universities Authority, Revenue Refunding Bonds 6/04 at 102 AAA 517,810
(Spelman College Project), Series 1994, 6.200%, 6/01/14
-----------------------------------------------------------------------------------------------------------------------------------
Healthcare - 9.2%
5,000 Baldwin County Hospital Authority, Revenue Bonds (Oconee Regional Medical 12/08 at 102 BBB 3,708,550
Center), Series 1998, 5.375%, 12/01/28
500 Hospital Authority of Cherokee County, Revenue Certificates, Tax Exempt 12/00 at 102 AAA 515,410
Series 1990, 7.250%, 12/01/15
1,000 Coffee County Hospital Authority, Revenue Anticipation Certificates 12/06 at 102 N/R 918,190
(Coffee Regional Medical Center, Inc. Project), Series 1997A,
6.750%, 12/01/16
Development Authority of the City of Dalton, Revenue Certificates
(Hamilton Health Care System), Series 1996:
2,000 5.500%, 8/15/26 No Opt. Call AAA 1,877,300
2,000 5.250%, 8/15/26 2/07 at 102 AAA 1,747,060
1,000 The Hospital Authority of Hall County and the City of Gainesville, 10/05 at 102 AAA 992,360
Revenue Anticipation Certificates (Northeast Georgia Healthcare
Project), Series 1995, 6.000%, 10/01/20
1,000 Hospital Authority of Gwinnett County, Revenue Anticipation Certificates 9/07 at 101 AAA 871,570
(Gwinnett Hospital System, Inc. Project), Series 1997A, 5.250%, 9/01/27
2,250 Hospital Authority of the City of Royston, Revenue Anticipation 7/09 at 102 N/R 1,982,453
Certificates (Ty Cobb Healthcare System, Inc. Project), Series 1999,
6.500%, 7/01/27
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily -- 16.6%
The Housing Authority of the city of Atlanta, Multifamily Housing Revenue
Bonds (The Village at Castleberry Hill Project), GNMA Collateralized,
Series 1999:
$ 2,000 5.300%, 2/20/29 (Alternative Minimum Tax) 2/09 at 102 AAA $1,745,320
5,000 5.400%, 2/20/39 (Alternative Minimum Tax) 2/09 at 102 AAA 4,292,650
1,840 Housing Authority of the City of Augusta, Mortgage Revenue Refunding 5/05 at 102 Aa 1,875,714
Bonds, Series 1995A (FHA-Insured Mortgage Loan - River Glen Apartments,
Section 8 Assisted Project), 6.500%, 5/01/27
1,000 Housing Authority of the County of DeKalb, Multifamily Housing Revenue 1/05 at 102 AAA 1,044,060
Bonds (The Lakes at Indian Creek Apartments Project), Series 1994,
7.150%, 1/01/25 (Alternative Minimum Tax)
3,470 Housing Authority of the County of DeKalb, Multifamily Housing Revenue 1/06 at 102 A 3,465,454
Bonds (Regency Woods I and II Project), Senior Series 1996A, 6.500%,
1/01/26
4,000 Housing Authority of Fulton County, Multifamily Housing Revenue Bonds 7/06 at 102 AAA 4,221,680
(Concorde Place Apartments Project), Series 1996A, 6.375%, 1/01/27
(Alternative Minimum Tax)
4,715 Housing Authority of the City of Lawrenceville, Multifamily Housing 6/07 at 102 AAA 4,756,162
Revenue Bonds (Knollwood Park Apartments Project), Series 1997, 6.250%,
12/01/29 (Alternative Minimum Tax)
1,295 Housing Authority of the City of Macon, Multifamily Mortgage Revenue 10/04 at 102 Aaa 1,318,375
Refunding Bonds, Series 1994A (FHA-Insured Mortgage Loan - The Vistas),
6.450%, 4/01/26
-----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 7.9%
Housing Authority of Fulton County, Single Family Mortgage Revenue
Bonds (GNMA Mortgage-Backed Securities Program), Series 1995A:
230 6.550%, 3/01/18 (Alternative Minimum Tax) 3/05 at 102 AAA 232,590
80 6.600%, 3/01/28 (Alternative Minimum Tax) 3/05 at 102 AAA 82,712
Housing Authority of Fulton County, Single Family Mortgage Revenue
Refunding Bonds (GNMA Mortgage-Backed Securities Program), Series 1996A:
415 6.125%, 9/01/18 (Alternative Minimum Tax) 9/06 at 102 AAA 413,373
655 6.200%, 9/01/27 (Alternative Minimum Tax) 9/06 at 102 AAA 651,509
1,215 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/04 at 102 AAA 1,231,220
1994 Series A (FHA-Insured or VA Guaranteed Mortgage Loans), 6.500%,
12/01/17 (Alternative Minimum Tax)
1,000 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 3/05 at 102 AAA 1,010,230
1995 Series A, Subseries A-2, 6.400%, 12/01/15 (Alternative Minimum Tax)
2,450 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/05 at 102 AAA 2,484,251
1995 Series B, Subseries B-2, 6.550%, 12/01/27 (Alternative Minimum Tax)
3,355 Georgia Housing and Finance Authority, Single Family Mortgage Bonds, 6/06 at 102 AAA 3,373,721
1996 Series A, Subseries A-2, 6.450%, 12/01/27 (Alternative Minimum Tax)
200 Georgia Residential Finance Authority, Home Ownership Mortgage Bonds, 12/00 at 103 AA+ 203,764
1990 Series A (FHA-Insured or VA Guaranteed Mortgage Loans), 7.750%,
6/01/18 (Alternative Minimum Tax)
1,075 Georgia Residential Finance Authority, Home Ownership Mortgage Bonds, 12/01 at 103 AA+ 1,098,897
1991 Series A (FHA-Insured or VA Guaranteed Mortgage Loans), 7.250%,
12/01/21 (Alternative Minimum Tax)
55 Georgia Residential Finance Authority, Single Family Mortgage Bonds, 6/00 at 102 AA+ 56,179
1988 Series B (FHA-Insured or VA Guaranteed Mortgage Loans), 8.000%,
12/01/16
-----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 4.2%
3,810 Peach County School District, General Obligation School Bonds, Series 2/05 at 102 AAA 4,070,833
1994, 6.400%, 2/01/19
1,500 Washington County School District, General Obligation School Bonds, 1/05 at 102 AAA 1,630,050
Series 1994, 6.875%, 1/01/14
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Georgia Municipal Bond Fund (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited - 21.5%
$ 570 Development Authority of Burke County, Industrial Development 2/01 at 102 A $ 587,573
Revenue Bonds (Georgia Safe Corporation Project),
Series 1991, 7.500%, 2/01/11 (Alternative Minimum Tax)
1,150 Burke County Economic Development Authority, Revenue Bonds (Ritz 12/02 at 102 A 1,202,210
Instrument Transformers, Inc. Project), Series 1991A,
7.250%, 12/01/11 (Alternative Minimum Tax)
1,750 Association County Commissioners of Georgia, Leasing Program (Butts 12/04 at 102 AAA 1,856,733
County Public Purpose Project), Series 1994, Certificates of
Participation, 6.750%, 12/01/14
The Hospital Authority of Clarke County, Hospital Revenue Certificates
(Athens Regional Medical Center Project), Series 1996:
1,000 5.000%, 1/01/27 1/07 at 100 AAA 836,080
6,000 5.250%, 1/01/29 1/09 at 101 AAA 5,215,680
1,215 Clayton County Solid Waste Management Authority, Revenue Bonds, 2/02 at 102 AA 1,254,451
Series 1992A, 6.500%, 2/01/12
1,000 Downtown Smyrna Development Authority, Revenue Bonds, 2/05 at 102 AAA 1,076,670
Series 1994, 6.600%, 2/01/17
2,765 Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue No Opt. Call AA 2,911,351
Bonds, Refunding Series N, 6.250%, 7/01/18
500 Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue No Opt. Call AAA 523,720
Bonds, Refunding Series P, 6.250%, 7/01/20
125 Puerto Rico Infrastructure Finance Authority, Special Tax Revenue 7/00 at 100 BBB+ 125,279
Bonds, Series 1988A, 7.750%, 7/01/08
7,000 Rockdale County Water and Sewerage Authority, Revenue Bonds, Series 1/10 at 101 AAA 6,343,330
1999 A, 5.375%, 7/01/29
7,055 Upper Oconee Basin Water Authority, Revenue Bonds, Series 1997, 7/08 at 102 AAA 6,290,238
5.250%, 7/01/27
1,250 Hospital Authority of Ware County, Revenue Anticipation 3/02 at 102 AAA 1,276,788
Certificates, Series 1992A (Satilla Park Hospital),
6.625%, 3/01/15
-----------------------------------------------------------------------------------------------------------------------------------
Transportation - 0.7%
1,000 City of Atlanta, Airport Facilities Revenue Refunding Bonds, 1/07 at 101 AAA 981,160
Series 1996, 5.250%, 1/01/10
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 11.6%
Chatham County Hospital Authority, Hospital Revenue Bonds (Memorial
Medical Center, Inc.), Series 1990A:
100 7.000%, 1/01/10 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 103,287
1,130 7.000%, 1/01/21 (Pre-refunded to 1/01/01) 1/01 at 102 AAA 1,167,143
505 Cherokee County Water and Sewer Authority, Revenue Bonds, Series No Opt. Call AAA 632,917
1985, 9.750%, 8/01/09
500 Hospital Authority of Colquitt County, Hospital Revenue 3/02 at 102 AAA 523,900
Certificates, Series 1992, 6.700%, 3/01/12 (Pre-refunded
to 3/01/02)
1,000 City of Conyers, Water and Sewer Revenue Bonds, Series 1994A, 7/04 at 102 AAA 1,065,310
6.600%, 7/01/15
800 Downtown Marietta Development Authority, Revenue Bonds Series 1992, 1/02 at 102 Aaa 835,192
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 6.250%, 9/01/13 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 3,124,770
2,600 6.375%, 9/01/22 (Pre-refunded to 9/01/02) 9/02 at 102 Baa1*** 2,714,946
2,250 Fulco Hospital Authority, Refunding Revenue Anticipation 9/02 at 102 Baa1*** 2,349,473
Certificates (Georgia Baptist Health Care System Project),
Series 1992B, 6.375%, 9/01/22 (Pre-refunded to 9/01/02)
500 City of Gainesville, Water and Sewer Revenue Bonds, Series 1990 B, 11/00 at 102 AAA 515,710
7.200%, 11/15/10 (Pre-refunded to 11/15/00)
1,650 Metropolitan Atlanta Rapid Transit Authority, Sales Tax Revenue 7/04 at 102 AAA 1,785,581
Bonds, Second Indenture Series, Series 1994A, 6.900%, 7/01/20
(Pre-refunded to 7/01/04)
1,015 Peach County School District, General Obligation School Bonds, 2/05 at 102 AAA 1,080,325
Series 1994, 6.300%, 2/01/14 (Pre-refunded to 2/01/05)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities - 6.5%
$ 1,800 Development Authority of Appling County, Pollution Control Revenue 1/04 at 101 AAA $ 1,904,400
Bonds (Oglethorpe Power Corporation Hatch Project), Series 1994,
7.150%, 1/01/21
1,500 Municipal Electric Authority of Georgia, General Power Revenue 1/15 at 100 A 1,584,435
Bonds, 1992B Series, 6.375%, 1/01/16
1,000 Municipal Electric Authority of Georgia, Power Revenue Bonds, 1/10 at 100 AAA 996,980
Series Z, 5.500%, 1/01/12
Development Authority of Monroe County, Pollution Control Revenue Bonds
(Oglethorpe Power Corporation - Scherer Project), Series 1992A:
500 6.750%, 1/01/10 No Opt. Call A 537,750
1,000 6.800%, 1/01/12 No Opt. Call A 1,082,650
1,250 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 7/04 at 100 BBB+ 1,181,025
5.500%, 7/01/20
4,500 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series O, No Opt. Call AAA 1,674,854
0.000%, 7/01/17
-----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 8.4%
3,000 City of Atlanta, Water and Wastewater, Revenue Bonds, Series 1999A, 5/09 at 101 AAA 2,495,490
5.000%, 11/01/38
City of Brunswick, Water and Sewerage Revenue Refunding and Improvement
Bonds, Series 1992:
500 6.000%, 10/01/11 No Opt. Call AAA 523,194
400 6.100%, 10/01/19 No Opt. Call AAA 413,000
2,000 Cherokee County Water and Sewerage Authority, Water and Sewerage No Opt. Call AAA 1,910,400
Revenue Bonds, Refunding and Improvements, Series 1993, 5.500%,
8/01/23
6,000 De Kalb County, Water and Sewerage Revenue Bonds, Series 1999, 10/09 at 101 AA 5,106,120
5.000%, 10/01/28
1,000 City of Milledgeville, Water and Sewerage Revenue and Refunding No Opt. Call AAA 1,032,350
Bonds, Series 1996, 6.000%, 12/01/16
-----------------------------------------------------------------------------------------------------------------------------------
$144,990 Total Investments (cost $140,168,254) - 99.3% 135,853,567
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.7% 987,038
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $136,840,605
====================================================================================================================
</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.
19
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 6.2%
$ 1,000 Parish of DeSoto, Environmental Improvement Revenue Refunding Bonds, 6/05 at 102 BBB+ $ 979,260
1995 Series B (International Paper Company Project), 6.550%, 4/01/19
(Alternative Minimum Tax)
1,250 Parish of DeSoto, Environmental Improvement Revenue Bonds, 1998 Series 11/08 at 101 BBB+ 1,088,938
A (International Paper Company Project), 5.600%, 11/01/22 (Alternative
Minimum Tax)
3,000 Parish of Natchitoches, Solid Waste Disposal Revenue Bonds (Willamette 12/03 at 102 A- 2,657,520
Industries Project), Series 1993, 5.875%, 12/01/23 (Alternative
Minimum Tax)
1,500 Parish of St. Charles, Pollution Control Revenue Bonds (Union Carbide 11/02 at 102 BBB 1,552,500
Corporation), Series 1992, 7.350%, 11/01/22 (Alternative Minimum Tax)
1,000 Parish of St. John the Baptist, Environmental Improvement Revenue 12/08 at 101 BBB 892,720
Bonds (USX Corporation Project), Refunding Series of 1998, 5.350%,
12/01/13
-----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 3.2%
750 Louisiana Public Facilities Authority, College and University 10/00 at 101 A+ 766,358
Equipment and Capital Facilities Revenue Refunding Bonds (Loyola
University Project), Series 1989A, 7.250%, 10/01/09
380 Louisiana Public Facilities Authority, College and University 4/02 at 102 A+ 396,443
Equipment and Capital Facilities Revenue Refunding Bonds (Loyola
University Project), Series 1992, 6.750%, 4/01/10
1,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 9/07 at 102 AAA 883,800
(Xavier University of Louisiana Project), Series 1997, 5.250%, 9/01/27
1,000 Louisiana Public Facilities Authority, Revenue and Refunding Bonds 2/08 at 102 AAA 846,050
(Dillard University Project), Series 1998, 5.000%, 2/01/28
960 Board of Supervisors of Louisiana State University and Agricultural 10/08 at 102 AAA 806,122
and Mechanical College, Revenue and Refunding Bonds (University of
New Orleans Project), Series 1998, 5.000%, 10/01/30
-----------------------------------------------------------------------------------------------------------------------------------
Energy - 3.5%
1,000 Lake Charles Harbor and Terminal District, Port Facilities Refunding 12/02 at 102 Baa2 1,029,870
Revenue Bonds, Series 1992 (Occidental Petroleum Corporation Project),
7.200%, 12/01/20
500 Louisiana Offshore Terminal Authority, Deepwater Port Refunding 9/01 at 102 A 520,030
Revenue Bonds (LOOP Project), First Stage Series 1991B, 7.200%, 9/01/08
475 Louisiana Offshore Terminal Authority, Deepwater Port Refunding 9/00 at 102 A 486,980
Revenue Bonds (LOOP Project), First Stage Series E, 7.600%, 9/01/10
1,000 Louisiana Offshore Terminal Authority, Deepwater Port Refunding 10/08 at 100 A 876,280
Revenue Bonds (LOOP Project), Series 1998, 5.200%, 10/01/18
1,200 Parish of St. Bernard, Exempt Facility Revenue Bonds (Mobil Oil 11/06 at 102 AAA 1,144,308
Corporation Project), Series 1996, 5.900%, 11/01/26 (Alternative
Minimum Tax)
-----------------------------------------------------------------------------------------------------------------------------------
Healthcare - 20.2%
1,000 Jefferson Parish Hospital District No. 1, Fixed Rate Hospital Revenue 1/09 at 101 AAA 851,670
Bonds (West Jefferson Medical Center), Series 1998A, 5.000%, 1/01/21
3,000 Jefferson Parish Hospital District No. 2, Hospital Revenue Bonds, 7/09 at 101 AAA 2,484,120
Series 1998, 5.000%, 7/01/28
1,000 Louisiana Public Facilities Authority, Hospital Revenue and Refunding 7/07 at 101 AAA 899,200
Bonds (Womans Hospital Foundation Project), Series 1997, 5.375%,
10/01/22
500 Louisiana Public Facilities Authority, Hospital Revenue Bonds No Opt. Call AAA 481,670
(Franciscan Missionaries of Our Lady Health System Project),
Series 1998A, 5.750%, 7/01/25
5,000 Louisiana Public Facilities Authority, Hospital Revenue and Refunding 1/08 at 102 BBB+ 3,796,950
Bonds (Lincoln Health System Project), Series 1998, 5.150%, 1/01/19
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Healthcare (continued)
$ 2,300 Louisiana Public Facilities Authority, Hospital Revenue Bonds 8/09 at 101 BBB+ $ 1,806,190
(Touro Infirmary Project), Series 1999A, 5.625%, 8/15/29
1,325 Louisiana Public Facilities Authority, Revenue Bonds, Series 1992-B 5/02 at 102 AAA 1,342,172
(Alton Ochsner Medical Foundation Project), 6.500%, 5/15/22
3,400 Louisiana Public Facilities Authority, Health Facilities Revenue No Opt. Call AA+ 3,050,310
Refunding Bonds (Sisters of Mercy Health System, St. Louis, Inc.),
Series 1993A, 5.000%, 6/01/19
2,500 Louisiana Public Facilities Authority, Revenue Bonds (General 11/04 at 102 AAA 2,523,375
Health, Inc. Project), Series 1994, 6.375%, 11/01/24
500 Louisiana Public Facilities Authority, Revenue Bonds (Mary Bird 1/05 at 102 AAA 503,050
Perkins Cancer Center Project), Series 1994, 6.200%, 1/01/19
2,180 St. Tammany Parish Hospital Service District No. 2, Hospital 10/04 at 102 AAA 2,255,057
Revenue Bonds, Series 1994, 6.250%, 10/01/14
885 Hospital Service District No. 1 of the Parish of Tangipahoa, 2/04 at 102 AAA 888,460
Hospital Revenue Bonds (Series 1994), 6.250%, 2/01/24
2,570 Hospital Service District No. 1 of the Parish of Terrebonne, 4/08 at 102 AAA 2,279,462
Hospital Revenue and Refunding Bonds (Terrebonne General
Medical Center Project), Series 1998, 5.375%, 4/01/28
-----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 1.8%
750 Lake Charles Non Profit Housing Development Corporation, Mortgage 10/00 at 100 AAA 750,660
Revenue Refunding Bonds, Series 1990A (FHA-Insured Mortgage Loan,
Section 8 Assisted - Chateau Project), 7.875%, 2/15/25
735 Louisiana Public Facilities Authority, Revenue Bonds (Walmsley 6/03 at 103 AAA 767,612
Housing Corporation), Series 1989A, 7.500%, 6/01/21
500 Louisiana Public Facilities Authority, Multifamily Housing Revenue 11/01 at 102 AA 519,255
Bonds (VOA National Housing Corporation Projects), Series 1991,
7.750%, 11/01/16
-----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 12.2%
795 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 8/00 at 102 Aaa 812,363
Revenue Bonds (GNMA Mortgage-Backed Securities Program),
Series 1990A, 7.875%, 8/01/23 (Alternative Minimum Tax)
2,235 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 10/07 at 102 Aaa 2,122,870
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities
Program), Series 1997D, 5.900%, 10/01/30 (Alternative Minimum Tax)
900 East Baton Rouge Mortgage Finance Authority, Single Family Mortgage 10/08 at 101 Aaa 785,682
Revenue Refunding Bonds (GNMA and FNMA Mortgage-Backed Securities
Program), Series 1998C-1, 5.200%, 10/01/23
240 Louisiana Housing Finance Agency, Single Family Mortgage Revenue 6/05 at 102 Aaa 242,141
Bonds, 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:
960 5.600%, 6/01/17 (Alternative Minimum Tax) 6/07 at 102 Aaa 894,278
1,370 5.500%, 12/01/22 6/07 at 102 Aaa 1,252,934
1,485 Louisiana Housing Finance Agency, Tax Exempt Bonds, Single Family 12/07 at 101 Aaa 1,257,676
Mortgage Revenue Bonds (Home Ownership Program), Series 1998B-2,
5.250%, 6/01/29 (Alternative Minimum Tax)
1,000 Louisiana Public Facilities Authority, Single Family Mortgage 8/07 at 102 Aaa 928,950
Revenue Refunding Bonds, Series 1997B, 5.750%, 8/01/31
425 New Orleans Home Mortgage Authority, Single Family Mortgage Revenue 7/00 at 102 Aaa 430,937
Bonds, Series 1988-C1, 7.750%, 12/01/22 (Alternative Minimum Tax)
1,000 New Orleans Home Mortgage Authority, Single Family Mortgage Revenue 12/06 at 102 Aaa 970,740
Bonds, Series 1996A, 6.100%, 12/01/29 (Alternative Minimum Tax)
1,000 New Orleans Home Mortgage Authority, Single Family Mortgage Revenue 12/07 at 102 Aaa 929,670
Bonds, Series 1997A, 5.850%, 12/01/30 (Alternative Minimum Tax)
1,000 New Orleans Home Mortgage Authority, Single Family Mortgage Revenue 12/08 at 101 Aaa 860,890
Refunding Bonds, Series 1998B-2, 5.200%, 12/01/21 (Alternative
Minimum Tax)
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship Louisiana Municipal Bond Fund (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
Rapides Finance Authority, Single Family Mortgage Revenue Refunding
Bonds (GNMA and Fannie Mae Mortgage-Backed Securities Program),
Series 1998B:
$ 800 5.350%, 6/01/26 6/08 at 102 Aaa $ 711,616
2,000 5.450%, 12/01/30 (Alternative Minimum Tax) 6/08 at 102 Aaa 1,744,660
106 St. Bernard Parish Home Mortgage Authority, Single Family Mortgage No Opt. Call A1 109,463
Revenue Refunding Bonds, 1991 Series A, 8.000%, 3/25/12
-----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 4.2%
3,000 Louisiana Housing Finance Agency, Mortgage Revenue Bonds (GNMA 9/05 at 103 AAA 3,019,170
Collateralized Mortgage Loan - St. Dominic Assisted Care Facility),
Series 1995, 6.950%, 9/01/36
1,740 Louisiana Housing Finance Agency, Mortgage Revenue Bonds (GNMA 1/04 at 101 AAA 1,800,917
Collateralized Mortgage Loan - Villa Maria Retirement Center Project),
Series 1993, 7.100%, 1/20/35
-----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 9.8%
2,000 City of New Orleans, General Obligation Refunding Bonds, Series No Opt. Call AAA 1,125,320
1991, 0.000%, 9/01/10
3,000 Parishwide School District of the Parish of Orleans, General 3/06 at 100 AAA 2,611,110
Obligation School Bonds, Series 1996, 5.000%, 9/01/20
1,000 Parishwide School District of the Parish of Orleans, General 3/08 at 100 Aaa 880,500
Obligation School Bonds, Series 1998A, 5.125%, 9/01/22
13,875 Orleans Parish School Board, Public School Refunding Bonds, Series No Opt. Call AAA 5,731,346
1991, 0.000%, 2/01/15
1,000 East Ouachita School District of the Parish of Ouachita, General 3/09 at 100 AAA 857,830
Obligation School Bonds, Series 1999, 5.000%, 3/01/24
-----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 20.7%
1,000 Jefferson Sales Tax District, Parish of Jefferson, Special Sales 12/02 at 100 AAA 1,041,010
Tax Revenue Bonds, Series 1991B, 6.750%, 12/01/06
1,000 City of Lafayette, Public Improvement Sales Tax Bonds, Series 3/07 at 101 AAA 860,920
1998A, 5.000%, 5/01/22
1,750 City of Lafayette, Public Improvement Sales Tax Bonds, Series 3/09 at 101 1/2 AAA 1,659,893
1999B, 5.625%, 3/01/24
3,000 Louisiana Local Government Environmental Facilities and Community No Opt. Call AAA 2,453,280
Development Authority, Revenue Bonds (Capital Projects and Equipment
Acquisition Program), Series 1999, 4.500%, 12/01/18
1,000 Office Facilities Corporation, Lease Revenue Bonds (Louisiana State 3/09 at 101 AAA 919,190
Capitol Complex Program), Series 1999A, 5.250%, 3/01/18
1,870 Louisiana Stadium and Exposition District, Hotel Occupancy Tax 7/09 at 102 AAA 1,548,491
Refunding Bonds, Series 1998B, 4.750%, 7/01/21
1,500 Office Facilities Corporation (A Louisiana Non Profit Corporation), 12/01 at 103 BBB+ 1,586,430
Capital Facilities Bonds (Statewide Lease/Purchase Program),
Series 1990, 7.750%, 12/01/10
7,700 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 6,418,720
Bonds, Series Y of 1996, 5.000%, 7/01/36
3,000 Puerto Rico Highway and Transportation Authority, Transportation 7/10 at 101 A 3,169,740
Revenue Bonds, Series B, 6.500%, 7/01/27 (WI)
1,000 Board of Supervisors of the University of Louisiana System, Lease 9/09 at 102 AAA 1,017,260
Revenue Bonds (University of Louisiana at LaFayette Cajundome
Convention Center Project), Series 2000, 6.250%, 9/01/29
3,000 Virgin Islands Public Finance Authority, Revenue Bonds (Virgin 10/10 at 101 BBB- 2,970,090
Islands Gross Receipts Taxes Loan Note), Series 1999A, 6.375%,
10/01/19
-----------------------------------------------------------------------------------------------------------------------------------
Transportation - 2.0%
505 New Orleans Aviation Board, Revenue Bonds, Series 1997B-1, 5.450%, 10/07 at 102 AAA 452,758
10/01/27 (Alternative Minimum Tax)
2,100 City of Shreveport Airport System, Revenue Bonds, Series 1997A, 1/08 at 102 AAA 1,850,982
5.375%, 1/01/28 (Alternative Minimum Tax)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed - 9.6%
$ 680 Louisiana Public Facilities Authority, Hospital Revenue 11/00 at 100 AAA $ 772,058
Refunding Bonds (Southern Baptist Hospitals, Inc. Project),
Series 1986, 8.000%, 5/15/12
1,125 Louisiana Public Facilities Authority, Hospital Revenue Bonds 10/02 at 102 A3*** 1,196,572
(Woman's Hospital Foundation Project), Series 1992, 7.250%,
10/01/22 (Pre-refunded to 10/01/02)
2,000 Louisiana Public Facilities Authority, Hospital Revenue 10/02 at 102 AAA 2,101,460
Refunding Bonds (Lafayette General Medical Center Project),
Series 1992, 6.500%, 10/01/22 (Pre-refunded to 10/01/02)
10,000 Louisiana Public Facilities Authority, Revenue Bonds, Custodial No Opt. Call AAA 3,051,800
Receipts, Series 1990B, 0.000%, 12/01/19
2,000 City of New Orleans Audubon Park Commission, Aquarium Revenue 4/02 at 102 N/R*** 2,138,180
Bonds, Series 1992, 8.000%, 4/01/12 (Pre-refunded to 4/01/02)
1,400 Ouachita Parish Hospital Service District No. 1, Revenue Bonds 7/01 at 102 A*** 1,465,113
(Glenwood Regional Medical Center), Series 1991, 7.500%, 7/01/21
(Pre-refunded to 7/01/01)
250 Shreveport Home Mortgage Authority, Single Family Mortgage No Opt. Call Aaa 264,410
Revenue Bonds, Series 1979A, 6.750%, 9/01/10
------------------------------------------------------------------------------------------------------------------------------------
Utilities - 5.7%
3,000 Lake Charles Harbor and Terminal District, Port Facilities 8/02 at 103 A3 3,208,800
Revenue Refunding Bonds, Series 1992 (Trunkline LNG Company
Project), Panhandle Eastern Corporation, 7.750%, 8/15/22
1,000 Parish of St. Charles, Environmental Improvement Revenue Bonds 11/02 at 102 BBB 917,770
(Louisiana Power and Light Company Project), Series 1993A,
6.200%, 5/01/23 (Alternative Minimum Tax)
1,000 Parish of St. Charles, Environmental Improvement Revenue Bonds 11/00 at 102 BBB- 926,170
(Louisiana Power and Light Company Project), Series 1995,
6.375%, 11/01/25 (Alternative Minimum Tax)
1,500 Parish of St. Charles, Solid Waste Disposal Revenue Bonds 12/02 at 102 BBB 1,529,144
(Louisiana Power and Light Company Project), Series 1992A,
7.000%, 12/01/22 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 1.3%
1,500 Louisiana Public Facilities Authority, Revenue Bonds, Series 2/03 at 101 AA 1,534,650
1992, Baton Rouge Water Works Company Project, 6.400%, 2/01/10
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
$ 138,971 Total Investments (cost $119,731,184) - 100.4% 115,262,346
===========-------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.4)% (439,046)
---------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $114,823,300
=====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There may be
other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or Moody's
rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency securities
which ensures the timely payment of principal and interest.
Securities are normally considered to be equivalent to AAA rated
securities.
N/R Investment is not rated.
(WI) Security purchased on a when-issued basis.
See accompanying notes to financial statements.
23
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount(000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 9.2%
$1,400 The Haywood County Industrial Facilities and Pollution Control 9/05 at 102 Baa1 $1,312,304
Financing Authority, Series 1995, Environmental Improvement Revenue
Bonds (Champion International Corporation Project), 6.250%, 9/01/25
(Alternative Minimum Tax)
4,000 The Haywood County Industrial Facilities and Pollution Control 10/03 at 102 Baa1 3,504,840
Financing Authority, Series 1993, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), 5.500%, 10/01/18
(Alternative Minimum Tax)
3,100 The Haywood County Industrial Facilities and Pollution Control 3/06 at 102 Baa1 2,867,066
Financing Authority, Pollution Control Refunding Revenue Bonds (Champion
International Corporation Project), Series 1995, 6.000%, 3/01/20
1,900 Martin County Industrial Facilities and Pollution Control Financing 9/01 at 103 A 1,984,759
Authority, Solid Waste Revenue Disposal Bonds (Weyerhaeuser Company
Project), Series 1991, 7.250%, 9/01/14 (Alternative Minimum Tax)
6,000 Martin County Industrial Facilities and Pollution Control Financing 5/04 at 102 A 6,079,500
Authority, Solid Waste Disposal Revenue Bonds (Weyerhaeuser Company
Project), Series 1994, 6.800%, 5/01/24 (Alternative Minimum Tax)
1,000 Martin County Industrial Facilities and Pollution Control Financing 11/05 at 102 A 913,320
Authority, Solid Waste Disposal Revenue Bonds (Weyerhaeuser Company
Project), Series 1995, 6.000%, 11/01/25 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 5.0%
North Carolina Educational Facilities Finance Agency, Revenue Bonds
(High Point College Project), Series 1989:
165 7.050%, 12/01/05 6/00 at 102 A3 168,538
175 7.100%, 12/01/06 6/00 at 102 A3 178,759
4,220 North Carolina Educational Facilities Finance Agency, Refunding 10/06 at 102 AA+ 3,821,505
Revenue Bonds (Duke University Project), Series 1996B, 5.000%,
10/01/17
1,000 North Carolina State Education Assistance Authority, Guaranteed 7/05 at 102 A 1,005,880
Student Loan Revenue Bonds, 1995 Series A (Subordinate Lien),
6.300%, 7/01/15 (Alternative Minimum Tax)
University of North Carolina at Chapel Hill, Utilities System Revenue
Refunding Bonds, Series 1997, The Board of Governors of the University of
North Carolina:
4,000 0.000%, 8/01/15 No Opt. Call AA 1,648,680
4,265 0.000%, 8/01/18 No Opt. Call AA 1,439,267
2,750 0.000%, 8/01/20 No Opt. Call AA 813,780
------------------------------------------------------------------------------------------------------------------------------------
Energy - 2.0%
3,600 New Hanover County Industrial Facilities and Pollution Control 7/02 at 102 BBB- 3,616,272
Financing Authority, Revenue Refunding Bonds (Occidental
Petroleum Corporation Project), Series 1992, 6.700%, 7/01/19
------------------------------------------------------------------------------------------------------------------------------------
Healthcare - 17.9%
5,500 The Charlotte-Mecklenburg Hospital Authority, Health Care System 1/06 at 102 AA 5,322,900
Revenue Refunding Bonds, Series A, 5.875%, 1/15/26
6,000 The Charlotte-Mecklenburg Hospital Authority, Health Care System 1/07 at 102 AA 5,182,680
Revenue Bonds, Series 1997A, 5.125%, 1/15/22
4,000 County of Cumberland Hospital Facility, Revenue Bonds (Cumberland 10/09 at 101 A- 3,231,080
County Hospital System, Inc.), Series 1999, 5.250%, 10/01/29
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount(000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Healthcare (continued)
$ 4,500 North Carolina Medical Care Commission, Health Care Facilities 6/08 at 101 AA $3,531,375
Revenue Bonds (Duke University Health System), Series 1998A,
4.750%, 6/01/28
North Carolina Medical Care Commission, Health Care Facilities Revenue
Bonds (Scotland Memorial Hospital Project), Series 1999:
625 5.500%, 10/01/19 10/08 at 102 AA 572,431
1,200 5.500%, 10/01/29 10/08 at 102 AA 1,068,552
1,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 2/02 at 102 Baa3 1,057,060
(Annie Penn Memorial Hospital Project), Series 1991, 7.500%, 8/15/21
2,000 North Carolina Medical Care Commission, Hospital Revenue Bonds 10/08 at 101 AAA 1,720,460
(Mission-St. Joseph Health System), Series 1998, 5.125%, 10/01/28
3,500 North Carolina Medical Care Commission, Hospital Revenue Bonds 6/09 at 102 A 3,331,825
(Southeastern Regional Medical Center), Series 1999, 6.250%, 6/01/29
2,500 Northern Hospital District, Surry County, Health Care Facilities 10/01 at 102 BBB- 2,505,000
Revenue Refunding Bonds, Series 1991, 7.875%, 10/01/21
5,750 Board of Governors of the University of North Carolina, University 2/06 at 102 AA 5,041,773
of North Carolina Hospitals at Chapel Hill, Revenue Bonds, Series
1996, 5.250%, 2/15/26
------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 0.4%
620 North Carolina Housing Finance Agency, Multifamily Revenue 7/02 at 102 Aa2 644,416
Refunding Bonds (1992 Refunding Bond Resolution), Series B,
6.900%, 7/01/24
------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 20.4%
495 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/01 at 102 AA 508,469
Series O (1985 Resolution), 7.600%, 3/01/21 (Alternative Minimum Tax)
7,300 North Carolina Housing Finance Agency, Home Ownership Revenue 7/09 at 100 AA 6,671,324
Bonds, Series 5-A (1998 Trust Agreement), 5.625%, 7/01/30
(Alternative Minimum Tax)
North Carolina Housing Finance Agency, Single Family Revenue Bonds,
Series Y (1985 Resolution):
1,925 6.300%, 9/01/15 9/04 at 102 AA 1,954,510
1,750 6.350%, 3/01/18 9/04 at 102 AA 1,775,865
3,280 North Carolina Housing Finance Agency, Home Ownership Revenue 7/09 at 100 AA 3,266,716
Bonds, Series 6-A (1998 Trust Agreement), 6.200%, 1/01/29
1,795 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/05 at 102 AA 1,812,304
Series BB (1985 Resolution), 6.500%, 9/01/26 (Alternative Minimum Tax)
3,295 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/05 at 102 AA 3,256,185
Series DD (1985 Resolution), 6.200%, 9/01/27 (Alternative Minimum Tax)
4,340 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/06 at 102 AA 4,290,003
Series LL (1985 Resolution), 6.200%, 3/01/26 (Alternative Minimum Tax)
2,500 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/07 at 101 1/2 AA 2,370,375
Series RR (1985 Resolution), 5.850%, 9/01/28 (Alternative Minimum Tax)
1,635 North Carolina Housing Finance Agency, Single Family Revenue Bonds, 3/08 at 101 AA 1,485,496
Series VV (1985 Resolution), 5.250%, 3/01/17 (Alternative Minimum Tax)
2,500 North Carolina Housing Finance Agency, Home Ownership Revenue 7/08 at 101 AA 2,197,625
Bonds, Series 2-A (1998 Trust Agreement), 5.250%, 7/01/26 (Alternative
Minimum Tax)
4,370 North Carolina Housing Finance Agency, Home Ownership Revenue 1/09 at 101 AA 3,761,041
Bonds, Series 3-A (1998 Trust Agreement), 5.200%, 7/01/26 (Alternative
Minimum Tax)
4,000 North Carolina Housing Finance Agency, Home Ownership Revenue 1/09 at 100 AA 3,543,800
Bonds, Series 4-A (1998 Trust Agreement), 5.300%, 7/01/26
(Alternative Minimum Tax)
460 Winston Salem, North Carolina, Single Family Mortgage Revenue 9/00 at 102 A1 467,489
Bonds, Series 1990, 8.000%, 9/01/07 (Alternative Minimum Tax)
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial/Other - 0.8%
$ 1,400 Gaston County Industrial Facilities and Pollution Control Financing 11/01 at 103 N/R $ 1,458,702
Authority, Industrial Development Revenue Bonds, Series 1985
(ABB-Combustion Engineering Inc.), 8.850%, 11/01/15
------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 14.1%
500 City of Asheville, North Carolina, Certificates of Participation, 2/02 at 102 A1 516,015
Series 1992, 6.500%, 2/01/08
1,000 City of Asheville, North Carolina, Certificates of Participation, 6/07 at 101 AAA 903,160
Series 1997A, 5.125%, 6/01/18
2,830 City of Charlotte, North Carolina, General Obligation Water and 4/05 at 102 AAA 2,686,208
Sewer Bonds, Series 1995A, 5.400%, 4/01/20
600 City of Durham, North Carolina, Certificates of Participation, 6/05 at 102 AA 601,536
Series 1995, 5.800%, 6/01/15
County of Harnett, North Carolina, Certificates of Participation, Series
1994 (Harnett County Projects):
1,000 6.200%, 12/01/06 12/04 at 102 AAA 1,050,910
1,750 6.200%, 12/01/09 12/04 at 102 AAA 1,826,388
500 6.400%, 12/01/14 12/04 at 102 AAA 524,455
County of Pitt, North Carolina, Certificates of Participation (Pitt
County Public Facilities Project), Series 1997A:
1,250 5.550%, 4/01/12 4/07 at 102 AAA 1,246,575
1,000 5.850%, 4/01/17 4/07 at 102 AAA 1,000,250
Puerto Rico Highway and Transportation Authority, Highway Revenue Bonds,
Series Y of 1996:
10,000 5.500%, 7/01/36 7/16 at 100 A 9,151,300
2,000 5.500%, 7/01/36 7/16 at 100 AAA 1,865,740
555 Puerto Rico Infrastructure Finance Authority, Special Tax Revenue 7/00 at 100 BBB+ 556,238
Bonds, Series 1988A, 7.750%, 7/01/08
1,000 Puerto Rico Public Buildings Authority, Revenue Refunding Bonds, No Opt. Call A 957,270
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 5.750%, 6/01/18 6/07 at 102 N/R 115,894
125 5.750%, 6/01/19 6/07 at 102 N/R 119,779
125 5.750%, 6/01/20 6/07 at 102 N/R 118,946
130 5.750%, 6/01/21 6/07 at 102 N/R 122,935
105 5.750%, 6/01/22 6/07 at 102 N/R 99,092
715 County of Stokes, North Carolina, Certificates of Participation, 3/01 at 102 AAA 740,068
Series 1991, 7.000%, 3/01/06
1,410 County of Union, North Carolina, Certificates of Participation, 4/03 at 102 AAA 1,459,491
Series 1992, 6.375%, 4/01/12
------------------------------------------------------------------------------------------------------------------------------------
Transportation - 3.6%
6,000 City of Charlotte, North Carolina, Airport Revenue Bonds, Series 7/09 at 101 AAA 5,899,680
1999B, 6.000%, 7/01/28 (Alternative Minimum Tax)
710 Piedmont Triad Airport Authority, Airport Revenue Bonds, Series 7/09 at 101 AAA 701,182
1999B, 6.000%, 7/01/21 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 7.4%
130 Asheville Housing Development Corporation, First Lien Revenue Bonds, 11/09 at 100 N/R*** 158,059
Series 1980, 10.500%, 5/01/11 (Pre-refunded to 11/01/09)
1,500 County of Buncombe, North Carolina, Certificates of Participation 12/02 at 102 Aa3*** 1,584,405
(1992 Buncombe County Project), 6.625%, 12/01/10 (Pre-refunded to
12/01/02)
1,900 Craven Regional Medical Authority, Insured Health Care Facilities 10/00 at 102 AAA 1,953,694
Revenue Bonds, Series 1990, 7.200%, 10/01/19 (Pre-refunded to 10/01/00)
705 City of Durham, North Carolina, Certificates of Participation (1990 9/00 at 102 Aa*** 723,556
Financing Project), 7.250%, 9/01/10 (Pre-refunded to 9/01/00)
1,000 City of Durham, North Carolina, Certificates of Participation, 12/01 at 102 Aa3*** 1,045,800
Series 1991, 6.750%, 12/01/11 (Pre-refunded to 12/01/01)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount(000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$995 North Carolina Eastern Municipal Power Agency, Power System 1/02 at 100 AAA $1,077,396
Revenue Refunding Bonds, Series 1991A, 6.500%, 1/01/18
55 North Carolina Medical Care Commission, Hospital Revenue No Opt. Call AAA 60,157
Bonds (Memorial Mission Hospital Project), Series A, 7.625%, 10/01/08
North Carolina Medical Care Commission, Hospital Revenue Bonds (Halifax
Memorial Hospital Project), Series 1992:
1,275 6.750%, 8/15/14 (Pre-refunded to 8/15/02) 8/02 at 102 Baa1*** 1,340,918
1,000 6.750%, 8/15/24 (Pre-refunded to 8/15/02) 8/02 at 102 Baa1*** 1,051,700
3,400 North Carolina Medical Care Commission, Hospital Revenue 10/00 at 102 AA*** 3,505,672
Bonds (Community General Hospital of Thomasville), Series 1990, 8.100%,
10/01/15 (Pre-refunded to 10/01/00)
700 County of Pender, North Carolina, Certificates of Participation, 6/01 at 102 Baa1*** 734,020
Series 1991, 7.700%, 6/01/11 (Pre-refunded to 6/01/01)
295 University of North Carolina at Chapel Hill, Student Fee 6/01 at 102 AAA 307,336
Revenue Bonds, Series 1991 (Student Recreation Center), The Board of
Governors of the University of North Carolina, 7.000%, 6/01/08
(Pre-refunded to 6/01/01)
------------------------------------------------------------------------------------------------------------------------------------
Utilities - 17.5%
Coastal Regional Solid Waste Management Authority, Solid Waste System
Revenue Bonds, Series 1992:
1,000 6.300%, 6/01/04 6/02 at 102 A3 1,042,530
1,000 6.500%, 6/01/08 6/02 at 102 A3 1,046,290
2,000 City of Concord, North Carolina, Utilities Systems Refunding 12/08 at 101 AAA 1,802,160
Revenue Bonds, Series 1998B, 5.000%, 12/01/17
1,845 City of Fayetteville, North Carolina, Public Works Commission 3/05 at 102 AAA 1,727,400
Revenue Bonds, Series 1995A, 5.250%, 3/01/16
2,000 City of Greenville Utilities Commission, Combined Enterprise 9/04 at 102 A+ 2,021,020
System Revenue Bonds, Series 1994, 6.000%, 9/01/16
5,300 North Carolina Eastern Municipal Power Agency, Power System No Opt. Call AAA 5,395,028
Revenue Bonds, Refunding Series 1993 B, 6.000%, 1/01/18
2,400 North Carolina Eastern Municipal Power Agency, Power System 1/08 at 101 AAA 2,168,520
Revenue Bonds, Refunding Series 1997 A, 5.375%, 1/01/24
5,000 North Carolina Eastern Municipal Power Agency, Power System 1/10 at 101 BBB 4,945,600
Revenue Bonds, Series 1999D, 6.750%, 1/01/26
1,000 North Carolina Municipal Power Agency Number 1, Catawba 1/03 at 100 BBB+ 919,350
Electric Revenue Bonds, Series 1992, 5.750%, 1/01/15
5,665 North Carolina Municipal Power Agency Number 1, Catawba 1/10 at 101 BBB+ 5,505,926
Electric Revenue Bonds, Series 1999B, 6.500%, 1/01/20
5,250 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/08 at 101 1/2 BBB+ 4,441,027
Series DD, 5.000%, 7/01/28
870 City of Shelby, North Carolina, Combined Enterprise System 5/05 at 102 A- 820,157
Revenue Bonds, Series 1995A, 5.500%, 5/01/17
</TABLE>
27
<PAGE>
Portfolio of Investments
Nuveen Flagship North Carolina Municipal Bond Fund
(continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount(000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - 1.8%
$1,000 County of Dare, North Carolina, Utilities System Revenue Bonds, Series 6/08 at 102 AAA $ 825,010
1998A, 4.750%, 6/01/24
2,500 City of Raleigh, North Carolina, Combined Enterprise System Revenues 3/09 at 101 AA+ 2,064,350
Bonds, Series 1999, 4.750%, 3/01/24
334 Woodfin Treatment Facility, Inc., Proportionate Interest Certificates No Opt. Call N/R 327,256
5.500%, 12/01/03
------------------------------------------------------------------------------------------------------------------------------------
$ 199,359 Total Investments (cost $188,840,119) - 100.1% 182,241,375
===========-------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.1)% (247,889)
---------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $181,993,486
=====================================================================================================================
</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.
28
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 10.8%
$ 3,000 The Industrial Development Board of the City of Chattanooga, 7/03 at 103 AA- $ 3,050,460
Pollution Control Revenue Bonds, Series 1982 A. (E.I. du Pont de Nemours
and Company Project), 6.350%, 7/01/22
12,000 The Industrial Development Board of Humphreys County, Solid Waste 5/04 at 102 AA- 12,416,040
Disposal Facility Bonds (E.I. du Pont de Nemours and Company Project),
6.700%, 5/01/24 (Alternative Minimum Tax)
10,000 The Industrial Development Board of the County of McMinn, 3/01 at 102 BBB 10,271,700
Pollution Control Facilities Revenue Bonds, Series 1991 (Calhoun
Newsprint Company Project - Bowater Incorporated Obligor)
7.625%, 3/01/16 (Alternative Minimum Tax)
4,950 The Industrial Development Board of the County of McMinn, Solid 12/02 at 102 BBB 5,076,968
Waste Recycling Facilities Revenue Bonds, Series 1992 (Calhoun
Newsprint Company Project - Bowater Incorporated Obligor), 7.400%,
12/01/22 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals - 2.5%
7,000 The Industrial Development Board of Maury County, Multi-Modal 9/04 at 102 A 7,072,310
Interchangeable Rate Pollution Control Refunding Revenue Bonds
(Saturn Corporation Project), Series 1994, 6.500%, 9/01/24
------------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 2.9%
6,750 The Industrial Development Board of Loudon County, Solid Waste 2/03 at 102 AA 6,737,040
Disposal Revenue Bonds (Kimberly-Clark Corporation Project),
Series 1993, 6.200%, 2/01/23 (Alternative Minimum Tax)
250 Memphis, Shelby County, Industrial Development Board, Industrial No Opt. Call A1 255,690
Development Revenue Bonds (Colonial Baking Company - Memphis Project),
Series 1981, 9.500%, 4/01/01
1,245 Industrial Development Board of the City of South Fulton, 10/05 at 102 A3 1,206,393
Industrial Development Revenue Bonds (Tyson Foods, Inc. Project),
Series 1995, 6.400%, 10/01/20 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 1.4%
3,705 Tennessee State School Bond Authority, Higher Educational 5/02 at 101 1/2 AAA 3,843,975
Facilities Bonds, 1992 Series A, 6.250%, 5/01/22
------------------------------------------------------------------------------------------------------------------------------------
Healthcare - 15.0%
3,060 Blount County, Tennessee, Hospital Revenue Improvement Bonds, 7/08 at 100 Baa1 2,350,019
Series 1998B, 5.125%, 7/01/19
4,000 The Health, Educational and Housing Facility Board of the City of 6/08 at 101 A- 3,140,800
Chattanooga, Hospital Improvement and Refunding Revenue Bonds,
Series 1998 (Siskin Hospital for Physical Rehabilitation, Inc. Project),
5.250%, 6/01/28
1,550 The Industrial Development Board of the City of Cookeville, 10/03 at 102 A 1,526,766
Hospital Refunding Revenue Bonds, Series 1993
(Cookeville General Hospital Project), 5.750%, 10/01/10
7,350 The City of Jackson, Tennessee, Hospital Revenue Refunding and 4/05 at 102 AAA 7,147,802
Improvement Bonds, Series 1995 (Jackson - Madison County General
Hospital Project), 5.625%, 4/01/15
5,000 The Health and Educational Facilities Board of Johnson City, 1/09 at 101 AAA 4,481,100
Hospital Revenue Refunding and Improvement Bonds, Series 1998C
(Johnson City Medical Center Hospital), 5.250%, 7/01/28
1,000 The Health, Educational and Housing Facilities Board of the County No Opt. Call AAA 1,044,740
of Knox, Hospital Revenue Bonds, Series 1993A (Fort Sanders
Alliance Obligated Group), 6.250%, 1/01/13
16,000 The Health, Educational and Housing Facilities Board of the County 4/09 at 101 Baa1 13,077,280
of Knox, Revenue Bonds, Series 1999 (University Health System, Inc),
5.625%, 4/01/29
</TABLE>
29
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Healthcare (continued)
$ 1,250 The Health and Educational Facilities Board of the Metropolitan 11/05 at 102 AAA $ 1,186,825
Government of Nashville and Davidson County, Hospital Revenue Bonds,
Series 1995 (Adventist Health System - Sunbelt, Inc.), 5.750%, 11/15/25
2,395 The Health and Educational Facilities Board of the Metropolitan 11/01 at 102 AAA 2,502,536
Government of Nashville and Davidson County, Hospital Revenue Bonds,
Series 1991 (Adventist Health System - Sunbelt, Inc.), 7.000%, 11/15/16
4,000 Shelby County Health Educational and Housing Facility Board, Hospital 8/05 at 100 AAA 3,701,760
Revenue Refunding Bonds, Methodist Health System, Inc., Series 1995,
5.250%, 8/01/15
2,500 Sumner County Health Educational and Housing Facilities Board, Revenue 11/04 at 102 A- 2,689,500
Refunding Bonds, Sumner Regional Health System, Inc., Series 1994,
7.500%, 11/01/14
-----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 4.4%
1,200 The Health, Educational and Housing Facility Board of the City of 7/03 at 102 Aaa 1,196,532
Chattanooga, Multifamily Mortgage Revenue Refunding Bonds, Series 1993A
(Windridge Apartments - FHA-Insured Mortgage), 5.950%, 7/01/14
The Health, Educational and Housing Facility Board of the City of
Chattanooga, Housing Revenue Bonds (GNMA Collateralized - Rainbow Creek
Apartments Project), Series 1999:
500 6.125%, 11/20/19 (Alternative Minimum Tax) 11/09 at 102 AAA 488,605
3,955 6.375%, 11/20/39 (Alternative Minimum Tax) 11/09 at 102 AAA 3,841,254
3,500 The Industrial Development Board of the City of Franklin, Multifamily 10/06 at 102 AAA 3,382,960
Housing Revenue Refunding Bonds (The Landings Apartments Project),
Senior Series 1996A, 6.000%, 10/01/26
Metropolitan Government of Nashville and Davidson County, Health and
Educational Facilities Board, Housing Mortgage Revenue Bonds (Herman
Street), Series 1992:
250 7.000%, 6/01/17 6/02 at 103 AAA 260,553
495 7.250%, 6/01/32 6/02 at 103 AAA 518,928
2,720 The Industrial Development Board of the Metropolitan Government of 1/10 at 102 Aaa 2,719,728
Nashville and Davidson County, Multifamily Housing Revenue Refunding
Bonds, Series 2000A (GNMA Collateralized - The Valley Forge Apartments
Project), 6.375%, 1/20/31
-----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 13.8%
205 County of Hamilton, Tennessee, Single Family Mortgage Revenue Bonds 9/00 at 102 AAA 209,166
(Home Purchase and Rehabilitation Program), Series 1990, 8.000%,
9/01/23 (Alternative Minimum Tax)
6,000 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/06 at 102 AA 6,024,000
Issue 4A, 6.375%, 7/01/22 (Alternative Minimum Tax)
990 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/07 at 102 AA 962,676
Issue 1996-3, 5.850%, 7/01/17 (Alternative Minimum Tax)
85 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/01 at 102 AA 86,141
Issue U, 7.400%, 7/01/16
3,900 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/01 at 102 AA 3,942,393
Issue T, 7.375%, 7/01/23 (Alternative Minimum Tax)
2,380 Tennessee Housing Development Agency, Homeownership Program Bonds, 7/02 at 102 AA 2,418,675
Issue WR, 6.800%, 7/01/17
Tennessee Housing Development Agency, Homeownership Program Bonds,
Issue 1998-2:
4,000 5.350%, 7/01/23 (Alternative Minimum Tax) 1/09 at 101 AA 3,548,640
10,095 5.375%, 7/01/29 (Alternative Minimum Tax) 1/09 at 101 AA 8,844,129
7,700 Tennessee Housing Development Agency, Homeownership Program Bonds, 1/09 at 101 AA 6,856,157
Issue 1996-5B (Remarketing), 5.375%, 7/01/23 (Alternative Minimum Tax)
5,500 Tennessee Housing Development Agency, Homeownership Program Bonds, 1/09 at 101 AA 5,394,235
Issue 1999-3, 6.000%, 1/01/20 (Alternative Minimum Tax)
915 Tennessee Housing Development Agency, Mortgage Finance Program Bonds, 7/04 at 102 AA 930,326
1994 Series A, 6.900%, 7/01/25 (Alternative Minimum Tax)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Care - 2.2%
$ 2,865 The Health and Educational Facilities Board of the Metropolitan 2/08 at 102 AA $ 2,584,029
Government of Nashville and Davidson County, Multi-Modal
Interchangeable Rate Health Facility Revenue Bonds (Richland Place,
Inc. Project), Series 1993, 5.500%, 5/01/23
4,700 The Health and Educational Facilities Board of the Metropolitan 7/08 at 102 N/R 3,613,454
Government of Nashville and Davidson County, Revenue Refunding Bonds,
Series 1998 (The Blakeford at Green Hills), 5.650%, 7/01/24
-----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 1.9%
1,000 Hamilton County, Tennessee, General Obligation Bonds, Series 1995, 2/05 at 102 Aa2 1,060,590
6.250%, 2/01/20
4,000 Metropolitan Government of Nashville and Davidson County, General 5/07 at 102 AA 3,510,680
Obligation Refunding Bonds, Series 1997, 5.125%, 5/15/25
750 Shelby County, Tennessee, General Obligation Refunding Bonds, 1995 4/05 at 101 AA+ 744,953
Series A, 5.625%, 4/01/14
-----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 9.0%
4,000 The Health and Educational Facilities Board of the Metropolitan 6/09 at 100 AAA 3,401,480
Government of Nashville and Davidson County, Revenue Refunding and
Improvement Bonds (Meharry Medical College Project), Series 1996,
5.000%, 12/01/24
4,000 The Sports Authority of the Metropolitan Government of Nashville 7/06 at 101 AAA 3,861,080
and Davidson County, Public Improvement Revenue Bonds (Stadium
Project), Series 1996, 5.750%, 7/01/26
6,275 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/16 at 100 A 5,742,441
Bonds, Series Y of 1996, 5.500%, 7/01/36
13,300 Puerto Rico Public Buildings Authority, Revenue Refunding Bonds, No Opt. Call A 12,731,691
Series L (Guaranteed by the Commonwealth of Puerto Rico), 5.500%, 7/01/21
-----------------------------------------------------------------------------------------------------------------------------------
Transportation - 7.3%
Memphis-Shelby County Airport Authority, Airport Revenue Bonds,
Series 1999D:
4,000 6.000%, 3/01/24 (Alternative Minimum Tax) 3/10 at 101 AAA 3,937,400
1,640 6.125%, 3/01/25 (Alternative Minimum Tax) 3/10 at 101 AAA 1,637,737
5,545 Memphis-Shelby County Airport Authority, Special Facilities Revenue 9/01 at 103 BBB 5,867,165
Bonds, Series 1984 (Federal Express Corporation), 7.875%, 9/01/09
4,475 Memphis-Shelby County Airport Authority, Special Facilities Revenue 9/02 at 102 BBB 4,619,006
Refunding Bonds, Series 1992 (Federal Express Corporation), 6.750%,
9/01/12
Metropolitan Nashville Airport Authority, Airport Improvement
Revenue Bonds, Refunding Series 1991C:
145 6.625%, 7/01/07 7/01 at 102 AAA 150,352
4,385 6.600%, 7/01/15 7/01 at 102 AAA 4,541,676
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 16.2%
1,930 The Health, Educational and Housing Facility Board of the City of 9/01 at 102 AAA 2,008,435
Chattanooga, 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 6.250%, 7/01/08 (Pre-refunded to 7/01/03) 7/03 at 102 Baa1*** 1,046,430
1,775 6.250%, 7/01/13 (Pre-refunded to 7/01/03) 7/03 at 102 Baa1*** 1,857,413
1,250 6.375%, 7/01/18 (Pre-refunded to 7/01/03) 7/03 at 102 Baa1*** 1,312,438
1,125 Eastside Utility District of Hamilton County, Water System Revenue 11/01 at 102 A*** 1,175,963
Bonds, Series 1992, 6.750%, 11/01/11 (Pre-refunded to 11/01/01)
1,455 Gladeville Utility District of Wilson County, Waterworks Revenue 10/00 at 100 AAA 1,468,546
Bonds, Series 1990, 7.400%, 10/01/10 (Pre-refunded to 10/01/00)
5,000 Johnson City, Tennessee, School Sales Tax Revenue and Unlimited Tax 5/06 at 100 AAA 5,384,100
Bonds, Series 1994, 6.700%, 5/01/21 (Pre-refunded to 5/01/06)
</TABLE>
31
<PAGE>
Portfolio of Investments
Nuveen Flagship Tennessee Municipal Bond Fund (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
The Health and Educational Facilities Board of Johnson City, Hospital
Revenue Refunding and Improvement Bonds, Series 1991 (Johnson City
Medical Center Hospital):
$ 440 6.750%, 7/01/16 (Pre-refunded to 7/01/09) 7/09 at 100 AAA $ 457,512
1,650 6.750%, 7/01/16 7/01 at 102 AAA 1,715,670
The Health and Educational Facilities Board of Johnson City, Hospital
Revenue Refunding and Improvement Bonds, Series 1998C (Johnson City
Medical Center Hospital):
2,825 5.125%, 7/01/25 (Pre-refunded to 7/01/23) 7/23 at 100 AAA 2,519,731
2,175 5.125%, 7/01/25 1/09 at 101 AAA 1,928,420
41,570 The Health and Educational Facilities Board of the Metropolitan No Opt. Call Aaa 9,831,305
Government of Nashville and Davidson County, Revenue Bonds, Series
1988 (Volunteer Healthcare), Subordinate Lien, 0.000%, 6/01/21
1,165 The Health and Educational Facilities Board of the Metropolitan 10/07 at 105 N/R*** 1,433,800
Government of Nashville and Davidson County, Revenue Bonds, Series
1992A (Mur-Ci Homes Inc. Project), 9.000%, 10/01/22 (Pre-refunded to
10/01/07)
2,500 The Public Building Authority of the City of Mt. Juliet, Revenue 2/04 at 110 AAA 2,933,300
Bonds (Utility District Loan Program), Series B, Madison Suburban
Utility District, 7.800%, 2/01/19 (Pre-refunded to 2/01/04)
250 Shelby County, Tennessee, General Obligation Refunding Bonds, 1995 4/05 at 101 AA+*** 256,905
Series A, 5.625%, 4/01/14 (Pre-refunded to 4/01/05)
Tennessee State Local Development Authority, State Loan Program,
Series A:
1,325 7.000%, 3/01/12 (Pre-refunded to 3/01/01) 3/01 at 102 AA*** 1,372,939
1,175 7.000%, 3/01/21 (Pre-refunded to 3/01/01) 3/01 at 102 AA*** 1,217,512
2,660 Tennessee State Local Development Authority, Community Provider Loan 10/02 at 102 A*** 2,815,397
Program, 7.000%, 10/01/21 (Pre-refunded to 10/01/02)
2,300 The White House Utility District of Robertson and Sumner Counties, 1/02 at 102 AAA 2,393,380
Water Revenue Refunding and Improvement Bonds, Series 1992B, 6.375%,
1/01/22 (Pre-refunded to 1/01/02)
Wilson County, Tennessee, Series 1994. Certificates of Participation
(Wilson County Educational Facilities Corporation):
1,500 6.125%, 6/30/10 (Pre-refunded to 6/30/04) 6/04 at 102 A2*** 1,573,860
1,500 6.250%, 6/30/15 (Pre-refunded to 6/30/04) 6/04 at 102 A2*** 1,580,670
-----------------------------------------------------------------------------------------------------------------------------------
Utilities - 7.1%
1,520 City of Clarksville, Tennessee, Water, Sewer and Gas Revenue No Opt. Call AAA 596,554
Refunding and Improvement Bonds, Series 1992, 0.000%, 2/01/16
2,700 City of Fayetteville, Tennessee, Broadband Telecommunications 4/08 at 101 N/R 2,585,303
Network Revenue Bonds, Series 2000, 6.500%, 4/01/20
The City of Jackson, Tennessee, Electric System Revenue Bonds,
Series E:
315 6.300%, 8/01/09 8/00 at 102 A1 322,121
335 6.300%, 8/01/10 8/00 at 102 A1 342,573
355 6.300%, 8/01/11 8/00 at 102 A1 363,026
380 6.300%, 8/01/12 8/00 at 102 A1 388,591
3,000 City of Jackson, Tennessee, Gas System Revenue Bonds, Series 1997, 4/07 at 100 AAA 2,678,160
5.000%, 4/15/18
Metropolitan Government of Nashville and Davidson County, Electric Revenue
Bonds, Series 1996A:
7,800 0.000%, 5/15/11 No Opt. Call AAA 4,187,040
8,500 0.000%, 5/15/12 No Opt. Call AAA 4,271,080
11,000 The Metropolitan Government of Nashville and Davidson County, No Opt. Call AAA 3,425,730
Electric System Revenue Bonds, 1998 Series A, 0.000%, 5/15/19
1,000 The Middle Tennessee Utility District of Cannon, Cumberland, Dekalb, 10/02 at 102 AAA 1,046,420
Putnam, Rhea, Rutherford, Smith, Warren, White and Wilson Counties,
Gas System Revenue Bonds, Series 1992, 6.250%, 10/01/12
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - 3.1%
$ 4,445 City of Knoxville, Tennessee, Waste Water System Refunding and 4/07 at 101 AA $ 3,927,290
Improvement Bonds, Series 1998, 5.125%, 4/01/23
3,000 Madison, Tennessee, Suburban Utility District, Water Revenue 2/08 at 100 AAA 2,642,610
Refunding Bonds, Series 1995, 5.000%, 2/01/19
1,000 Milcrofton Utility District of Williamson County, Waterworks Revenue 2/06 at 102 N/R 888,750
Refunding Bonds, Series 1996 (Junior Lien), 6.000%, 2/01/24
1,500 Wilson County Water and Wastewater Authority, Waterworks Revenue 3/08 at 102 Baa1 1,490,820
Refunding and Improvement Bonds, Series 1993, 6.000%, 3/01/14
-----------------------------------------------------------------------------------------------------------------------------------
$ 335,895 Total Investments (cost $286,908,632) - 97.6% 277,848,330
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.4% 6,699,795
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $284,548,125
====================================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants): Using
the higher of Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
33
<PAGE>
Statement of Net Assets
May 31, 2000
<TABLE>
<CAPTION>
Georgia Louisiana
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value $135,853,567 $115,262,346
Cash -- 969,016
Receivables:
Interest 3,112,569 2,068,635
Investments sold 580,000 35,000
Shares sold 142,985 74,993
Other assets 3,298 2,680
------------------------------------------------------------------------------------------------------------------------------------
Total assets 139,692,419 118,412,670
------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 1,185,610 --
Payables:
Investments purchased -- 3,137,228
Shares redeemed 1,262,642 153,123
Accrued expenses:
Management fees 64,077 53,695
12b-1 distribution and service fees 40,206 39,461
Other 57,872 50,682
Dividends payable 241,407 155,181
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,851,814 3,589,370
------------------------------------------------------------------------------------------------------------------------------------
Net assets $136,840,605 $114,823,300
====================================================================================================================================
Class A Shares
Net assets $104,434,048 $ 77,602,974
Shares outstanding 10,433,903 7,555,915
Net asset value and redemption price per share $ 10.01 $ 10.27
Offering price per share (net asset value per share plus maximum sales charge of 4.20% of offering price) $ 10.45 $ 10.72
====================================================================================================================================
Class B Shares
Net assets $ 12,469,551 $ 17,193,559
Shares outstanding 1,244,019 1,674,424
Net asset value, offering and redemption price per share $ 10.02 $ 10.27
====================================================================================================================================
Class C Shares
Net assets $ 19,531,657 $ 19,073,918
Shares outstanding 1,954,927 1,859,265
Net asset value, offering and redemption price per share $ 9.99 $ 10.26
====================================================================================================================================
Class R Shares
Net assets $ 405,349 $ 952,849
Shares outstanding 40,618 92,739
Net asset value, offering and redemption price per share $ 9.98 $ 10.27
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
North Carolina Tennessee
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value $182,241,375 $277,848,330
Cash -- 2,539,088
Receivables:
Interest 3,924,998 4,769,272
Investments sold -- --
Shares sold 145,664 352,390
Other assets 5,006 10,907
------------------------------------------------------------------------------------------------------------------------------------
Total assets 186,317,043 285,519,987
------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 3,163,351 --
Payables:
Investments purchased -- --
Shares redeemed 560,940 139,918
Accrued expenses:
Management fees 84,000 130,413
12b-1 distribution and service fees 45,209 66,915
Other 71,863 102,474
Dividends payable 398,194 532,142
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,323,557 971,862
------------------------------------------------------------------------------------------------------------------------------------
Net assets $181,993,486 $284,548,125
====================================================================================================================================
Class A Shares
Net assets $153,091,096 $248,147,631
Shares outstanding 16,128,652 24,007,584
Net asset value and redemption price per share $ 9.49 $ 10.34
Offering price per share (net asset value per share plus maximum sales charge of 4.20% of offering price) $ 9.91 $ 10.79
====================================================================================================================================
Class B Shares
Net assets $ 11,541,372 $ 12,526,569
Shares outstanding 1,214,147 1,210,749
Net asset value, offering and redemption price per share $ 9.51 $ 10.35
====================================================================================================================================
Class C Shares
Net assets $ 16,022,966 $ 23,327,030
Shares outstanding 1,690,313 2,256,094
Net asset value, offering and redemption price per share $ 9.48 $ 10.34
====================================================================================================================================
Class R Shares
Net assets $ 1,338,052 $ 546,895
Shares outstanding 140,914 52,957
Net asset value, offering and redemption price per share $ 9.50 $ 10.33
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
Statement of Operations
Year Ended May 31, 2000
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income $ 9,018,074 $ 7,865,865 $ 11,858,687 $ 18,213,551
-----------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees 816,481 704,775 1,067,109 1,620,108
12b-1 service fees - Class A 230,031 173,309 331,705 520,890
12b-1 distribution and service fees - Class B 116,789 180,255 105,308 120,337
12b-1 distribution and service fees - Class C 159,678 155,907 129,949 195,064
Shareholders' servicing agent fees and expenses 195,730 160,269 335,557 338,481
Custodian's fees and expenses 146,216 60,121 112,727 204,177
Trustees' fees and expenses 5,493 5,100 6,634 9,943
Professional fees 5,927 227 2,692 19,005
Shareholders' reports - printing and mailing expenses 97,781 78,187 30,348 161,867
Federal and state registration fees 11,114 8,869 8,607 12,982
Other expenses 7,916 4,736 2,104 14,841
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,793,156 1,531,755 2,132,740 3,217,695
Custodian fee credit (4,942) (11,048) (15,222) (56,125)
Expense reimbursement (6,667) (16,608) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net expenses 1,781,547 1,504,099 2,117,518 3,161,570
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 7,236,527 6,361,766 9,741,169 15,051,981
-----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (1,858,006) (2,160,063) (2,469,733) (803,231)
Net change in unrealized appreciation or depreciation of investments (12,307,519) (11,522,122) (15,748,868) (26,425,394)
-----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (14,165,525) (13,682,185) (18,218,601) (27,228,625)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $ (6,928,998) $ (7,320,419) $ (8,477,432) $(12,176,644)
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Georgia Louisiana
--------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
5/31/00 5/31/99 5/31/00 5/31/99
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 7,236,527 $ 7,291,338 $ 6,361,766 $ 5,932,274
Net realized gain (loss) from investment transactions (1,858,006) 1,743,273 (2,160,063) 542,532
Net change in unrealized appreciation or depreciation of investments (12,307,519) (4,263,258) (11,522,122) (2,258,787)
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (6,928,998) 4,771,353 (7,320,419) 4,216,019
----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (5,865,555) (6,036,625) (4,504,634) (4,530,236)
Class B (530,214) (302,465) (839,880) (554,071)
Class C (962,716) (938,110) (962,361) (749,521)
Class R (20,772) (13,736) (100,777) (98,115)
From accumulated net realized gains from investment transactions:
Class A (437,997) -- (28,034) (327,196)
Class B (47,899) -- (6,316) (46,841)
Class C (82,105) -- (6,860) (60,212)
Class R (1,680) -- (728) (8,993)
----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (7,948,938) (7,290,936) (6,449,590) (6,375,185)
----------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 17,497,176 39,029,909 18,968,563 42,859,091
Net proceeds from shares issued to shareholders due to reinvestment of
distributions 3,151,570 2,897,417 2,151,796 2,607,781
----------------------------------------------------------------------------------------------------------------------------------
20,648,746 41,927,326 21,120,359 45,466,872
Cost of shares redeemed (33,781,868) (17,634,491) (34,376,053) (13,310,878)
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions (13,133,122) 24,292,835 (13,255,694) 32,155,994
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (28,011,058) 21,773,252 (27,025,703) 29,996,828
Net assets at the beginning of year 164,851,663 143,078,411 141,849,003 111,852,175
----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $136,840,605 $164,851,663 $114,823,300 $141,849,003
==================================================================================================================================
Undistributed (Over-distribution of) net investment income at the end
of year $ (141,240) $ 1,490 $ (44,267) $ 1,619
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
North Carolina Tennessee
--------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
5/31/00 5/31/99 5/31/00 5/31/99
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 9,741,169 $ 9,829,859 $ 15,051,981 $ 15,244,309
Net realized gain (loss) from investment transactions (2,469,733) 104,431 (803,231) 557,919
Net change in unrealized appreciation or depreciation of investments (15,748,868) (3,181,988) (26,425,394) (5,201,506)
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (8,477,432) 6,752,302 (12,176,644) 10,600,722
----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (8,416,716) (8,995,903) (13,463,555) (13,826,854)
Class B (475,616) (283,644) (555,619) (398,784)
Class C (779,526) (514,487) (1,190,650) (1,039,949)
Class R (69,455) (60,402) (28,304) (27,716)
From accumulated net realized gains from investment transactions:
Class A -- (1,598,066) -- --
Class B -- (60,411) -- --
Class C -- (99,492) -- --
Class R -- (11,127) -- --
----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (9,741,313) (11,623,532) (15,238,128) (15,293,303)
----------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 22,428,233 34,546,447 31,814,973 47,588,847
Net proceeds from shares issued to shareholders due to reinvestment
of distributions 4,811,012 5,975,298 6,596,626 6,661,847
----------------------------------------------------------------------------------------------------------------------------------
27,239,245 40,521,745 38,411,599 54,250,694
Cost of shares redeemed (39,824,543) (21,940,534) (53,455,965) (27,763,938)
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions (12,585,298) 18,581,211 (15,044,366) 26,486,756
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (30,804,043) 13,709,981 (42,459,138) 21,794,175
Net assets at the beginning of year 212,797,529 199,087,548 327,007,263 305,213,088
----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $181,993,486 $212,797,529 $284,548,125 $327,007,263
==================================================================================================================================
Undistributed (Over-distribution of) net investment income at the
end of year $ 4,838 $ 4,982 $ (161,263) $ 24,884
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
38
<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
accounting principles generally accepted in the United States.
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, 2000, Louisiana had an outstanding when-issued purchase commitment of
$3,137,228. There were no such outstanding purchase commitments in any of the
other Funds.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared monthly as a dividend and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from accounting principles generally
accepted in the United States. 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 shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended May 31, 2000, have
been designated Exempt Interest Dividends. Net realized capital gain and market
discount distributions are subject to federal taxation.
39
<PAGE>
Notes to Financial Statements (continued)
Flexible Sales Charge Program
Each Fund offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class B Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge but incur annual 12b-1 distribution and
service fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within one year of purchase. Class R Shares are
not subject to any sales charge or 12b-1 distribution or service fees. Class R
Shares are available only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended May 31, 2000.
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.
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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Georgia
-----------------------------------------------------
Year Ended Year Ended
5/31/00 5/31/99
------------------------- -------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 825,461 $ 8,544,862 1,719,183 $ 19,217,921
Class B 383,728 3,976,797 806,630 9,032,174
Class C 471,068 4,866,904 953,740 10,667,189
Class R 10,463 108,613 10,082 112,625
Shares issued to shareholders due to reinvestment of distributions:
Class A 247,168 2,562,706 216,299 2,426,448
Class B 21,073 218,203 11,396 127,876
Class C 34,030 351,928 29,544 330,616
Class R 1,818 18,733 1,116 12,477
----------------------------------------------------------------------------------------------------------------------------
1,994,809 20,648,746 3,747,990 41,927,326
----------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,266,825) (23,297,228) (1,084,049) (12,116,347)
Class B (247,793) (2,544,506) (45,215) (503,665)
Class C (765,079) (7,891,329) (449,451) (5,014,371)
Class R (4,837) (48,805) (10) (108)
----------------------------------------------------------------------------------------------------------------------------
(3,284,534) (33,781,868) (1,578,725) (17,634,491)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,289,725) $(13,133,122) 2,169,265 $ 24,292,835
============================================================================================================================
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Louisiana
-----------------------------------------------------
Year Ended Year Ended
5/31/00 5/31/99
------------------------- -------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 785,689 $ 8,401,450 1,716,601 $ 19,817,323
Class B 446,286 4,853,551 914,530 10,557,807
Class C 533,059 5,679,766 865,510 9,983,365
Class R 2,998 33,796 215,752 2,500,596
Shares issued to shareholders due to reinvestment of distributions:
Class A 154,147 1,642,509 175,520 2,033,853
Class B 24,548 260,848 24,928 288,244
Class C 16,397 174,250 16,348 189,229
Class R 6,835 74,189 8,320 96,455
----------------------------------------------------------------------------------------------------------------------------
1,969,959 21,120,359 3,937,509 45,466,872
----------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,101,264) (22,256,744) (893,149) (10,322,469)
Class B (455,632) (4,781,672) (59,695) (688,490)
Class C (569,275) (5,975,857) (188,463) (2,173,160)
Class R (132,474) (1,361,780) (11,114) (126,759)
----------------------------------------------------------------------------------------------------------------------------
(3,258,645) (34,376,053) (1,152,421) (13,310,878)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,288,686) $(13,255,694) 2,785,088 $ 32,155,994
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
North Carolina
-----------------------------------------------------
Year Ended Year Ended
5/31/00 5/31/99
------------------------- -------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,458,315 $ 14,186,851 1,497,738 $ 15,852,866
Class B 389,060 3,813,690 765,417 8,109,386
Class C 409,263 4,079,009 945,187 9,986,996
Class R 35,454 348,683 56,314 597,199
Shares issued to shareholders due to reinvestment of distributions:
Class A 420,281 4,109,465 510,481 5,422,357
Class B 23,669 231,544 16,356 173,663
Class C 42,432 414,235 30,647 324,719
Class R 5,710 55,768 5,136 54,559
----------------------------------------------------------------------------------------------------------------------------
2,784,184 27,239,245 3,827,276 40,521,745
----------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (3,417,695) (33,067,872) (1,889,845) (19,995,567)
Class B (219,771) (2,131,000) (100,335) (1,061,551)
Class C (450,529) (4,368,004) (68,759) (724,414)
Class R (26,590) (257,667) (14,938) (159,002)
----------------------------------------------------------------------------------------------------------------------------
(4,114,585) (39,824,543) (2,073,877) (21,940,534)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,330,401) $(12,585,298) 1,753,399 $ 18,581,211
============================================================================================================================
</TABLE>
41
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Tennessee
-----------------------------------------------------
Year Ended Year Ended
5/31/00 5/31/99
------------------------- -------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 2,319,290 $ 24,668,758 2,608,976 $ 29,959,161
Class B 330,315 3,544,572 645,177 7,415,547
Class C 327,343 3,527,563 887,754 10,185,551
Class R 7,089 74,080 2,492 28,588
Shares issued to shareholders due to reinvestment of distributions:
Class A 551,779 5,886,318 525,327 6,045,014
Class B 26,020 277,252 17,555 202,163
Class C 38,758 413,470 34,095 392,181
Class R 1,836 19,586 1,957 22,489
----------------------------------------------------------------------------------------------------------------------------
3,602,430 38,411,599 4,723,333 54,250,694
----------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (4,174,615) (44,481,379) (2,109,544) (24,227,337)
Class B (243,522) (2,583,668) (68,504) (782,931)
Class C (600,687) (6,361,852) (236,242) (2,705,131)
Class R (2,818) (29,066) (4,257) (48,539)
----------------------------------------------------------------------------------------------------------------------------
(5,021,642) (53,455,965) (2,418,547) (27,763,938)
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,419,212) $(15,044,366) 2,304,786 $ 26,486,756
============================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid on July 3, 2000, to shareholders of record on June 9,
2000, as follows:
<TABLE>
<CAPTION>
North
Georgia Louisiana Carolina Tennessee
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend per share:
Class A $.0440 $.0455 $.0420 $.0460
Class B .0375 .0390 .0360 .0395
Class C .0390 .0405 .0375 .0410
Class R .0455 .0470 .0435 .0475
================================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal securities for the fiscal year ended May 31,
2000, were as follows:
<TABLE>
<CAPTION>
North
Georgia Louisiana Carolina Tennessee
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases:
Long-term municipal securities $ 22,166,788 $ 36,340,072 $ 44,641,197 $ 44,210,538
Short-term municipal securities -- 8,000,000 9,550,000 --
Sales and maturities:
Long-term municipal securities 33,883,045 48,769,486 55,286,698 66,701,678
Short-term municipal securities -- 8,000,000 9,550,000 --
===============================================================================================
</TABLE>
At May 31, 2000, the identified cost of investments owned for federal income tax
purposes were as follows:
<TABLE>
<CAPTION>
North
Georgia Louisiana Carolina Tennessee
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$141,337,185 $120,779,500 $190,386,981 $287,305,345
==============================================================================================
</TABLE>
At May 31, 2000, the Funds had unused capital loss carryforwards available for
federal income tax purposes to be applied against future capital gains, if any.
If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
North
Georgia Louisiana Carolina Tennessee
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expiration year:
2003 $ -- $ -- $ -- $2,229,031
2004 -- -- -- --
2005 -- -- -- --
2006 -- -- -- --
2007 -- -- -- --
2008 689,075 1,112,952 1,052,642 406,519
--------------------------------------------------------------------------------
Total $689,075 $1,112,952 $1,052,642 $2,635,550
================================================================================
</TABLE>
42
<PAGE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes at May 31, 2000, were as follows:
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized:
appreciation $ 2,886,142 $ 1,829,614 $ 1,648,648 $ 4,836,074
depreciation (8,369,760) (7,346,768) (9,794,254) (14,293,089)
-----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $(5,483,618) $(5,517,154) $(8,145,606) $ (9,457,015)
=================================================================================================================
</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, 2000, John Nuveen & Co. Incorporated (the
"Distributor"), a wholly owned subsidiary of The John Nuveen Company, collected
sales charges on purchases of Class A Shares, the majority of which were paid
out as concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales charges collected $82,545 $93,335 $130,532 $261,795
Paid to authorized dealers 71,116 78,163 130,532 261,795
======================================================================================
</TABLE>
The Distributor also received 12b-1 service fees on Class A Shares,
substantially all of which were paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
During the fiscal year ended May 31, 2000, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase as
follows:
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commission advances $175,166 $246,409 $244,655 $265,480
======================================================================================
</TABLE>
To compensate for commissions advanced to authorized dealers, all 12b-1 service
fees collected on Class B Shares during the first year following a purchase, all
12b-1 distribution fees collected on Class B Shares, and all 12b-1 service and
distribution fees collected on Class C Shares during the first year following a
purchase are retained by the Distributor. During the fiscal year ended May 31,
2000, the Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12b-1 fees retained $146,414 $209,739 $148,450 $144,925
======================================================================================
</TABLE>
The remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained CDSC on share redemptions during the
fiscal year ended May 31, 2000, as follows:
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CDSC retained $ 63,107 $198,277 $ 63,008 $ 76,348
======================================================================================
</TABLE>
7. Composition of Net Assets
At May 31, 2000, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Georgia Louisiana North Carolina Tennessee
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital paid-in $143,154,538 $121,497,673 $191,186,895 $296,801,954
Undistributed (Over-distribution of) net investment
income (141,240) (44,267) 4,838 (161,263)
Accumulated net realized gain (loss) from
investment transactions (1,858,006) (2,161,268) (2,599,503) (3,032,264)
Net unrealized appreciation (depreciation) of investments (4,314,687) (4,468,838) (6,598,744) (9,060,302)
-------------------------------------------------------------------------------------------------------------------------------
Net assets $136,840,605 $114,823,300 $181,993,486 $284,548,125
===============================================================================================================================
</TABLE>
43
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ---------------------------
Net
GEORGIA** 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 (Loss) Total Income Gains Total Value Return (a)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
2000 $11.02 $.52 $(.96) $(.44) $(.53) $(.04) $(.57) $10.01 (4.05)%
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
Class B (2/97)
2000 11.03 .44 (.96) (.52) (.45) (.04) (.49) 10.02 (4.79)
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 (d) 10.66 .14 (.11) .03 (.12) -- (.12) 10.57 .31
Class C (1/94)
2000 11.00 .46 (.96) (.50) (.47) (.04) (.51) 9.99 (4.61)
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
Class R (2/97)
2000 10.99 .53 (.96) (.43) (.54) (.04) (.58) 9.98 (3.89)
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 (d) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------- ------------------- -------------------
Ratio Ratio Ratio
GEORGIA** of Net of Net of Net
Invest- Invest- Invest-
Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Assets Net Net Net Net Net Net Turnover
(000) Assets Assets Assets Assets Assets Assets Rate
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
2000 $104,434 1.06% 4.99% 1.06% 4.99% 1.05% 4.99% 15%
1999 128,138 .88 4.68 .74 4.82 .74 4.83 32
1998 120,545 .87 4.88 .66 5.09 .66 5.09 25
1997 111,518 1.02 5.20 .78 5.44 .78 5.44 39
1996 107,862 1.08 5.18 .80 5.46 .80 5.46 59
Class B (2/97)
2000 12,470 1.83 4.23 1.82 4.24 1.82 4.24 15
1999 11,991 1.63 3.95 1.51 4.08 1.50 4.08 32
1998 3,518 1.62 4.08 1.38 4.32 1.38 4.32 25
1997 (d) 113 1.63* 4.49* 1.32* 4.80* 1.32* 4.80* 39
Class C (1/94)
2000 19,532 1.61 4.44 1.60 4.44 1.60 4.44 15
1999 24,358 1.43 4.14 1.30 4.27 1.29 4.28 32
1998 18,770 1.42 4.33 1.21 4.54 1.21 4.54 25
1997 11,803 1.56 4.63 1.32 4.87 1.32 4.87 39
1996 9,433 1.63 4.61 1.34 4.90 1.34 4.90 59
Class R (2/97)
2000 405 .88 5.19 .88 5.19 .87 5.20 15
1999 364 .68 4.89 .55 5.03 .54 5.03 32
1998 245 .67 5.04 .45 5.26 .45 5.26 25
1997 (d) 22 .68* 5.41* .38* 5.71* .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) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
44
<PAGE>
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ---------------------------
Net
LOUISIANA** 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 (Loss) Total Income Gains Total Value Return (a)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/89)
2000 $11.38 $.55 $(1.11) $(.56) $(.55) $ -- $(.55) $10.27 (4.82)%
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
Class B (2/97)
2000 11.37 .47 (1.10) (.63) (.47) -- (.47) 10.27 (5.55)
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 (d) 11.10 .16 -- .16 (.17) -- (.17) 11.09 1.44
Class C (2/94)
2000 11.36 .49 (1.10) (.61) (.49) -- (.49) 10.26 (5.36)
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
Class R (2/97)
2000 11.38 .57 (1.11) (.54) (.57) -- (.57) 10.27 (4.73)
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 (d) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------- ------------------- -------------------
Ratio Ratio Ratio
LOUISIANA** of Net of Net of Net
Invest- Invest- Invest-
Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Assets Net Net Net Net Net Net Turnover
(000) Assets Assets Assets Assets Assets Assets Rate
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/89)
2000 $77,603 1.00% 5.13% .98% 5.14% .97% 5.15% 29%
1999 99,176 .88 4.76 .75 4.89 .75 4.89 11
1998 89,143 .88 5.00 .75 5.13 .75 5.13 15
1997 76,030 1.03 5.14 .79 5.38 .79 5.38 25
1996 72,005 1.09 5.17 .80 5.46 .80 5.46 26
Class B (2/97)
2000 17,194 1.75 4.39 1.74 4.40 1.73 4.41 29
1999 18,870 1.63 4.01 1.50 4.15 1.49 4.15 11
1998 8,999 1.62 4.21 1.45 4.38 1.45 4.38 15
1997 (d) 917 1.65* 4.50* 1.46* 4.69* 1.46* 4.69* 25
Class C (2/94)
2000 19,074 1.55 4.59 1.54 4.60 1.53 4.61 29
1999 21,352 1.43 4.21 1.30 4.34 1.29 4.34 11
1998 13,682 1.42 4.45 1.29 4.58 1.29 4.58 15
1997 7,645 1.57 4.59 1.33 4.83 1.33 4.83 25
1996 5,658 1.64 4.58 1.35 4.87 1.35 4.87 26
Class R (2/97)
2000 953 .75 5.31 .73 5.33 .72 5.34 29
1999 2,451 .68 4.97 .55 5.10 .55 5.10 11
1998 28 .67 5.17 .52 5.32 .52 5.32 15
1997 (d) -- .08* 5.27* .04* 5.31* .04* 5.31* 25
===================================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Louisiana.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
45
<PAGE>
Financial Highlights (continued)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ---------------------------
Net
NORTH CAROLINA** 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 (Loss) Total Income Gains Total Value Return (a)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
2000 $10.38 $.49 $(.89) $(.40) $(.49) $ -- $(.49) $ 9.49 (3.81)%
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
Class B (2/97)
2000 10.39 .42 (.88) (.46) (.42) -- (.42) 9.51 (4.44)
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 (d) 10.33 .12 (.06) .06 (.11) -- (.11) 10.28 .64
Class C (10/93)
2000 10.36 .44 (.88) (.44) (.44) -- (.44) 9.48 (4.28)
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
Class R (2/97)
2000 10.38 .51 (.88) (.37) (.51) -- (.51) 9.50 (3.53)
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 (d) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------- ------------------- -------------------
Ratio Ratio Ratio
NORTH CAROLINA** of Net of Net of Net
Invest- Invest- Invest-
Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Assets Net Net Net Net Net Net Turnover
(000) Assets Assets Assets Assets Assets Assets Rate
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (3/86)
2000 $153,091 1.00% 5.06% 1.00% 5.06% .99% 5.07% 23%
1999 183,370 .87 4.66 .74 4.79 .74 4.80 11
1998 186,340 .86 5.06 .86 5.06 .86 5.06 29
1997 181,595 1.00 5.24 .93 5.31 .93 5.31 23
1996 185,016 1.03 5.19 .90 5.32 .90 5.32 54
Class B (2/97)
2000 11,541 1.76 4.31 1.76 4.31 1.75 4.32 23
1999 10,609 1.63 3.92 1.44 4.11 1.44 4.11 11
1998 3,609 1.61 4.23 1.61 4.23 1.61 4.23 29
1997 (d) 271 1.62* 4.60* 1.62* 4.60* 1.62* 4.60* 23
Class C (10/93)
2000 16,023 1.55 4.51 1.55 4.51 1.54 4.52 23
1999 17,507 1.43 4.12 1.24 4.31 1.24 4.31 11
1998 8,291 1.41 4.50 1.41 4.50 1.41 4.50 29
1997 7,065 1.54 4.70 1.48 4.76 1.48 4.76 23
1996 6,589 1.58 4.64 1.45 4.77 1.45 4.77 54
Class R (2/97)
2000 1,338 .81 5.26 .81 5.26 .80 5.27 23
1999 1,312 .67 4.86 .53 5.01 .53 5.01 11
1998 848 .66 5.24 .66 5.24 .66 5.24 29
1997 (d) 405 .66* 5.57* .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) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
46
<PAGE>
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ---------------------------
Net
TENNESSEE** 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 (Loss) Total Income Gains Total Value Return (a)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/87)
2000 $11.30 $.54 $(.95) $(.41) $(.55) $ -- $(.55) $10.34 (3.65)%
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
Class B (2/97)
2000 11.30 .46 (.94) (.48) (.47) -- (.47) 10.35 (4.29)
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 (d) 11.14 .14 (.09) .05 (.13) -- (.13) 11.06 .42
Class C (10/93)
2000 11.30 .48 (.95) (.47) (.49) -- (.49) 10.34 (4.21)
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
Class R (2/97)
2000 11.28 .56 (.94) (.38) (.57) -- (.57) 10.33 (3.40)
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 (d) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------- ------------------- -------------------
Ratio Ratio Ratio
TENNESSEE** of Net of Net of Net
Invest- Invest- Invest-
Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Assets Net Net Net Net Net Net Turnover
(000) Assets Assets Assets Assets Assets Assets Rate
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (11/87)
2000 $248,148 .99% 5.08% .99% 5.08% .98% 5.10% 15%
1999 285,935 .84 4.81 .84 4.81 .84 4.81 16
1998 278,232 .84 5.09 .82 5.11 .82 5.11 15
1997 257,475 .97 5.23 .85 5.35 .85 5.35 23
1996 250,886 1.01 5.17 .88 5.30 .88 5.30 38
Class B (2/97)
2000 12,527 1.75 4.33 1.75 4.33 1.73 4.35 15
1999 12,410 1.59 4.07 1.59 4.08 1.59 4.08 16
1998 5,775 1.59 4.30 1.58 4.31 1.58 4.31 15
1997 (d) 537 1.60* 4.49* 1.37* 4.72* 1.37* 4.72* 23
Class C (10/93)
2000 23,327 1.54 4.53 1.54 4.53 1.52 4.55 15
1999 28,134 1.39 4.27 1.39 4.27 1.39 4.27 16
1998 20,673 1.39 4.53 1.37 4.55 1.37 4.55 15
1997 15,049 1.53 4.67 1.40 4.80 1.40 4.80 23
1996 15,483 1.56 4.62 1.43 4.75 1.43 4.75 38
Class R (2/97)
2000 547 .81 5.29 .81 5.29 .79 5.31 15
1999 529 .64 5.01 .64 5.01 .64 5.01 16
1998 534 .64 5.27 .62 5.29 .62 5.29 15
1997 (d) 248 .66* 5.55* .46* 5.75* .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) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
47
<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,
2000, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years then ended and the
financial highlights for each of the three 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. The financial
highlights for the Funds for the years ended May 31, 1997 and prior were audited
by other auditors whose report dated July 11, 1997, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000, 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, 2000, and the results of their operations for the year then ended, the
changes in their net assets for each of the two years then ended and the
financial highlights for each of the three years then ended, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 18, 2000
48
<PAGE>
Fund Information
<TABLE>
<S> <C>
Board of Trustees Transfer Agent and
Robert P. Bremner Shareholder Services
Lawrence H. Brown Chase Global Funds Services Company
Anne E. Impellizzeri 73 Tremont Street
Peter R. Sawers Boston, MA 02108
William J. Schneider (800) 257-8787
Timothy R. Schwertfeger
Judith M. Stockdale Legal Counsel
Morgan, Lewis &
Fund Manager Bockius LLP
Nuveen Advisory Corp. Washington, D.C.
333 West Wacker Drive
Chicago, IL 60606 Independent Public
Accountants
Arthur Andersen LLP
Chicago, IL
</TABLE>
49
<PAGE>
Serving
Investors
For Generations
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments
Since 1898, John Nuveen & Co. Incorporated has been synonymous with investments
that withstand the test of time. In fact, more than 1.3 million investors have
trusted Nuveen to help them build and sustain the wealth of a lifetime.
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. We can help
you build a better, well-diversified portfolio.
Call Your Financial Advisor Today
To find out how Nuveen Mutual Funds might round out your investment portfolio,
contact your financial advisor today. Or call Nuveen at (800) 257-8787 for more
information. Ask your advisor or call for a prospectus, which details risks,
fees and expenses. Please read the prospectus carefully before you invest.
Nuveen
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606-1286
www.nuveen.com
