<PAGE>
As filed with the Securities and Exchange Commission on September 28, 2000.
1933 Act Registration No. 333-16611
1940 Act Registration No. 811-07943
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 5 [X]
(Check appropriate box or boxes)
--------------
Nuveen Multistate Trust III
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice President With a copy to:
and Secretary Thomas S. Harman
333 West Wacker Drive Morgan Lewis & Bockius LLP
Chicago, Illinois 60606 1800 M. Street, N.W.
(Name and Address of Agent for Service) Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [_] on (date) pursuant to paragraph
to paragraph (b) (a)(1)
[_] on pursuant to paragraph (b) [_] 75 days after filing pursuant to
paragraph (a)(2)
[_] 60 days after filing pursuant [_] on (date) pursuant to paragraph
to paragraph (a)(1) (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-16611
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-07943
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Cross-Reference Sheet
Part A-The Prospectus For:
Nuveen Georgia Municipal Bond Fund
Nuveen Louisiana Municipal Bond Fund
Nuveen North Carolina Municipal Bond Fund
Nuveen Tennessee Municipal Bond Fund
Part B-The Statement of Additional Information
Copy of the Annual Report to Shareholders (the financial
statements from which are incorporated by reference into the
Statement of Additional Information)
Part C-Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
NUVEEN
Investments
--------------------------------------------------------------------------------
Municipal Bond Funds
--------------------------------------------------------
PROSPECTUS SEPTEMBER 28, 2000
--------------------------------------------------------------------------------
Dependable, tax-free income to help you keep more of what you earn.
[PHOTOS APPEAR HERE]
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK/SM/
Georgia
Louisiana
North Carolina
Tennessee
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
Investment Strategy
Risks
Fees, Charges and Expenses
Shareholder Instructions
Performance and Current Portfolio Information
Table of Contents
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
Introduction 1
--------------------------------------------------------------------------------
Nuveen Georgia Municipal Bond Fund 2
--------------------------------------------------------------------------------
Nuveen Louisiana Municipal Bond Fund 4
--------------------------------------------------------------------------------
Nuveen North Carolina Municipal Bond Fund 6
--------------------------------------------------------------------------------
Nuveen Tennessee Municipal Fund Fund 8
--------------------------------------------------------------------------------
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Funds 10
--------------------------------------------------------------------------------
What Securities We Invest In 11
--------------------------------------------------------------------------------
How We Select Investments 13
--------------------------------------------------------------------------------
What the Risks Are 13
--------------------------------------------------------------------------------
How We Manage Risk 14
--------------------------------------------------------------------------------
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of our
account.
What Share Classes We Offer 15
--------------------------------------------------------------------------------
How to Reduce Your Sales Charge 16
--------------------------------------------------------------------------------
How to Buy Shares 17
--------------------------------------------------------------------------------
Systematic Investing 17
--------------------------------------------------------------------------------
Systematic Withdrawal 18
--------------------------------------------------------------------------------
Special Services 19
--------------------------------------------------------------------------------
How to Sell Shares 20
--------------------------------------------------------------------------------
Section 4 General Information
this section summarizes the funds' distribution policies and other general fund
information.
Dividends, Distributions and Taxes 22
--------------------------------------------------------------------------------
Distribution and Service Plans 23
--------------------------------------------------------------------------------
Net Asset Value 24
--------------------------------------------------------------------------------
Fund Service Providers 24
--------------------------------------------------------------------------------
Section 5 Financial Highlights
This section provides the funds' financial performance
for the past five years. 25
--------------------------------------------------------------------------------
Appendix Additional State Information 29
--------------------------------------------------------------------------------
<PAGE>
September 28, 2000
Section 1 the Funds
Nuveen Georgia Municipal Bond Fund
Nuveen Louisiana Municipal Bond Fund
Nuveen North Carolina Municipal Bond Fund
Nuveen Tennessee Municipal Bond Fund
Introduction
This prospectus is intended to provide important information to help you
evaluate whether one of the Nuveen Mutual Funds listed above may be right for
you. Please read it carefully before investing and keep it for future reference.
--------------------------------------------------------------------------------
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
Section 1 The funds 1
<PAGE>
Nuveen Georgia Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies.
The fund may buy non-rated municipal bonds if the fund's investment adviser
judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Georgia bonds. The fund is non-diversified, and may invest more of
its assets in a single issuer than a diversified fund. Greater concentration may
increase risk. As with any mutual fund investment, loss of money is a risk of
investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual returns
1990 6.6
1991 11.7
1992 7.9
1993 11.7
1994 -6.1
1995 17.0
1996 3.8
1997 11.9
1998 5.4
1999 -5.4
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 6.96% and-5.67%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does
include sales charges.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
---------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) -9.31% 5.35% 5.74%
Class B -9.57% 5.45% 5.72%
Class C -5.89% 5.70% 5.60%
Class R -5.10% 6.34% 6.23%
---------------------------------------------------------------
LB Market Benchmark/2/ -2.06% 6.91% 6.89%
Lipper Peer Group/3/ -4.51% 6.04% 6.11%
---------------------------------------------------------------
</TABLE>
2 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
================================================================================
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
--------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
--------------------------------------------------------------------------------
Exchange Fees None None None None
--------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
--------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
================================================================================
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
--------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
--------------------------------------------------------------------------------
Other Expenses .31% .33% .31% .33%
================================================================================
Total Annual Fund Operating
Expenses-Gross+ 1.06% 1.83% 1.61% .88%
</TABLE>
+ After Expense Reimbursements
Net expenses reflect a voluntary expense limitation by the fund's
investment adviser that may be modified or discontinued without notice at
the adviser's discretion.
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------
Expense Reimbursements (.01%) (.01%) (.01%) (.01%)
---------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Net 1.05% 1.82% 1.60% .87%
---------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 524 $ 581 $ 164 $ 90 $ 524 $ 186 $ 164 $ 90
--------------------------------------------------------------------------------
3 Years $ 743 $ 892 $ 508 $ 281 $ 743 $ 576 $ 508 $ 281
--------------------------------------------------------------------------------
5 Years $ 980 $1,104 $ 876 $ 488 $ 980 $ 990 $ 876 $ 488
--------------------------------------------------------------------------------
10 Years $1,660 $1,946 $1,911 $1,084 $1,660 $1,946 $1,911 $1,084
--------------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/00)
Portfolio Statistics
<TABLE>
<S> <C>
Average Effective Maturity 21.92 years
--------------------------------------------------------------------------------
Average Duration 8.96
--------------------------------------------------------------------------------
Weighted Average Credit Quality AA+
--------------------------------------------------------------------------------
Number of Issues 78
--------------------------------------------------------------------------------
</TABLE>
Credit Quality
<TABLE>
<S> <C>
AAA/U.S. Guaranteed 67%
--------------------------------------------------------------------------------
AA 11%
--------------------------------------------------------------------------------
A 14%
--------------------------------------------------------------------------------
BBB 6%
--------------------------------------------------------------------------------
NR 2%
--------------------------------------------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[Pie Chart Appears Here]
Tax Obligation-Limited 22%
Other 32%
Housing-Multifamily 17%
Water and Sewer 8%
U.S. Guaranteed 12%
Healthcare 9%
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance f or periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the difference in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 6/30/00 was 4.06%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Georgia Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds | 3
<PAGE>
Nuveen Louisiana Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases
local, income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies.
The fund may buy non-rated municipal bonds if the fund's investment adviser
judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal bond
will be unable to make interest and principal payments. In general, lower rated
bonds carry greater credit risk. The fund may bear additional risk because it
invests primarily in Louisiana bonds. The fund is non-diversified, and may
invest more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
1990 7.2
1991 13.8
1992 9.0
1993 13.2
1994 -6.2
1995 18.8
1996 4.8
1997 9.7
1998 6.1
1999 -6.2
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 7.34% and -5.86%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect
sales charges, which would reduce returns, while the average annual return table
does include sales charges.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
<S> <C> <C> <C>
---------------------------------------------------------
Class A (Offer) -10.20% 5.42% 6.29%
Class B -10.45% 5.48% 6.27%
Class C -6.68% 5.75% 6.16%
Class R -6.06% 6.45% 6.81%
---------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper Peer
Group/3/ -5.64% 5.56% 6.32%
</TABLE>
4 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
-----------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
-----------------------------------------------------------------
Exchange Fees None None None None
-----------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
-----------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
---------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
---------------------------------------------------------------------
Other Expenses .25% .25% .25% .20%
---------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross+ 1.00% 1.75% 1.55% .75%
---------------------------------------------------------------------
+After Expense Reimbursements
Net expenses reflect a voluntary expense limitation by the
fund's investment adviser that may be modified or discontinued
without notice at the adviser's discretion.
----------------------------------------------------------------
Reimbursements (.03%) (.02%) (.02%) (.03%)
----------------------------------------------------------------
Total Annual Fund Operating
Expenses--Net .97% 1.73% 1.53% .72%
----------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
.........................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 518 $ 573 $ 158 $ 77 $ 518 $ 178 $ 158 $ 77
.........................................................................
3 Years $ 725 $ 868 $ 490 $240 $ 725 $ 551 $ 490 $240
.........................................................................
5 Years $ 949 $1,063 $ 845 $417 $ 949 $ 949 $ 845 $417
.........................................................................
10 Years $1,593 $1,864 $1,845 $930 $1,593 $1,864 $1,845 $930
.........................................................................
</TABLE>
How the Fund Is Invested (as of 5/31/00)
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Average Effective Maturity 21.71 years
------------------------------------------------------
Average Duration 9.39
------------------------------------------------------
Weighted Average Credit Quality AA
------------------------------------------------------
Number of Issues 78
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Credit Quality
<S> <C>
AAA/U.S. Guaranteed 63%
------------------------------------------------------
AA 4%
------------------------------------------------------
A 16%
------------------------------------------------------
BBB 17%
------------------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Other 27%
Housing--Single Family 12%
Healthcare 20%
U.S. Guaranteed 10%
Tax Obligation--General 10%
Tax Obligation--Limited 21%
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 6/30/00 was 4.36%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Louisiana Debt Category. Returns assume reinvestment of dividends
and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 5
<PAGE>
Nuveen North Carolina Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies.
The fund may buy non-rated municipal bonds if the fund's investment adviser
judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal bond
will be unable to make interest and principal payments. In general, lower rated
bonds carry greater credit risk. The fund may bear additional risk because it
invests primarily in North Carolina bonds. The fund is non-diversified, and may
invest more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 5.8%
1991 11.7%
1992 8.8%
1993 11.3%
1994 -5.6%
1995 15.5%
1996 3.0%
1997 8.9%
1998 5.5%
1999 -5.7%
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 5.83% and -5.32%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect
sales charges, which would reduce returns, while the average annual return
table does include sales charges.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
-----------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) -9.66% 4.28% 5.22%
Class B -10.05% 4.33% 5.20%
Class C -6.28% 4.59% 5.08%
Class R -5.57% 5.28% 5.73%
-------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper Peer
Group/3/ -4.55% 5.77% 5.71%
</TABLE>
6 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
-------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
-------------------------------------------------------------------------
Exchange Fees None None None None
-------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
-------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
-------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
-------------------------------------------------------------------------
Other Expenses .25% .26% .25% .26%
-------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross/+/ 1.00% 1.76% 1.55% .81%
-----------------------------------------------------------------
+After Expense Reimbursements
-----------------------------------------------------------------
Reimbursements (.01%) (.01%) (.01%) (.01%)
-----------------------------------------------------------------
Total Annual Fund
Operating Expenses--Net .99% 1.75% 1.54% .80%
-----------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or
lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 518 $ 574 $ 158 $ 83 $ 518 $ 179 $ 158 $ 83
-----------------------------------------------------------------------------
3 Years $ 725 $ 871 $ 490 $ 259 $ 725 $ 554 $ 490 $ 259
-----------------------------------------------------------------------------
5 Years $ 949 $1,068 $ 845 $ 450 $ 949 $ 954 $ 845 $ 450
-----------------------------------------------------------------------------
10 Years $1,593 $1,873 $1,845 $1,002 $1,593 $1,873 $1,845 $1,002
-----------------------------------------------------------------------------
</TABLE>
How the Fund Is Invested (as of 5/31/00)
<TABLE>
<CAPTION>
Portfolio Statistics
<S> <C>
Average Effective Maturity 21.53 years
--------------------------------------------
Average Duration 9.85
--------------------------------------------
Weighted Average Credit Quality AA-
--------------------------------------------
Number of Issues 90
--------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 26%
--------------------------------------------
AA 38%
--------------------------------------------
A 18%
--------------------------------------------
BBB 17%
--------------------------------------------
NR 1%
--------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Other 21%
Utilities 17%
Healthcare 18%
Basic Materials 9%
Housing--Single Family 21%
Tax Obligation--Limited 14%
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 6/30/00 was 5.02%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer group returns represent the average annualized returns of the funds in
the Lipper North Carolina Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 7
<PAGE>
Nuveen Tennessee Municipal Bond Fund
Fund Overview
Investment Objective
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing
bond prices to fall. Credit risk is the risk that an issuer of a municipal bond
will be unable to make interest and principal payments. In general, lower rated
bonds carry greater credit risk. The fund may bear additional risk because it
invests primarily in Tennessee bonds. As with any mutual fund investment, loss
of money is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long-term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
How the Fund Has Performed
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 5.8
1991 11.6
1992 9.1
1993 11.8
1994 -5.5
1995 15.8
1996 3.5
1997 9.1
1998 5.5
1999 -5.0
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 6.30% and -5.42%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect
sales charges, which would reduce returns, while the average annual return
table does include sales charges.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
-------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) -9.05% 4.65% 5.49%
Class B -9.36% 4.71% 5.47%
Class C -5.58% 4.95% 5.36%
Class R -4.86% 5.64% 5.99%
-------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -3.84% 5.97% 5.88%
</TABLE>
8 Section 1 The Funds
<PAGE>
What are the Costs of Investing?
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
-------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
-------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
-------------------------------------------------------------------------------
Exchange Fees None None None None
-------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
-------------------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
------------------------------------------------------------------
Other Expenses .25% .26% .25% .27%
------------------------------------------------------------------
Total Annual Fund Operating
Expenses - Gross+ .99% 1.75% 1.54% .81%
------------------------------------------------------------------
+After Expense Reimbursements
-------------------------------------------------------------
Reimbursements (.01%) (.02%) (.02%) (.02%)
-------------------------------------------------------------
Total Annual Fund
-------------------------------------------------------------
Operating Expenses--Net .98% 1.73% 1.52% .79%
-------------------------------------------------------------
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time period indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or
lower.
Redemption No Redemption
Share Class A B C R A B C R
-------------------------------------------------------------------------------
1 Year $ 517 $ 573 $ 157 $ 83 $ 517 $ 178 $ 157 $ 83
-------------------------------------------------------------------------------
3 Years $ 722 $ 868 $ 486 $ 259 $ 722 $ 551 $ 486 $ 259
-------------------------------------------------------------------------------
5 Years $ 944 $1,063 $ 839 $ 450 $ 944 $ 949 $ 839 $ 450
------------------------------------------------------------------------------
10 Years $1,582 $1,862 $1,834 $1,002 $1,582 $1,862 $1,834 $1,002
------------------------------------------------------------------------------
How the Fund Is Invested (as of 5/31/00)
Portfolio Statistics
Average Effective Maturity 19.64 years
-------------------------------------------
Average Duration 8.78
-------------------------------------------
Weighted Average Credit Quality AA
-------------------------------------------
Number of Issues 89
-------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 43%
-------------------------------------------
AA 26%
-------------------------------------------
A 13%
-------------------------------------------
BBB 15%
-------------------------------------------
NR 3%
-------------------------------------------
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Other 34%
Basic Materials 11%
Healthcare 15%
U.S. Guaranteed 17%
Tax Obligation--Limited 9%
Housing--Single Family 14%
1. Class A total returns reflect actual performance for all periods; Class B, C
and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 6/30/00 was 3.75%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized return of the funds in
the Lipper Tennessee Municipal Debt Category. Returns assume reinvestment of
dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3% during
the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 9
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the funds' assets are managed, this section includes
a detailed discussion of the adviser's investment and risk management
strategies. For a more complete discussion of these matters, please consult the
Statement of Additional Information.
Who Manages the Funds
Nuveen Advisory Corp. ("Nuveen Advisory"), the funds' investment adviser,
together with its advisory affiliate, Nuveen Institutional Advisory Corp., offer
premier advisory and investment management services to a broad range of mutual
fund clients. In the Nuveen family, these advisers are commonly referred to as
Nuveen Investment Management or NIM. Nuveen Advisory is responsible for the
selection and on-going monitoring of the municipal bonds in the funds'
investment portfolios, managing the funds' business affairs and providing
certain clerical, bookkeeping and other administrative services. The NIM
advisers are located at 333 West Wacker Drive, Chicago, IL 60606.
The NIM advisers are wholly owned subsidiaries of Nuveen Investments ("Nuveen").
Founded in 1898, Nuveen has been synonymous with investments that withstand the
test of time. Today we provide managed assets and structured investment products
and services to help financial advisors serve the wealth management needs of
individuals and families. Nuveen manages or oversees $71 billion in assets.
Nuveen Advisory is responsible for execution of specific investment strategies
and day-to-day investment operations. Nuveen Advisory manages each fund using a
team of analysts and portfolio managers that focus on a specific group of funds.
Day-to-day operation of each fund and the execution of its specific investment
strategies is the responsibility of the designated portfolio manager described
below.
Thomas J. O'Shaughnessy has been the portfolio manager for the Georgia, North
Carolina, and Tennessee Funds since July 1998. Mr. O'Shaughnessy has been a
portfolio manager for Nuveen Advisory since 1991, and an Assistant Vice
President since 1998. He currently manages investments for thirteen Nuveen-
sponsored investment companies, including the Florida, Kentucky, and
Pennsylvania Funds.
Michael S. Davern has been the portfolio manager for the Louisiana Fund since
1998. Mr. Davern became a Vice President of Flagship Financial Inc. in 1991, and
subsequently became a Vice President of Nuveen Advisory upon the acquisition of
Flagship Resources Inc. by The John Nuveen Company in January 1997. Mr. Davern
currently manages investments for fifteen Nuveen-sponsored investment companies,
including the Arizona, Colorado, Kansas, Michigan, Missouri, New Mexico and
Wisconsin Funds.
10 Section 2 How We Manage Your Money
<PAGE>
For the most recent fiscal year, the funds paid the following management fees to
Nuveen Advisory as a percentage of net assets:
Nuveen Georgia Municipal Bond Fund .55%
..................................................
Nuveen Louisiana Municipal Bond Fund .54%
..................................................
Nuveen North Carolina Municipal Bond Fund .55%
..................................................
Nuveen Tennessee Municipal Bond Fund .54%
..................................................
What Securities We Invest In
Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.
Municipal Bonds
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal, state and, in some cases, local income tax. Income from
these bonds may be subject to the federal alternative minimum tax.
States, local governments and municipalities issue municipal bonds to raise
money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses.
These bonds include general obligation bonds, which are backed by the full faith
and credit of the issuer and may be repaid from any revenue source, and revenue
bonds, which may be repaid only from the revenue of a specific facility or
source.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase these bonds where the issuer has a
strong incentive to continue making appropriations until maturity.
The funds may invest in inverse floating rate securities, sometimes referred to
as "inverse floaters." Inverse floaters have variable interest rates that move
in the opposite direction from movements in prevailing short-term interest rate
levels--rising when prevailing short-term interest rates fall, and vice versa.
In addition to paying fluctuating income levels, the prices of inverse floaters
can be more volatile than the prices of conventional fixed-rate bonds with
comparable maturities.
In evaluating municipal bonds of different credit qualities or maturities,
Nuveen Advisory takes into account the size of yield spreads. Yield spread is
the additional return the funds may earn by taking on additional credit risk or
interest rate risk. For example, yields on low quality bonds are higher than
yields on high quality bonds because investors must be compensated for incurring
the higher credit risk associated with low quality bonds. If yield spreads do
not provide adequate compensation for the additional risk associated with low
quality bonds, the funds will buy bonds of relatively higher quality. Similarly,
in evaluating bonds of different maturities, Nuveen Advisory evaluates the
comparative yield available on these bonds. If yield spreads on long-term bonds
do not compensate the funds adequately for the additional interest rate risk the
funds must
Section 2 How We Manage Your Money 11
<PAGE>
assume, the funds will buy bonds of relatively shorter maturity. In addition,
municipal bonds in a particular industry may provide higher yields relative to
their risk compared to bonds in other industries. If that occurs, a fund may buy
relatively more bonds from issuers in that industry. In that case, the fund's
portfolio composition would change from time to time.
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal bonds
of U.S. territories (such as Puerto Rico and Guam) which are exempt from regular
federal, state and local income taxes.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Short-Term Investments
Under normal market conditions, each fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk--Hedging and
Other Defensive Investment Strategies." The funds may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the funds invest in taxable
securities, they may not achieve their investment objective. For more
information on eligible short-term investments, see the Statement of Additional
Information.
Forwards and Delayed-Delivery Settlement
Each fund may enter into contracts to purchase securities for a specified price
at a future date later than the normal settlement date. If the delayed
settlement takes place less than 61 days after purchase, it is referred to as a
"delayed-delivery" transaction. Newly issued municipal bonds sold on a "when-
issued" basis represent a common form of delayed-delivery transaction. If
settlement takes place more than 60 days after purchase, the transaction is
called a "forward." These transactions involve an element of risk because the
value of the security to be purchased may decline before the settlement date.
Municipal "forwards" pay higher interest rates after settlement than standard
bonds, to compensate the buyer for bearing market risk but deferring income
during the settlement period, and can often be bought at attractive prices and
yields. If a fund knows that a portfolio bond will, or is likely to, be called
or mature on a specific future date, the fund may buy a forward settling on or
about that date to replace the called or maturing bond and "lock in" a currently
attractive interest rate.
12 Section 2 How We Manage Your Money
<PAGE>
How We Select Investments
Nuveen Advisory selects municipal bonds for the funds based upon its assessment
of a bond's relative value in terms of current yield, price, credit quality and
future prospects. Nuveen Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities available for
purchase, monitor the continued creditworthiness of each fund's municipal
investments, and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to identify municipal bonds
with favorable characteristics we believe are not yet recognized by the market.
We then select those higher-yielding and undervalued municipal bonds that we
believe represent the most attractive values.
Portfolio Turnover
Each fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of a fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
What the Risks Are
Risk is inherent in all investing. Investing in a mutual fund -- even the most
conservative -- involves risk, including the risk that you may receive little or
no return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment.
Credit risk: Each fund is subject to credit risk. Credit risk is the risk that
an issuer of a municipal bond will be unable to meet its obligation to make
interest and principal payments due to changing financial or market conditions.
Interest rate risk: Because the funds invest in fixed-income securities, the
funds are subject to interest rate risk. Interest rate risk is the risk that the
value of a fund's portfolio will decline because of rising interest rates.
Interest rate risk is generally lower for shorter-term investments and higher
for longer-term investments.
Income risk: The risk that the income from a fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate. Also, if a
fund invests in inverse floating rate securities, whose income payments vary
inversely with changes in short-term market rates, the fund's income may
decrease if short-term interest rates rise.
State concentration risk: Because the funds primarily purchase municipal bonds
from a specific state, each fund also bears investment risk from economic,
political or regulatory changes that could adversely affect municipal bond
issuers in that state and therefore the value of the fund's investment
portfolio. See "Appendix--Additional State Information." These
Section 2 How We Manage Your Money 13
<PAGE>
risks may be greater for the Georgia, Louisiana, and North Carolina Funds, which
as "non-diversified" funds may concentrate their investments in municipal bonds
of certain issuers to a greater extent than the Tennessee Fund, which is a
diversified fund.
Inflation risk: The risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of each fund's assets can decline as can the
value of the fund's distributions.
How We Manage Risk
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The funds limit this
investment risk generally by restricting the type and maturities of municipal
bonds they purchase, and by diversifying their investment portfolios
geographically within a state, as well as across different industry sectors.
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
As a diversified fund, the Tennessee Fund also may not have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of its assets).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the funds' investments. The funds, however, have no present intent to use
these strategies.
14 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different combination of sales
charges, fees, eligibility requirements and other features. Your financial
advisor can help you determine which class is best for you. We offer a number of
services for your convenience. Please see the Statement of Additional
Information for further details.
What Share Classes We Offer
Class A Shares
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described in "How to Reduce Your
Sales Charge." Class A shares are also subject to an annual service fee of .20%
that compensates your financial advisor for providing ongoing service to you.
Nuveen retains the up-front sales charge and the service fee on accounts with no
authorized dealer of record. The up-front Class A sales charge for all funds
described in the prospectus is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
--------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
--------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
--------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
--------------------------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
--------------------------------------------------------------------------------------------------------------------
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus .50%
of the next $2.5 million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have to pay a
Contingent Deferred Sales Charge ("CDSC") of 1% of either your purchase price or
your redemption proceeds, whichever is lower. You do not have to pay this CDSC
if your financial advisor has made arrangements with Nuveen and agrees to waive
the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .95% of average daily assets. The annual .20% service fee
compensates your financial advisor for providing ongoing service to you. Nuveen
retains the service fee on accounts with no authorized dealer of record. The
annual .75% distribution fee compensates Nuveen for paying your financial
advisor a 4% up-front sales commission,
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
which includes an advance of the first year's service fee. If you sell your
shares within six years of purchase, you will normally have to pay a CDSC based
on either your purchase price or what you sell your shares for, whichever amount
is lower, according to the following schedule. You do not pay a CDSC on any
Class B shares you purchase by reinvesting dividends.
Class B shares automatically convert to Class A shares eight years after you buy
them so that the distribution fees you pay over the life of your investment are
limited. You will continue to pay an annual service fee on any converted Class B
shares.
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6 Over 6
CDSC 5% 4% 4% 3% 2% 1% None
--------------------------------------------------------------------------------
Class C Shares
You can buy Class C shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .75% of average daily assets. The annual .20% service fee
compensates your financial advisor for providing on-going service to you. Nuveen
retains the service fee on accounts with no authorized dealer of record. The
annual .55% distribution fee reimburses Nuveen for paying your financial advisor
an on-going sales commission. Nuveen advances the first year's service and
distribution fees. If you sell your shares within 12 months of purchase, you
will normally have to pay a 1% CDSC based on your purchase or sale price,
whichever is lower. You do not pay a CDSC on any Class C shares you purchase by
reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at the net
asset value on the day of purchase. In order to qualify, you must be eligible
under one of the programs described in "How to Reduce Your Sales Charge" (below)
or meet certain other purchase size criteria. Class R shares are not subject to
sales charges or on-going service or distribution fees. Class R shares have
lower on-going expenses than the other classes.
How to Reduce Your Sales Charge
We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and
or Exchange-Traded directors of Nuveen
. Letter of intent Fund reinvestment or employees of
authorized dealers
. Group purchase . Certain employees and
directors of Nuveen or . Bank trust
employees of authorized departments
dealers
. Bank trust departments
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisors, certified financial planners
and registered broker-dealers who charge asset-based or comprehensive "wrap"
fees for their services. Please refer to the Statement of Additional Information
for detailed program descriptions and eligibility requirements. Additional
information is available from your financial advisor or by calling (800)
257-8787. Your financial advisor can also help you prepare any necessary
application forms. You or your financial advisor must notify Nuveen at the time
of each purchase if you are eligible for any of these programs. The funds may
modify or discontinue these programs at any time.
How to Buy Shares
Fund shares may be purchased on any business day, which is any day the New York
Stock Exchange is open for business and normally ends at 4 p.m. New York time.
Generally, the Exchange is closed on weekends and national holidays. The share
price you pay will depend on when Nuveen receives your order. Orders received
before the close of trading on a business day will receive that day's closing
share price, otherwise you will receive the next business day's price.
Through a Financial Advisor
You may buy shares through your financial advisor, who can handle all the
details for you, including opening a new account. Financial advisors can also
help you review your financial needs and formulate long-term investment goals
and objectives. In addition, financial advisors generally can help you develop a
customized financial plan, select investments and monitor and review your
portfolio on an ongoing basis to help assure your investments continue to meet
your needs as circumstances change. Financial advisors are paid for on-going
investment advice and services either from fund sales charges and fees or by
charging you a separate fee in lieu of a sales charge. If you do not have a
financial advisor, call (800) 257-8787 and Nuveen can refer you to one in your
area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. No third party
checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($50 through systematic investment plan
accounts) and may be lower for accounts opened through certain fee-based
programs. Subsequent investments must be in amounts of $50 or more. The funds
reserve the right to reject purchase orders and to waive or increase the minimum
investment requirements.
Systematic Investing
Systematic investing allows you to make regular investments through automatic
deductions from your bank account, directly from your paycheck or by exchanging
shares from another mutual fund account. The minimum automatic deduction is $50
per month. There is no charge to participate in each fund's systematic
investment plan. You can stop the deductions at any time by notifying your fund
in writing. To do this,
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
simply complete the appropriate section of the account application form or
submit an Account Update Form.
From Your Bank Account
You can make systematic investments of $50 or more per month by authorizing us
to draw preauthorized checks on your bank account.
From Your Paycheck
With your employer's consent, you can make systematic investments of $25 or more
per pay period (meeting the monthly minimum of $50) by authorizing your employer
to deduct monies from your paycheck.
Systematic Exchanging
You can make systematic investments by authorizing Nuveen to exchange shares
from one Nuveen mutual fund account into another identically registered Nuveen
account of the same share class.
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
[Chart Appears Here]
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.
Systematic Withdrawal
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually, and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Special Services-Fund Direct" below), paid
18 Section 3 How You Can Buy and Sell Shares
<PAGE>
to a third party or sent payable to you at an address other than your address of
record. You must complete the appropriate section of the account application or
Account Update Form to participate in each fund's systematic withdrawal
plan.
You should not establish systematic withdrawals if you intend to make concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
Special Services
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any time
for the same class of another Nuveen mutual fund available in your state. Your
exchange must meet the minimum purchase requirements of the fund into which you
are exchanging. You may have to pay a sales charge when exchanging shares that
you purchased without a sales charge for shares that are sold with a sales
charge. Please consult the Statement of Additional Information for details.
The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time upon 60 days'
notice. Because an exchange is treated for tax purposes as a purchase and sale,
and any gain may be subject to tax, you should consult your tax advisor about
the tax consequences of exchanging your shares.
Fund Direct(SM)
The Fund Direct Program allows you to link your fund account to your bank
account, transfer money electronically between these accounts, and perform a
variety of account transactions, including purchasing shares by telephone and
investing through a systematic investment plan. You also may have dividends,
distributions, redemption payments or systematic withdrawal plan payments sent
directly to your bank account. Your financial advisor can help you complete the
forms for these services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
How to Sell Shares
You may sell (redeem) your shares on any business day. You will receive the
share price next determined after Nuveen has received your properly completed
redemption request. Your redemption request must be received before the close of
trading for you to receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption proceeds until your
check has cleared. This may take up to ten business days from your purchase
date. While the funds do not charge a redemption fee, you may be assessed a
CDSC, if applicable. When you redeem Class A, Class B, or Class C shares subject
to a CDSC, each fund will first redeem any shares that are not subject to a
CDSC, and then redeem the shares you have owned for the longest period of time,
unless you ask the fund to redeem your shares in a different order. No CDSC is
imposed on shares you buy through the reinvestment of dividends and capital
gains. The holding period is calculated on a monthly basis and begins on the
first day of the month in which you buy shares. When you redeem shares subject
to a CDSC, the CDSC is calculated on the lower of your purchase price or
redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as described
in the Statement of Additional Information.
Through Your Financial Advisor
You may sell your shares through your financial advisor who can prepare the
necessary documentation. Your financial advisor may charge for this.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by calling (800) 257-8787. Telephone redemptions are not available if
you own shares in certificate form and may not exceed $50,000. Checks will only
be issued to you as the shareholder of record and mailed to your address of
record. If you have established Fund Direct privileges, you may have redemption
proceeds transferred electronically to your bank account. We will normally mail
your check the next business day.
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and procedures to
confirm the identity of callers, it will not be liable for losses resulting from
following telephone instructions it reasonably believes to be genuine. Also you
should verify your trade confirmations immediately upon receipt.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. Your request must include the following
information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
. The signature of each owner exactly as it appears on the account;
. The name of the person to whom you want your redemption proceeds paid (if
other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other than the
address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
20 Section 3 How You Can Buy and Sell Shares
<PAGE>
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of record has been
changed within the last 60 days). Signature guarantees must be obtained from a
bank, brokerage firm or other financial intermediary that is a member of an
approved Medallion Guarantee Program or that a fund otherwise approves. A notary
public cannot provide a signature guarantee.
Redemptions In-Kind
The funds generally pay redemption proceeds in cash. Under unusual conditions
that make cash payment unwise and for the protection of existing shareholders,
the funds may pay all or a portion of your redemption proceeds in securities or
other fund assets. Although it is unlikely that your shares would be redeemed
in-kind, you would probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that sale.
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days' written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
Nuveen Defined Portfolio reinvestment account. You will not be assessed a CDSC
on an involuntary redemption.
Section 3 How You Can Buy and Sell Shares 21
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions to
shareholders. We discuss some other fund policies, as well.
Dividends, Distributions and Taxes
The funds pay tax-free dividends monthly and any taxable capital gains or other
taxable distributions once a year in December. The funds declare dividends
monthly to shareholders of record as of the ninth of each month, usually payable
the first business day of the following month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund shares unless
you request otherwise. You may request to have your dividends paid to you by
check, deposited directly into your bank account, paid to a third party, sent to
an address other than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your financial advisor or
call Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest primarily in municipal bonds from a particular state,
the regular monthly dividends you, as a taxpayer in that state, receive will be
exempt from regular federal and state income tax. All or a portion of these
dividends, however, may be subject to the federal alternative minimum tax
(AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of the funds' normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term capital gains are taxable at the same rate as
ordinary income. Net long-term capital gains are taxable as long-term capital
gains regardless of how long you have owned your investment. Taxable dividends
do not qualify for a dividends received deduction if you are a corporate
shareholder.
Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains that you were paid during the prior year. If
you hold your investment at the firm where you purchased your fund shares, you
will receive the statement from that firm. If you hold your shares directly with
the fund, Nuveen will send you the statement. The tax status of your dividends
is not affected by whether you reinvest your dividends or elect to receive them
in cash.
If you receive social security or railroad retirement benefits, you should
consult your tax advisor about how an investment in a fund may affect the
taxation of your benefits.
22 Section 4 General Information
<PAGE>
Please note that if you do not furnish us with your correct Social Security
number or employer identification number, federal law requires the fund to
withhold federal income tax from your distributions and redemption proceeds,
currently at a rate of 31%.
Please consult the Statement of Additional Information and your tax advisor for
more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents a return of
your purchase price. Similarly, if you sell or exchange fund shares shortly
before the record date for a tax-exempt dividend, a portion of the price you
receive may be treated as a taxable capital gain even though it reflects tax-
free income a fund has earned but not yet distributed.
Taxable Equivalent Yields
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated federal tax-free yield on a
municipal investment. To assist you to more easily compare municipal investments
like the funds with taxable alternative investments, the table below presents
the taxable equivalent yields for a range of hypothetical federal tax-free
yields and tax rates:
Taxable Equivalent Of Tax-Free Yields
<TABLE>
<CAPTION>
To Equal a Tax-Free Yield of:
...............................................................................
4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket: A Taxable Investment Would Need to Yield:
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
...............................................................................
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
...............................................................................
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
...............................................................................
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
...............................................................................
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
Statement of Additional Information or consult your tax advisor.
Distribution and Service Plans
Nuveen serves as the selling agent and distributor of the funds' shares. In this
capacity, Nuveen manages the offering of the funds' shares and is responsible
for all sales and promotional activities. In order to reimburse Nuveen for its
costs in connection with these activities, including compensation paid to
authorized dealers, each fund has adopted a distribution and service plan under
Rule 12b-1 under the Investment Company Act of 1940. (See "How to Choose a
Share Class" for a description of the distribution and service fees paid under
this plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to authorized dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the service fee for
Class A, Class B, and Class C shares to compensate authorized dealers, including
Nuveen, for providing on-going account
Section 4 General Information 23
<PAGE>
services to shareholders. These services may include establishing and
maintaining shareholder accounts, answering shareholder inquiries, and providing
other personal services to shareholders. These fees also compensate Nuveen for
other expenses, including printing and distributing prospectuses to persons
other than shareholders, and preparing, printing, and distributing advertising
and sales literature and reports to shareholders used in connection with the
sale of shares. Because these fees are paid out of the funds' assets on an on-
going basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other events
at which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of
advertising that features the products and services of both parties. The
Statement of Additional Information contains further information about these
programs.
Net Asset Value
The price you pay for your shares is based on each fund's net asset value per
share which is determined as of the close of trading (normally 4:00 p.m. New
York time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated for each class of each fund by taking the market value
of the class' total assets, including interest or dividends accrued but not yet
collected, less all liabilities, and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of Trustees or
its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. The prices of municipal bonds are provided by a pricing service
and based on the mean between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal securities), the
pricing service establishes fair market value based on prices of comparable
municipal bonds.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the funds. The funds' transfer, shareholder services and dividend paying
agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY
10274-5186, performs bookkeeping, data processing and administrative services
for the maintenance of shareholder accounts.
24 Section 4 General Information
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you understand a fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in a fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Arthur Andersen LLP, whose report, along with the funds'
financial statements, are included in the SAI and annual report, which is
available upon request.
Nuveen Georgia Municipal Bond Fund**
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
--------------------------------- -----------------------------
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ended Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income Gain (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 (c) 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 (c) 10.65 .18 (.06) .12 (.20) -- (.20) 10.57 1.11
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses Income
Net to Average to Average Portfolio
Assets Net Net Turnover
(000) Assets (b) Assets (b) Rate
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (3/86)
2000 $ 104,434 1.06% 4.99% 15%
1999 128,138 .74 4.82 32
1998 120,545 .66 5.09 25
1997 111,518 .78 5.44 39
1996 107,862 .80 5.46 59
Class B (2/97)
2000 12,470 1.82 4.24 15
1999 11,991 1.51 4.08 32
1998 3,518 1.38 4.32 25
1997 (c) 113 1.32* 4.80* 39
Class C (1/94)
2000 19,532 1.60 4.44 15
1999 24,358 1.30 4.27 32
1998 18,770 1.21 4.54 25
1997 11,803 1.32 4.87 39
1996 9,433 1.34 4.90 59
Class R (2/97)
2000 405 .88 5.19 15
1999 364 .55 5.03 32
1998 245 .45 5.26 25
1997 (c) 22 .38* 5.71* 39
-------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship Georgia.
(a) 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.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are 1.05%, 1.82%, 1.60% and .87% for classes A, B, C
and R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 4.99%, 4.24%, 4.44% and 5.20% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 25
<PAGE>
Nuveen Louisiana Municipal Bond Fund**
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
--------------------------------- -----------------------------
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ended Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income Gain (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 (c) 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 (c) 11.17 .15 (.08) .07 (.15) -- (.15) 11.09 .67
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
------------------------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ended Assets Net Net Turnover
May 31, (000) Assets (b) Assets (b) Rate
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/89)
2000 $77,603 .98% 5.14% 29%
1999 99,176 .75 4.89 11
1998 89,143 .75 5.13 15
1997 76,030 .79 5.38 25
1996 72,005 .80 5.46 26
Class B (2/97)
2000 17,194 1.74 4.40 29
1999 18,870 1.50 4.15 11
1998 8,999 1.45 4.38 15
1997 (c) 917 1.46* 4.69* 25
Class C (2/94)
2000 19,074 1.54 4.60 29
1999 21,352 1.30 4.34 11
1998 13,682 1.29 4.58 15
1997 7,645 1.33 4.83 25
1996 5,658 1.35 4.87 26
Class R (2/97)
2000 953 .73 5.33 29
1999 2,451 .55 5.10 11
1998 28 .52 5.32 15
1997 (c) -- .04* 5.31* 25
------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year 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.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .97%, 1.73%, 1.53% and .72% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.15%, 4.41%, 4.61% and 5.34% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
26 Section 5 Financial Highlights
<PAGE>
Nuveen North Carolina Municipal Bond Fund**
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
--------------------------------- -----------------------------
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ended Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income Gain (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 (c) 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 (c) 10.27 .18 .01 .19 (.18) -- (.18) 10.28 1.92
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
-----------------------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ended Assets Net Net Turnover
May 31, (000) Assets (b) Assets (b) Rate
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (3/86)
2000 $153,091 1.00% 5.06% 23%
1999 183,370 .74 4.79 11
1998 186,340 .86 5.06 29
1997 181,595 .93 5.31 23
1996 185,016 .90 5.32 54
Class B (2/97)
2000 11,541 1.76 4.31 23
1999 10,609 1.44 4.11 11
1998 3,609 1.61 4.23 29
1997 (c) 271 1.62* 4.60* 23
Class C (10/93)
2000 16,023 1.55 4.51 23
1999 17,507 1.24 4.31 11
1998 8,291 1.41 4.50 29
1997 7,065 1.48 4.76 23
1996 6,589 1.45 4.77 54
Class R (2/97)
2000 1,338 .81 5.26 23
1999 1,312 .53 5.01 11
1998 848 .66 5.24 29
1997 (c) 405 .66* 5.57* 23
---------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year 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.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .99%, 1.75%, 1.54% and .80% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.07%, 4.32%, 4.52% and 5.27% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 27
<PAGE>
Nuveen Tennessee Municipal Bond Fund**
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
--------------------------------- -----------------------------
Net
Realized
and Ending
Year Beginning Net Unrealized Net Net
Ended Net Asset Investment Investment Investment Capital Asset Total
May 31, Value Income Gain (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 (c) 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 (c) 11.09 .20 (.05) .15 (.20) -- (.20) 11.04 1.40
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
------------------------------------------------
Ratio of Net
Ratio of Investment
Ending Expenses Income
Year Net to Average to Average Portfolio
Ended Assets Net Net Turnover
May 31, (000) Assets (b) Assets (b) Rate
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (11/87)
2000 $248,148 .99% 5.08% 15%
1999 285,935 .84 4.81 16
1998 278,232 .82 5.11 15
1997 257,475 .85 5.35 23
1996 250,886 .88 5.30 38
Class B (2/97)
2000 12,527 1.75 4.33 15
1999 12,410 1.59 4.08 16
1998 5,775 1.58 4.31 15
1997 (c) 537 1.37* 4.72* 23
Class C (10/93)
2000 23,327 1.54 4.53 15
1999 28,134 1.39 4.27 16
1998 20,673 1.37 4.55 15
1997 15,049 1.40 4.80 23
1996 15,483 1.43 4.75 38
Class R (2/97)
2000 547 .81 5.29 15
1999 529 .64 5.01 16
1998 534 .62 5.29 15
1997 (c) 248 .46* 5.75* 23
-----------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended May 31, 1997, reflects
the financial highlights of Flagship 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.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .98%, 1.73%, 1.52% and .79% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.10%, 4.35%, 4.55% and 5.31% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
28 Section 5 Financial Highlights
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from a specific state, each
fund also bears investment risks from economic, political or regulatory changes
that could adversely affect municipal bond issuers in that state and therefore
the value of the fund's investment portfolio. The following discussion of
special state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The
discussion includes general state tax information related to an investment in
each fund's shares. Because tax laws are complex and often change, you should
consult your tax advisor about the state tax consequences of a specific fund
investment. See the Statement of Additional Information for further information.
Georgia
One of the nation's fastest growing states in terms of population, Georgia has
benefited from steady economic and employment growth as a result of the State's
stable and broad-based trade and services economy, low average cost of living,
and extensive transportation infrastructure.
The State's unemployment level was 3.3% in July 2000, well below the 4.0%
national average, and down from the State's 3.7% rate in July 1999. Per capita
income in 1999 was $27,198, approximately 95% of the national average.
As of August 31, 2000, Georgia's general obligation debt carried AAA ratings
from Standard & Poor's, Moody's, and Fitch. These ratings reflect the State's
credit quality only, and do not indicate the creditworthiness of other tax-
exempt securities in which the fund may invest.
Tax Treatment
The fund's regular monthly dividends will not be subject to Georgia personal
income tax to the extent they are paid out of income earned on Georgia municipal
bonds or U.S. government securities. While dividends paid out of income earned
on Georgia municipal bonds are not subject to Georgia income tax, if you are
subject to tax in a state other than Georgia, these dividends may be included in
calculating taxable income for that state. You will be subject to Georgia
personal income tax, however, to the extent the fund distributes any taxable
income or realized capital gains, or if you sell or exchange fund shares and
realize a capital gain on the transaction.
The treatment of corporate shareholders of the fund who pay Georgia corporate
net income tax is similar to that described above. Shareholders should refer to
the Statement of Additional Information for more detailed state tax information.
Appendix 29
<PAGE>
Louisiana
Louisiana's economic base has experienced some improvement after the recession
of the 1980's. However, Louisiana continues to lag the Southeast, as well as the
nation, in terms of economic growth. Per capita personal income increased to
$22,792 in 1999, but remains at approximately 80% of the national average. The
unemployment rate for the State was 4.5% in July 2000, above the national
average of 4.0%, but slightly below the 4.7% State average in July 1999.
The State possesses natural resources, which have played a significant role in
driving the economy. Chemicals provide the largest employment in the
manufacturing industry. Tourism is the second largest industry in the State,
generating significant State and local taxes. Louisiana continues to rely on
the gaming industry, despite a sector employment drop due to the consolidation
and downsizing of hotels and casinos.
The State's general obligation bond ratings by Moody's, Standard & Poor's and
Fitch are A2, A+ and A, respectively as of August 31, 2000. These ratings
reflect the State's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the fund may
invest.
Tax Treatment
The fund's regular monthly dividends will not be subject to Louisiana personal
income tax to the extent they are paid out of income earned on Louisiana
municipal obligations or U.S. government securities. While dividends paid out of
income earned on Louisiana municipal bonds are not subject to Louisiana income
tax, if you are subject to tax in a state other than Louisiana, these dividends
may be included in calculating taxable income for that state. You will be
subject to Louisiana personal income tax, however, to the extent the fund
distributes any taxable income or realized capital gains, or if you sell or
exchange fund shares and realize capital gains on the transaction.
The treatment of corporate shareholders of the fund who pay Louisiana corporate
income tax is similar to that described above. Shareholders should refer to the
Statement of Additional Information for more detailed state tax
information.
North Carolina
North Carolina's overall economy continues to grow and diversify. While
manufacturing remains an important employment sector, the services and retail
trade sectors also supply a significant percentage of employment. Growth in the
high-technology sector has helped diversify the State's economy and also has
helped offset recent employment losses in the manufacturing, textile, apparel,
and tobacco industries.
The State's unemployment rate was 3.2% in July 2000, well below the 4.0%
national average, and approximately the same as the State's 3.1% rate in July
1999. Per capita income in 1999 was $26,220, approximately 92% of the national
average.
As of August 31, 2000, Moody's, Standard & Poor's, and Fitch all rated the
State's general obligation bonds AAA. These ratings reflect the State's credit
quality only, and do not indicate the creditworthiness of other tax-exempt
securities in which the fund may invest.
30 Appendix
<PAGE>
Tax Treatment
The fund's regular monthly dividends will not be subject to North Carolina
personal income taxes to the extent they are paid out of income earned on North
Carolina municipal bonds or obligations of the U.S. government. While dividends
paid out of income earned on North Carolina municipal bonds are not subject to
North Carolina income tax, if you are subject to tax in a state other than North
Carolina, these dividends may be included in calculating taxable income for that
state. You will be subject to North Carolina personal in come taxes, however, to
the extent the fund distributes any taxable income or realized capital gains, or
if you sell, or exchange fund shares and realize a capital gain on the
transaction.
The treatment of corporate shareholders of the fund who pay North Carolina
corporate income tax is similar to that described above. Shareholders should
refer to the Statement of Additional Information for more detailed state tax
information.
Tennessee
Tennessee's economy experienced strong growth in the early 1990's, but the
economic climate in the State has changed somewhat since then. Economic growth
has slowed from its strong pace of the early 1990's, as growth in the services
sector and in the State's major metropolitan areas has moderated. As a result of
the growth in the auto and truck manufacturing sectors, the State is now more
vulnerable to economic cycles. Still, the overall State economy has been
relatively healthy.
Tennessee's unemployment rate in July 2000 was 3.6%, compared to the 4.0%
national average and the State's 3.4% average in July 1999. Per capita income
was $25,581 in 1999, approximately 90% of the national average. Tennessee
remains one of nine states without a personal income tax.
Both Moody's and Standard & Poor's downgraded Tennessee's general obligation
bond ratings to Aa1/AA+, respectively earlier this year, reflecting agency
concerns about the State's financial position. As of August 31, 2000, Fitch's
ratings remained at AAA. These ratings reflect the State's credit quality only,
and do not indicate the creditworthiness of other tax-exempt securities in which
the fund may invest.
Tax Treatment
The fund's regular monthly dividends will not be subject to Tennessee personal
income taxes to the extent they are paid out of income earned on or capital
gains realized from the sale of Tennessee municipal bonds or U.S. government
securities. While dividends paid out of income earned on Tennessee municipal
bonds are not subject to Tennessee income tax, if you are subject to tax in a
state other than Tennessee, these dividends may be included in calculating
taxable income for that state. You will be subject to Tennessee person al income
taxes, however, to the extent the fund distributes any taxable income or
realized capital gains on other securities. You will not be subject to Tennessee
personal income taxes if you sell or exchange fund shares.
The treatment of corporate shareholders of the fund differs from that described
above. Corporate shareholders should refer to the Statement of Additional
Information for more detailed state tax information.
Appendix 31
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
International Growth Fund
Innovation Fund
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Dividend and Growth Fund
Income
Income Fund
Floating Rate Fund/1/
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona
California/2/
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts/2/
Michigan
Missouri
New Jersey
New Mexico
New York/2/
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you. The Statement of
Additional Information (SAI), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Additional
information about the funds' investments is available in the funds' annual and
semi-annual report to shareholders. In the funds' annual reports, you will find
a discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal year.
Call Nuveen at (800) 257-8787 to request a free copy of any of these materials
or other fund information or ask your financial advisor for copies.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission (SEC). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549.
The funds' Investment Company file number is 811-07943.
1. This is a continuously-offered closed-end interval fund. As such, redemptions
are only available during quarterly repurchase periods. See fund prospectus
for additional information.
2. Long-term and insured long-term portfolios.
NUVEEN Investments
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
September 28, 2000
NUVEEN MULTISTATE TRUST III
Nuveen Georgia Municipal Bond Fund
Nuveen Louisiana Municipal Bond Fund
Nuveen North Carolina Municipal Bond Fund
Nuveen Tennessee Municipal Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectus of
Nuveen Multistate Trust III dated September 28, 2000. The Prospectus may be
obtained without charge from certain securities representatives, banks, and
other financial institutions that have entered into sales agreements with
Nuveen Investments, or from the Funds, by mailing a written request to the
Funds, c/o Nuveen Investments, 333 West Wacker Drive, Chicago, Illinois 60606
or by calling (800) 257-8787.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-12
Investment Adviser and Investment Management Agreement..................... S-20
Portfolio Transactions..................................................... S-21
Net Asset Value............................................................ S-22
Tax Matters................................................................ S-22
Performance Information.................................................... S-29
Additional Information on the Purchase and Redemption of Fund Shares....... S-35
Distribution and Service Plan.............................................. S-44
Independent Public Accountants and Custodian............................... S-45
Financial Statements....................................................... S-45
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Report; each is included herein by reference.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
Investment Policies
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each Fund, as a fundamental policy, may
not, without the approval of the holders of a majority of the shares of that
Fund:
(1) Invest in securities other than Municipal Obligations and short-term
securities, as described in the Prospectus. Municipal Obligations are
municipal bonds that pay interest that is exempt from regular federal,
state and, in some cases, local income taxes.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the Tennessee Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
S-2
<PAGE>
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental entity or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Multistate Trust III, formerly Nuveen Flagship Multistate Trust
III (the "Trust"), is an open-end management series investment company
organized as a Massachusetts business trust on July 1, 1996. Each Fund is an
open-end management investment company organized as a series of the Trust. The
Trust is an open-end management series company under SEC Rule 18f-2. Each Fund
is a separate series issuing its own shares. The Trust currently has four
series: Nuveen Georgia Municipal Bond Fund (formerly Nuveen Flagship Georgia
S-3
<PAGE>
Municipal Bond Fund and prior to that, Flagship Georgia Double Tax Exempt Fund,
a series of the Flagship Tax Exempt Funds Trust); the Nuveen Louisiana
Municipal Bond Fund (formerly Nuveen Flagship Louisiana Municipal Bond Fund and
prior to that, Flagship Louisiana Double Tax Exempt Fund, a series of the
Flagship Tax Exempt Funds Trust); the Nuveen North Carolina Municipal Bond Fund
(formerly Nuveen Flagship North Carolina Municipal Bond Fund and prior to that,
Flagship North Carolina Tax Exempt Fund, a series of the Flagship Tax Exempt
Funds Trust); and the Nuveen Tennessee Municipal Bond Fund (formerly Nuveen
Flagship Tennessee Municipal Bond Fund and prior to that, Flagship Tennessee
Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds Trust).
Certain matters under the Investment Company Act of 1940 which must be
submitted to a vote of the holders of the outstanding voting securities of a
series company shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding voting securities of
each Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
Portfolio Securities
As described in the Prospectus, each Fund invests substantially all of its
assets (at least 80%) in a portfolio of Municipal Obligations free from regular
federal, state and, in some cases, local income tax in each Fund's respective
state, which generally will be Municipal Obligations issued within the Fund's
respective state. In general, Municipal Obligations include debt obligations
issued by states, cities and local authorities to obtain funds for various
public purposes, including construction of a wide range of public facilities
such as airports, bridges, highways, hospitals, housing, mass transportation,
schools, streets and water and sewer works. Industrial development bonds and
pollution control bonds that are issued by or on behalf of public authorities
to finance various privately-rated facilities are included within the term
Municipal Obligations if the interest paid thereon is exempt from federal
income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch, Inc. ("Fitch"), (2) unrated Municipal
Obligations which, in the opinion of Nuveen Advisory, have credit
characteristics equivalent to bonds rated within the four highest grades by
Moody's, S&P or Fitch, except that the Fund may not invest more than 20% of its
net assets in unrated bonds and (3) temporary investments as described below,
the income from which may be subject to state income tax or to both federal and
state income taxes. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has
S-4
<PAGE>
no obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Although
nonappropriation lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
A Fund will seek to minimize the special risks associated with such securities
by only investing in those nonappropriation leases where Nuveen Advisory has
determined that the issuer has a strong incentive to continue making
appropriations and timely payment until the security's maturity. Some lease
obligations may be illiquid under certain circumstances. Lease obligations
normally provide a premium interest rate which along with regular amortization
of the principal may make them attractive for a portion of the assets of the
Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
Investments in Inverse Floating Rate Securities. The Funds may invest in
inverse floating rate municipal securities or "inverse floaters", whose rates
vary inversely to interest rates on a specified index or on another instrument.
Such securities involve special risks as compared to conventional fixed-rate
bonds. Should short-term interest rates rise, a fund's investment in inverse
floaters likely would adversely affect the fund's earnings and distributions to
shareholders. Also, because changes in the interest rate on the other security
or index inversely affect the rate of interest received on an inverse floater,
and because inverse floaters essentially represent a leveraged investment in a
long-term bond, the value of an inverse floater is generally more volatile than
that of a conventional fixed-rate bond having similar credit quality,
redemption provisions and maturity. Although volatile in value, inverse
floaters typically offer the potential for yields substantially exceeding the
yields available on fixed-rate bonds with comparable credit quality, coupon,
call provisions and maturity. The markets for such securities may be less
developed and have less liquidity than the markets for conventional securities.
Each Fund, as a non-fundamental policy that may be changed by the Board of
Trustees, will not invest more than 15% of its total assets in inverse
floaters.
Portfolio Trading and Turnover
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with their investment objective. Securities may
be sold in anticipation of market decline or purchased in anticipation of
market rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage
of what Nuveen Advisory believes to be a temporary disparity in the normal
yield relationship between the two securities. Each Fund may make changes in
its investment portfolio in order to limit its exposure to changing market
conditions. Changes in a Fund's investments are known as "portfolio turnover."
While it is impossible to predict future portfolio turnover rates, the annual
portfolio turnover rate for each Fund is generally not expected to exceed 75%.
However, each Fund reserves the right to make changes in its investments
whenever it deems such action advisable and, therefore, a Fund's annual
portfolio turnover rate may exceed 75% in particular years depending upon
market conditions.
S-5
<PAGE>
The portfolio turnover rates for the 1999 and 2000 fiscal years for the Funds
were:
<TABLE>
<CAPTION>
Fiscal Year
------------
1999 2000
----- -----
<S> <C> <C>
Nuveen Georgia Municipal Bond Fund.......................... 32% 15%
Nuveen Louisiana Municipal Bond Fund........................ 11% 29%
Nuveen North Carolina Municipal Bond Fund................... 11% 23%
Nuveen Tennessee Municipal Bond Fund........................ 16% 15%
</TABLE>
When-Issued Securities or Delayed-Delivery Securities
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed-delivery basis. When-issued and delayed-delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed-delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed-delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed-delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a delayed-delivery commitment are ignored
in calculating net asset value so long as the commitment remains in effect. The
Funds will maintain designated readily marketable assets at least equal in
value to commitments to purchase when-issued or delayed-delivery securities,
such assets to be segregated by the Custodian specifically for the settlement
of such commitments. The Funds will only make commitments to purchase Municipal
Obligations on a when-issued or delayed-delivery basis with the intention of
actually acquiring the securities, but the Funds reserve the right to sell
these securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be tax-
exempt. The Funds commonly engage in when-issued transactions in order to
purchase or sell newly-issued Municipal Obligations, and may engage in delayed-
delivery transactions in order to manage its operations more effectively.
Each Fund also may buy when-issued and delayed-delivery securities that
settle more than 60 days after purchase. These transactions are called
"forwards." Municipal "forwards" pay higher interest after settlement than
standard bonds, to compensate the buyer for bearing market risk and deferring
income during the settlement period, and can often be bought at attractive
prices and yields. If a Fund knows that a portfolio bond will, or is likely to,
be called or mature on a specific future date, the Fund may buy forwards
settling on or about that date to replace the called or maturing bond and "lock
in" a currently attractive interest rate.
Special Considerations Relating to Municipal Obligations of Designated States
As described in the Prospectus, except for investments in temporary
investments, each Fund will invest substantially all of its assets (at least
80%) in municipal bonds that are exempt from federal and state tax in that
state ("Municipal Obligations"), generally Municipal Obligations issued in its
respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public authorities in the
states of currently offered Funds. This information was obtained from official
statements of issuers located in the respective states as well as from other
publicly available official documents and statements.
S-6
<PAGE>
The Funds have not independently verified any of the information contained in
such statements and documents. The information below is intended only as a
general summary, and is not intended as a discussion of any specific factor
that may affect any particular obligation or issuer.
Factors Pertaining to Georgia
One of the nation's fastest growing states in terms of population, Georgia
has benefited from steady economic and employment growth as a result of the
State's stable and broad-based trade/services economy, low average cost of
living, and extensive transportation infrastructure. The State's economy has
slowed somewhat since the activity associated with the 1996 Olympic games.
Despite the slight decline, Georgia's job creation continues to outpace the
national rate. Much of the growth has been in the business services and
healthcare sectors and has been centered in the metropolitan Atlanta area.
The State's unemployment level was 3.3% in July 2000, well below the national
average of 4.0% and down from the State's 4.0% rate in July 1999. Per capita
income in 1999 was $27,198, approximately 95% of the national average.
As of August 31, 2000, Georgia's general obligation debt carried AAA ratings
from Standard & Poor's, Moody's, and Fitch. These ratings reflect the State's
credit quality only, and do not indicate the creditworthiness of other tax-
exempt securities in which the Fund may invest.
Factors Pertaining to Louisiana
Louisiana's economic base has experienced some improvement after the
recession of the 1980's. The strong national economy is providing Louisiana
some job growth and diversification of employment. However, Louisiana continues
to lag the Southeast and the nation, in terms of economic growth. The State
continues to be reliant on oil and gas related industries. However, recent
technological advances in the exploration of oil have allowed for increased
productivity in the extraction of oil and gas. The gaming industry has been
relatively stable and appears to be most successful in Lake Charles and
Shreveport because of the proximity to Texas.
Tourism is becoming increasingly important to the economy, especially with
the emergence of the gaming industry in Louisiana. Between 1994 and 1999,
Louisiana tourism has grown by nearly 18%. In addition, a recent survey by the
Travel Industry Association of America named the Louisiana tourism industry as
one of the fastest growing in the nation.
The unemployment rate for the State was 4.5% in July 2000, above the national
average of 4.0%. Per capita income has increased and was $22,792 in 1999, but
remains at about 80% of the national average.
The State of Louisiana's financial situation has shown signs of recent
improvement, due in large part to the strong national economy and from the
current administration's decision to limit the use of one-time revenues for
recurring expenditures. Also, the State is addressing its historic over
reliance on Medicaid disproportionate share funding, which caused a budgetary
crisis in 1995 and 1996 when the State's funding was reduced.
As of August 31, 2000, the State's general obligation bond ratings by
Moody's, Standard & Poor's and Fitch were A2, A- and A, respectively. These
ratings reflect the State's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the Fund may invest.
Factors Pertaining to North Carolina
North Carolina's overall economy continues to grow and diversify. While
manufacturing remains an important employment sector, the services and retail
trade sectors also supply a significant percentage of employment. Growth in the
high-technology sector has helped diversify the State's economy and has also
helped offset recent employment losses in the manufacturing, textile, apparel,
and tobacco industries. The State's
S-7
<PAGE>
technology industry is centered around Raleigh, but continues to diversify into
other areas of the State, including Charlotte. Attracted by the existing high-
technology business in the State, several of the largest Internet and software
developers have opened facilities in North Carolina.
The State's unemployment rate was 3.2% in July 2000, below the national
average of 4.0% and approximately the same as the State's 3.1% rate in July
1999. Per capita income in 1999 was $26,220, approximately 92% of the national
average.
As of August 31, 2000, Moody's, Standard & Poor's, and Fitch all rated the
State's general obligation bonds AAA. These ratings reflect the State's credit
quality only, and do not indicate the creditworthiness of other tax-exempt
securities in which the Fund may invest.
Factors Pertaining to Tennessee
Tennessee's economy experienced strong growth in the early 1990's, but the
economic climate in the State has changed somewhat since then. Economic growth
has slowed from its strong pace of the early 1990's, as growth in the services
sector and in the State's major metropolitan areas has moderated. The Tennessee
economy has also been hurt by recent mergers and downsizing in the banking and
finance industries, which led to significant job losses. As a result of
continued growth in the auto and truck manufacturing sectors, the State is now
more vulnerable to economic cycles. Still, the overall State economy has been
relatively healthy.
Tennessee's unemployment rate in July 2000 was 3.6%, compared to the national
average of 4.0% and the State's 4.1% average in July 1999. Per capita income
was $25,581 in 1999, approximately 90% of the national average.
Tennessee also remains one of nine states without a personal income tax.
Both Moody's and Standard & Poor's downgraded Tennessee's general obligation
ratings to Aa1 and AA+, respectively in August 2000, reflecting agency concerns
about the State's financial position. The Fitch rating remains AAA. These
ratings reflect the State's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the Fund may invest.
Hedging and Other Defensive Actions
Each Fund may periodically engage in hedging transactions. Hedging is a term
used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to
S-8
<PAGE>
hedging transactions will reduce yield. Net gains, if any, from hedging and
other portfolio transactions will be distributed as taxable distributions to
shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
Short-Term Securities
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable short-term securities
("temporary investments"). Temporary investments will not exceed 20% of a
Fund's assets except when made for defensive purposes. The Funds will invest
only in taxable temporary investments that are either U.S. Government
securities or are rated within the highest grade by Moody's, S&P, or Fitch and
mature within one year from the date of purchase or carry a variable or
floating rate of interest. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
S-9
<PAGE>
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and each Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
S-10
<PAGE>
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-11
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has seven
trustees, one of whom is an "interested person" (as the term "interested
person" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
------------------------------------------------------------------------------------
<CAPTION>
Date of Positions and Principal Occupations
Name and Address Birth Offices with Fund During Past Five Years
------------------------------------------------------------------------------------
<C> <C> <C> <S>
Timothy R. Schwertfeger* 3/28/49 Chairman of the Board Chairman since July 1,
333 West Wacker Drive and President 1996 of The John Nuveen
Chicago, IL 60606 Trustee Company, Nuveen
Investments, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp., prior
thereto Executive Vice
President and Director
of The John Nuveen
Company and Nuveen
Investments; Director of
Nuveen Advisory Corp.
(since 1992) and Nuveen
Institutional Advisory
Corp.; Chairman and
Director (since January
1997) of Nuveen Asset
Management, Inc.;
Director (since 1996) of
Institutional Capital
Corporation; Chairman
and Director of
Rittenhouse Financial
Services Inc. (since
1999); Chief Executive
Officer (since September
1999) of Nuveen Senior
Loan Asset Management
Inc.
------------------------------------------------------------------------------------
Robert P. Bremner 8/22/40 Trustee Private Investor and
3725 Huntington Street, N.W. Management Consultant.
Washington, D.C. 20015
------------------------------------------------------------------------------------
Lawrence H. Brown 7/29/34 Trustee Retired (August 1989) as
201 Michigan Avenue Senior Vice President of
Highwood, IL 60040 The Northern Trust
Company
------------------------------------------------------------------------------------
Anne E. Impellizzeri 1/26/33 Trustee President and Chief
3 West 29th Street Executive Officer of
New York, NY 10001 Blanton-Peale Institutes
of Religion and Health
(since December 1990).
------------------------------------------------------------------------------------
Peter R. Sawers 4/3/33 Trustee Adjunct Professor of
22 The Landmark Business and Economics,
Northfield, IL 60093 University of Dubuque,
Iowa; Adjunct Professor,
Lake Forest Graduate
School of Management,
Lake Forest, Illinois.
------------------------------------------------------------------------------------
William J. Schneider 9/24/44 Trustee Senior Partner and Chief
4000 Miller-Valentine Ct. Operating Officer,
P.O. Box 744 Miller-Valentine
Dayton, OH 45401 Partners; Vice
President, Miller-
Valentine Group, a
development and contract
company; Member
Community Advisory
Board, National City
Bank, Dayton, Ohio.
</TABLE>
--------------------------------------------------------------------------------
S-12
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------
<CAPTION>
Date of Positions and Principal Occupations
Name and Address Birth Offices with Fund During Past Five Years
--------------------------------------------------------------------------------------
<C> <C> <C> <S>
Judith M. Stockdale 12/29/47 Trustee Executive Director,
35 E. Wacker Drive Gaylord and Dorothy
Suite 2600 Donnelley Foundation
Chicago, IL 60601 (since 1994); prior
thereto, Executive
Director, Great Lakes
Protection Fund (from
1990 to 1994).
--------------------------------------------------------------------------------
Alan G. Berkshire 12/28/60 Vice President and Senior Vice President
333 West Wacker Drive Assistant Secretary and General Counsel
Chicago, IL 60606 (since September 1997)
and Secretary (since May
1998) of The John Nuveen
Company, Nuveen
Investments, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp., Senior
Vice President and
Secretary (since
September 1999) of
Nuveen Senior Loan Asset
Management Inc.; prior
thereto, Partner in the
law firm of Kirkland &
Ellis.
--------------------------------------------------------------------------------
Peter H. D'Arrigo 11/28/67 Vice President and Vice President of Nuveen
333 West Wacker Drive Treasurer Investments(since
Chicago, IL 60606 January 1999), prior
thereto, Assistant Vice
President (from January
1997); formerly,
Associate of Nuveen
Investments; Vice
President and Treasurer
(since September 1999)
of Nuveen Senior Loan
Asset Management Inc.;
Chartered Financial
Analyst.
--------------------------------------------------------------------------------
Michael S. Davern 6/26/57 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 January 1997); prior
thereto, Vice President
and Portfolio Manager of
Flagship Financial.
--------------------------------------------------------------------------------------
Lorna C. Ferguson 10/24/45 Vice President Vice President of Nuveen
333 West Wacker Drive Investments; Vice
Chicago, IL 60606 President (since January
1998) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.
--------------------------------------------------------------------------------------
William M. Fitzgerald 3/2/64 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 December 1995);
Assistant Vice President
of Nuveen Advisory Corp.
(from September 1992 to
December 1995), prior
thereto, Assistant
Portfolio Manager of
Nuveen Advisory Corp.;
Chartered Financial
Analyst.
--------------------------------------------------------------------------------------
Stephen D. Foy 5/31/54 Vice President and Controller Vice President of Nuveen
333 West Wacker Drive Investments and (since
Chicago, IL 60606 May 1998) The John
Nuveen Company, Vice
President (since
September 1999) of
Nuveen Senior Loan Asset
Management Inc.;
Certified Public
Accountant.
--------------------------------------------------------------------------------------
J. Thomas Futrell 7/5/55 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.;
Chicago, IL 60606 Chartered Financial
Analyst.
</TABLE>
--------------------------------------------------------------------------------
S-13
<PAGE>
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Date of Positions and Principal Occupations
Name and Address Birth Offices with Fund During Past Five Years
-------------------------------------------------------------------------------
<C> <C> <C> <S>
Richard A. Huber 3/26/63 Vice President Vice President of Nuveen
333 West Wacker Drive Institutional Advisory
Chicago, IL 60606 Corp. (since March 1998)
and Nuveen Advisory Corp.
(since January 1997);
prior thereto, Vice
President and Portfolio
Manager of Flagship
Financial, Inc.
-------------------------------------------------------------------------------
Steven J. Krupa 8/21/57 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.
Chicago, IL 60606
-------------------------------------------------------------------------------
Larry W. Martin 7/27/51 Vice President and Vice President, Assistant
333 West Wacker Drive Assistant Secretary Secretary and Assistant
Chicago, IL 60606 General Counsel of Nuveen
Investments; Vice
President and Assistant
Secretary of Nuveen
Advisory Corp.; Vice
President and Assistant
Secretary of Nuveen
Institutional Advisory
Corp.; Assistant Secretary
of The John Nuveen Company
and (since January 1997)
Nuveen Asset Management
Inc.; Vice President and
Assistant Secretary (since
September 1999) of Nuveen
Senior Loan Asset
Management Inc.
-------------------------------------------------------------------------------
Edward F. Neild, IV 7/7/65 Vice President Vice President (since
333 West Wacker Drive September 1996),
Chicago, IL 60606 previously Assistant Vice
President (since December
1993) of Nuveen Advisory
Corp., Portfolio Manager
prior thereto; Vice
President (since September
1996), previously
Assistant Vice President
(since May 1995) of Nuveen
Institutional Advisory
Corp., Portfolio Manager
prior thereto; Chartered
Financial Analyst.
-------------------------------------------------------------------------------
Stephen S. Peterson 9/20/57 Vice President Vice President (since
333 West Wacker Drive September 1997),
Chicago, IL 60606 previously Assistant Vice
President (since September
1996), Portfolio Manager
prior thereto of Nuveen
Advisory Corp.; Chartered
Financial Analyst.
-------------------------------------------------------------------------------
Thomas C. Spalding, Jr. 7/31/51 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory
Corp.; Chartered Financial
Analyst.
-------------------------------------------------------------------------------
Gifford R. Zimmerman 9/9/56 Vice President and Vice President, Assistant
333 West Wacker Drive Secretary Secretary and Associate
Chicago, IL 60606 General Counsel formerly
Assistant General Counsel
of Nuveen Investments;
Vice President and
Assistant Secretary of
Nuveen Advisory Corp. and
Nuveen Institutional
Advisory Corp.; Vice
President and Assistant
Secretary of The John
Nuveen Company (since May
1994); Vice President and
Assistant Secretary (since
September 1999) of Nuveen
Senior Loan Asset
Management Inc.; Chartered
Financial Analyst.
</TABLE>
--------------------------------------------------------------------------------
S-14
<PAGE>
Timothy R. Schwertfeger and Peter R. Sawers serve as members of the Executive
Committee of the Board of Trustees. The Executive Committee, which meets
between regular meetings of the Board of Trustees, is authorized to exercise
all of the powers of the Board of Trustees.
The trustees of the Trust are directors or trustees, as the case may be, of
37 Nuveen open-end funds and 54 Nuveen closed-end funds advised by Nuveen
Advisory Corp. Mr. Schwertfeger is a director or trustee, as the case may be,
of 13 Nuveen open-end funds and closed-end funds advised by Nuveen
Institutional Advisory Corp. and two funds advised by Nuveen Senior Loan Asset
Management. None of the independent trustees has ever been a director, officer,
or employee of, or a consultant to, Nuveen Advisory, Nuveen or their
affiliates.
The following table sets forth compensation paid by the Trust to each of the
trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended May 31, 2000. The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust.
<TABLE>
<CAPTION>
Deferred Total Compensation
Aggregate Compensation from Trust and
Compensation Payable from Fund Complex
Name of Trustee from the Trust(1) the Trust(2) Paid to Trustees(3)
--------------- ----------------- ------------ -------------------
<S> <C> <C> <C>
Robert P. Bremner..... $2,418 $ 153 $71,000
Lawrence H. Brown..... $2,698 $ -- $75,500
Anne E. Impellizzeri.. $1,565 $1,020 $71,000
Peter R. Sawers....... $1,565 $1,021 $71,750
William J. Schneider.. $1,520 $1,000 $69,000
Judith M. Stockdale... $2,317 $ 257 $71,000
</TABLE>
--------
(1) The compensation paid (but not including amounts deferred) to the
independent trustees for the fiscal year ended May 31, 2000 for services to
the Trust.
(2) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. The amounts provided are
the total deferred fees (including the return from the assumed investment
in the eligible Nuveen Funds) payable from the Trust.
(3) Based on the compensation paid (including any amounts deferred) to the
independent trustees for the fiscal year ended May 31, 2000 for services to
the open-end and closed-end funds advised by NAC.
Each trustee who is not affiliated with NAC receives a $60,000 annual
retainer for serving as a director or trustee of all funds for which NAC serves
as investment adviser or manager and a $1,000 fee per day plus expenses for
attendance at all meetings held on a day on which a regularly scheduled Board
meeting is held, a $1,000 fee per day plus expenses for attendance in person or
a $500 fee per day plus expenses for attendance by telephone at a meeting held
on a day which no regular Board meeting is held and a $500 fee per day plus
expenses for attendance in person or by telephone at a meeting of the Executive
Committee held solely to declare dividends. The annual retainer, fees and
expenses are allocated among the funds for which NAC serves as investment
adviser or manager on the basis of relative net asset sizes. The Trust requires
no employees other than its officers, all of whom are compensated by NAC or
Nuveen.
The John Nuveen Company (JNC) maintains charitable contributions programs to
encourage the active support and involvement of individuals in the civic
activities of their community. These programs include a matching contributions
program and a direct contributions program. The independent trustees of the
funds managed by NAC are eligible to participate in the charitable
contributions program of JNC. Under the
S-15
<PAGE>
matching program, JNC will match the personal contributions of a trustee to
Section 501(c)(3) organizations up to an aggregate maximum amount of $10,000
during any calendar year. Under its direct (non-matching) program, JNC makes
contributions to qualifying Section 501(c)(3) organizations, as approved by the
Corporate Contributions Committee of JNC. The independent trustees are also
eligible to submit proposals to the committee requesting that contributions be
made under this program to Section 501(c)(3) organizations identified by the
trustee, in an aggregate amount not to exceed $5,000 during any calendar year.
Any contribution made by JNC under the direct program is made solely at the
discretion of the Corporate Contributions Committee.
The officers and trustees of each Fund, in the aggregate, own less than 1% of
the shares of the Fund.
The following table sets forth the percentage ownership of each person, who,
as of September 18, 2000, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Georgia Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 31.89%
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin./970C4
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Georgia Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 37.85
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97NC2
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Georgia Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 40.52
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin./97C83
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Georgia Municipal
Bond Fund Robert A. Scott 44.88
Class R Shares............ Faye Donley Scott
2065 Compton Way
Alpharetta, GA 30022
Carolyn P. Fellows 11.19
Carolyn P. Fellows Trust
415 Sassafras Rd.
Roswell, GA 30076-3669
Alan J. Brown 7.10
432 Calton Hill Ct.
Alpharetta, GA 30004
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
---------------------- ------------------------- ------------
<S> <C> <C>
National Financial Services 6.85%
FBO Stephen M. Stiglicz
and Janet A. Stiglicz
22 Forest Ln.
Tabernacle, NJ 08088-9027
J.V. Brooks 6.46
P.O. Box 818
Valdosta, GA 31603-0818
Roger T. Hansen 5.27
Marian L. Hansen
2289 Blaylock-Goldmine Rd.
Clayton, GA 30525
Kurt Vogt 5.03
and Inge Vogt
1118 Reading Dr., NW
Acworth, GA 30102-3426
Nuveen Louisiana Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 43.08
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin./70079
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Louisiana Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 52.07
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97NC5
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Louisiana Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 67.99
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin./97DD4
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Louisiana Municipal
Bond Fund Bear Stearns Securities Corp. 92.92
Class R Shares............ FBO 187-62656-28
1 Metrotech Center North
Brooklyn, NY 11201-3859
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen North Carolina
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 14.42%
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admin./970C6
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen North Carolina
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 9.18
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97NC8
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen North Carolina
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 16.59
Class C Shares............ le benefit of its customers
Attn: Fund Admin./97CM8
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen North Carolina
Municipal Bond Fund Wachovia Securities, Inc. 8.85
Class R Shares............ FBO 300-34799-16
P.O. Box 1220
Charlotte, NC 28201-1220
Louise S. Allen
157 Sitterson Loop 7.72
Plymouth, NC 27962-9566
Wayne D. Brodd 6.87
5012 Hermitage Dr.
Raleigh, NC 27612-2714
James H. Ward 5.81
P.O. Box 67
Plymouth, NC 27962-0067
Maryellen D. Casler 5.04
1726 Seabrook Ave.
Cary, NC 27511-5625
Nuveen Tennessee Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 20.53
Class A Shares............ le benefit of its customers
Attn: Fund Admin./970N6
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Tennessee Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 12.60%
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admin./97ND0
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Tennessee Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 49.43
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admin./97CM7
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Nuveen Tennessee Municipal
Bond Fund Darius A. Hensley 22.57
Class R Shares............ P.O. Box 305
Piney Flats, TN 37686-0305
Edward D. Jones and Co. FAO 16.27
Hugh A. Stephenson
EDJ 152-03466-1-8
P.O. Box 2500
Maryland Heights, MO 63043-8500
Burton C. Johnson 12.54
P.O. Box 486
Greeneville, TN 37744-0486
PaineWebber for the benefit of 11.92
Jeffery L. Cooper
P.O. Box 27461
Memphis, TN 38167-0461
J.C. Hawk 9.90
and Ruth L. Hawk
2015 Sherwood Dr.
Johnson City, TN 37601-3236
Merrill Lynch, Pierce, Fenner & Smith 9.07
for the sole benefit of its customers
Attn: Fund Admin./97NGO
4800 Deer Lake Dr., E. Fl 3
Jacksonville, FL 32246-6484
Walter Wolentarski 7.43
Patricia A. Wolentarski
665 Rebel Rd
Old Hickory, TN 37138-1045
Terry F. Heffstetler 5.46
Helen B. Heffstetler
3942 US Hwy. 411 S
Maryville, TN 37801-7646
</TABLE>
S-19
<PAGE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
Average Daily Net Assets Management Fee
------------------------ --------------
<S> <C>
For the first $125 million....................................... .5500 of 1%
For the next $125 million........................................ .5375 of 1%
For the next $250 million........................................ .5250 of 1%
For the next $500 million........................................ .5125 of 1%
For the next $1 billion.......................................... .5000 of 1%
For net assets over $2 billion................................... .4750 of 1%
</TABLE>
For the last three fiscal years, the Funds paid net management fees as
follows:
<TABLE>
<CAPTION>
Management Fees Net of Fee Waivers and Expense
Expense Reimbursement Paid to Reimbursements from
Nuveen Advisory for the Year Nuveen Advisory
Ended for the Year Ended
----------------------------- -----------------------
5/31/98 5/31/99 5/31/00 5/31/98 5/31/99 5/31/00
--------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Georgia Municipal
Bond Fund............... 461,866 634,915 809,814 278,606 212,546 6,667
Nuveen Louisiana
Municipal Bond Fund..... 412,374 523,717 688,167 122,920 164,948 16,608
Nuveen North Carolina
Municipal Bond Fund..... 1,064,856 842,438 1,067,109 -- 286,712 --
Nuveen Tennessee
Municipal Bond Fund..... 1,508,648 1,729,282 1,620,108 56,952 3,700 --
</TABLE>
In addition to the management fee of Nuveen Advisory, each Fund pays all
other costs and expenses of its operations and a portion of the Trust's general
administrative expenses allocated in proportion to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of Nuveen Investments
("Nuveen"), the Funds' principal underwriter. Nuveen is sponsor of the Nuveen
Defined Portfolios, registered unit investment trusts, is the principal
underwriter for the Nuveen Mutual Funds, and has served as co-managing
underwriter for the shares of the Nuveen Exchange-Traded Funds. Over 1.3
million individuals have invested to date in Nuveen's funds and trusts. Founded
in 1898, Nuveen brings over a century of expertise to the municipal bond
market. Overall, Nuveen and its affiliates manage or oversee more than $70
billion in assets in a variety of products. Nuveen is a subsidiary of The John
Nuveen Company which, in turn, is approximately 77% owned by The St. Paul
Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota and is
principally engaged in providing property-liability insurance through
subsidiaries. Effective January 1, 1997, The John Nuveen Company acquired
Flagship Resources Inc., and as part of that acquisition, Flagship Financial,
the adviser to the Flagship Funds, was merged with Nuveen Advisory.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
S-20
<PAGE>
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' securities business, the
negotiation of the prices to be paid for principal trades and the allocation of
its transactions among various dealer firms. Portfolio securities will normally
be purchased directly from an underwriter or in the over-the-counter market
from the principal dealers in such securities, unless it appears that a better
price or execution may be obtained elsewhere. Portfolio securities will not be
purchased from Nuveen or its affiliates except in compliance with the
Investment Company Act of 1940.
The Funds expect that substantially all portfolio transactions will be
effected on a principal (as opposed to an agency) basis and, accordingly, do
not expect to pay any brokerage commissions. Purchases from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers will include the spread between the bid and asked price.
Given the best price and execution obtainable, it will be the practice of the
Funds to select dealers which, in addition, furnish research information
(primarily credit analyses of issuers and general economic reports) and
statistical and other services to Nuveen Advisory. It is not possible to place
a dollar value on information and statistical and other services received from
dealers. Since it is only supplementary to Nuveen Advisory's own research
efforts, the receipt of research information is not expected to reduce
significantly Nuveen Advisory's expenses. While Nuveen Advisory will be
primarily responsible for the placement of the business of the Funds, the
policies and practices of Nuveen Advisory in this regard must be consistent
with the foregoing and will, at all times, be subject to review by the Board of
Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to the Funds from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
S-21
<PAGE>
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of the Funds' shares by The Chase
Manhattan Bank, the Funds' custodian, as of the close of trading (normally 4:00
p.m. Eastern Time) on each day on which the Exchange is normally open for
trading. The Exchange is not open for trading on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of a class of shares of a
Fund will be computed by dividing the market value of the Fund's assets
attributable to the class, less the liabilities attributable to the class, by
the number of shares of the class outstanding.
In determining net asset value for the Funds, the Funds' custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. Securities for which quotations are not readily available
(which constitute a majority of the securities held by the Funds) are valued at
fair value as determined by the pricing service using methods which include
consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Board of Trustees.
TAX MATTERS
Federal Income Tax Matters
The following discussion of federal income tax matters is based upon the
advice of Morgan, Lewis & Bockius LLP, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets is comprised of
cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to an amount not greater in value than 5% of the value of a Fund's
total assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the total assets is
invested in the securities of any one issuer (other than United States
Government securities and securities of other regulated investment companies)
or two or more issuers controlled by a Fund and engaged in the same, similar or
related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax on its distributions in any taxable year for which it distributes at
least 90% of the sum of (i) its "investment company taxable income" (which
includes dividends, taxable interest, taxable original issue discount and
market discount income, income from securities lending, net short-term capital
gain in excess of long-term capital loss, and any other taxable income other
than "net capital gain" (as defined below) and is reduced by deductible
expenses) and (ii) its net tax-exempt interest (the excess of its gross tax-
exempt interest income over certain disallowed deductions). A Fund may retain
for investment its net capital gain (which consists of the excess of its net
long-term capital gain
S-22
<PAGE>
over its net short-term capital loss). However, if a Fund retains any net
capital gain or any investment company taxable income, it will be subject to
tax at regular corporate rates on the amount retained. If a Fund retains any
capital gain, such Fund may designate the retained amount as undistributed
capital gains in a notice to its shareholders who, if subject to federal income
tax on long-term capital gains, (i) will be required to include in income for
federal income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law to the difference between the amount of the includible gain and the tax
deemed paid by the shareholder in respect of such shares. Each Fund intends to
distribute at least annually to its shareholders all or substantially all of
its net tax-exempt interest and any investment company taxable income and net
capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will generally be excludable from
federal gross income under Section 103(a) of the Code. In the case of non-
appropriation by a political subdivision, however, there can be no assurance
that payments made by the insurer representing interest on "non-appropriation"
lease obligations will be excludable from gross income for federal income tax
purposes.
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will
be treated as taxable interest income to the extent such gain does not exceed
the market discount, and any gain realized in excess of the market discount
will be treated as capital gains. Any net long-term capital gains realized by a
Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital
gain dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
S-23
<PAGE>
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Code for the dividends received
deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Present law taxes both long- and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, however, gain on the sale of shares held
for more than 12 months will generally be taxed at a maximum marginal rate of
20%, while gain on the sale of shares held for not more than one year and other
ordinary income will generally be taxed at a maximum marginal rate of 39.6%.
Because of the limitations on itemized deductions and the deduction for
personal exemptions applicable to higher income taxpayers, the effective tax
rate on net income may be higher in certain circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of a Fund if the shareholder purchases other shares of such Fund
(whether through reinvestment of distributions or otherwise) or the shareholder
acquires or enters into a contract or option to acquire securities that are
substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the
extent the
S-24
<PAGE>
redemption or exchange price exceeds the shareholder's tax basis in the shares
disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
S-25
<PAGE>
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisors
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
State Tax Matters
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
satisfy the conditions which will cause distributions to qualify as exempt-
interest dividends to shareholders when distributed as intended, and that each
Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax purposes. The tax discussion summarizes general state tax laws which
are currently in effect and are subject to change by legislative or
administrative action; any such changes may be retroactive with respect to the
applicable Fund's transactions. Investors should consult a tax advisor for more
detailed information about state taxes to which they may be subject.
Georgia
The following is a general, abbreviated summary of certain provisions of the
applicable Georgia tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Georgia Fund.
This summary does not address the taxation of other shareholders nor does it
discuss any local taxes that may be applicable. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Georgia Fund transactions.
The following is based on the assumptions that the Georgia Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause Georgia Fund distributions to qualify
as exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Georgia Fund's shareholders.
The Georgia Fund will be subject to the Georgia corporate net worth tax and
the Georgia corporate income tax only if it has a sufficient nexus with
Georgia. If it is subject to such taxes, it does not expect to pay a material
amount of either tax.
Distributions from the Georgia Fund that are attributable to interest on any
obligation of Georgia or its political subdivisions or on obligations of the
United States, its territories, possessions, or instrumentalities that are
exempt from state taxation under federal law will not be subject to the Georgia
personal income tax or the Georgia corporate income tax. All other
distributions, including distributions attributable to capital gains, will be
subject to the Georgia personal and corporate income taxes.
S-26
<PAGE>
Gain on the sale, exchange, or other disposition of shares of the Georgia
Fund will be subject to the Georgia personal and corporate income taxes.
Shares of the Georgia Fund may be subject to the Georgia estate tax if held
by a Georgia decedent at the time of death.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning Georgia and local tax matters.
Louisiana
The following is a general, abbreviated summary of certain provisions of the
applicable Louisiana tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Louisiana
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Louisiana Fund transactions.
The following is based on the assumptions that the Louisiana Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Louisiana Fund distributions to
qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Louisiana Fund's
shareholders.
The Louisiana Fund will be subject to the Louisiana corporate franchise tax
and corporate income tax only if it has a sufficient nexus with Louisiana. If
it is subject to such taxes, it does not expect to pay a material amount of
either tax.
Distributions by the Louisiana Fund that are attributable to interest on any
obligation of Louisiana and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Louisiana personal income tax or the Louisiana corporate
income tax. All other distributions, including distributions attributable to
capital gains, will be subject to the Louisiana personal and corporate income
taxes.
Gain on the sale, exchange, or other disposition of shares of the Louisiana
Fund will be subject to the Louisiana personal and corporate income taxes.
Shares of the Louisiana Fund may be subject to the Louisiana inheritance tax
and the Louisiana estate tax if held by a Louisiana decedent at the time of
death.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning Louisiana tax matters.
North Carolina
The following is a general, abbreviated summary of certain provisions of the
applicable North Carolina tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the North
Carolina Fund. This summary does not address the taxation of other shareholders
nor does it discuss any local taxes that may be applicable. These provisions
are subject to change by legislative or administrative action, and any such
change may be retroactive with respect to North Carolina Fund transactions.
The following is based on the assumptions that the North Carolina Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause North Carolina Fund
distributions to qualify as exempt-interest dividends to shareholders, and that
it will distribute all interest and dividends it receives to the North Carolina
Fund's shareholders.
S-27
<PAGE>
The North Carolina Fund will be subject to the North Carolina corporation
income tax and the North Carolina franchise tax only if it has a sufficient
nexus with North Carolina. If it is subject to such taxes, it does not expect
to pay a material amount of either tax.
Distributions from North Carolina Fund that are attributable to interest on
any obligation of North Carolina or its political subdivisions or to interest
on obligations of the United States, its territories, possessions, or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the North Carolina personal income tax or the North Carolina
corporation income tax. All other distributions, including distributions
attributable to capital gains, will be subject to the North Carolina personal
and corporate income taxes.
Gain on the sale, exchange, or other disposition of shares of the North
Carolina Fund will be subject to the North Carolina personal and corporate
income taxes.
Shares of the North Carolina Fund may be subject to the North Carolina estate
tax if owned by a North Carolina decedent at the time of death.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning North Carolina and local tax matters.
Tennessee
The following is a general, abbreviated summary of certain provisions of the
applicable Tennessee tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the Tennessee
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Tennessee Fund transactions.
The following is based on the assumptions that the Tennessee Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will invest at least 75% of its assets in obligations of Tennessee and its
political subdivisions ("Tennessee Obligations") or obligations of the United
States, its territories, possessions, or instrumentalities that are exempt from
state taxation under federal law ("Federal Obligations"), that it will satisfy
the conditions which will cause Tennessee Fund distributions to qualify as
exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the Tennessee Fund's shareholders.
The Tennessee Fund is not expected to be subject to Tennessee franchise or
corporate excise taxes.
Distributions from the Tennessee Fund that are attributable to interest on
Tennessee Obligations or to interest on Federal Obligations will not be subject
to the Tennessee individual income tax (also known as the "Hall income tax").
In addition, under current administrative practice of the Tennessee Department
of Revenue, dividends attributable to gains realized from the sale or exchange
of Tennessee Obligations or Federal Obligations will not be subject to the
Tennessee individual income tax. All other distributions will be subject to
such tax.
All distributions from the Tennessee Fund, regardless of source, will be
subject to the Tennessee corporate excise tax.
Gain on the sale, exchange, or other disposition of shares of the Tennessee
Fund will not be subject to the Tennessee individual income tax but will be
subject to the Tennessee corporate excise tax.
S-28
<PAGE>
Shares of the Tennessee Fund may be subject to the Tennessee inheritance tax
and the Tennessee estate tax if owned by a Tennessee decedent at the time of
death.
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning Tennessee and local tax matters.
PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each
of which will be calculated separately for each class of shares.
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b +1)/6/ -1]
---
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20%.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
S-29
<PAGE>
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
As of May 31, 2000
------------------------------------------
30-
day Combined Federal Taxable
Yield and State Tax Rate* Equivalent Yield
----- ------------------- ----------------
<S> <C> <C> <C>
Nuveen Georgia Municipal Bond
Fund
Class A Shares............. 3.65% 43.0% 6.40%
Class B Shares............. 3.06% 43.0% 5.37%
Class C Shares............. 3.25% 43.0% 5.70%
Class R Shares............. 4.00% 43.0% 7.02%
Nuveen Louisiana Municipal
Bond Fund
Class A Shares............. 4.09% 42.0% 7.05%
Class B Shares............. 3.53% 42.0% 6.09%
Class C Shares............. 3.73% 42.0% 6.43%
Class R Shares............. 4.47% 42.0% 7.71%
Nuveen North Carolina
Municipal Bond Fund
Class A Shares............. 4.16% 44.5% 7.50%
Class B Shares............. 3.59% 44.5% 6.47%
Class C Shares............. 3.80% 44.5% 6.85%
Class R Shares............. 4.54% 44.5% 8.18%
Nuveen Tennessee Municipal
Bond Fund
Class A Shares............. 4.22% 43.0% 7.40%
Class B Shares............. 3.65% 43.0% 6.40%
Class C Shares............. 3.86% 43.0% 6.77%
Class R Shares............. 4.60% 43.0% 8.07%
</TABLE>
--------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields table in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Defined Portfolios, or the
maximum public offering price). The distribution rate differs from yield and
total return and therefore is not intended to be a complete measure of
performance. Distribution rate may sometimes differ from yield because a Fund
may be paying out more than it is earning and because it may not include the
effect of amortization of bond premiums to the extent such premiums arise after
the bonds were purchased.
S-30
<PAGE>
The distribution rates as of the date quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20%, were as follows:
<TABLE>
<CAPTION>
May 31, 2000
-------------------------------
Distribution Rates
-------------------------------
Class A Class B Class C Class R
------- ------- ------- -------
<S> <C> <C> <C> <C>
Nuveen Georgia Municipal Bond Fund....... 5.05% 4.49% 4.68% 5.47%
Nuveen Louisiana Municipal Bond Fund..... 5.09% 4.56% 4.74% 5.49%
Nuveen North Carolina Municipal Bond
Fund..................................... 5.09% 4.54% 4.75% 5.49%
Nuveen Tennessee Municipal Bond Fund..... 5.12% 4.58% 4.76% 5.52%
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Total returns for the Class A Shares of each fund reflect actual performance
for all periods. For the Class B, C and R Shares, total returns reflect actual
performance for periods since class inception, and the Class A Shares'
performance for periods prior to inception, adjusted for the differences in
sales charges (and for Class B and C, fees) between the classes.
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
Inception Dates
------------------
<S> <C>
Nuveen Georgia Municipal Bond Fund
Class A Shares....................................... March 27, 1986
Class B Shares....................................... February 1, 1997
Class C Shares....................................... January 4, 1994
Class R Shares....................................... February 1, 1997
Nuveen Louisiana Municipal Bond Fund
Class A Shares....................................... September 12, 1989
Class B Shares....................................... February 1, 1997
Class C Shares....................................... February 2, 1994
Class R Shares....................................... February 1, 1997
Nuveen North Carolina Municipal Bond Fund
Class A Shares....................................... March 27, 1986
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
Nuveen Tennessee Municipal Bond Fund
Class A Shares....................................... November 2, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
</TABLE>
S-31
<PAGE>
The annual total return figures for the Funds, including the effect of the
maximum sales charge for Class A shares, and applicable CDSC for Class B
Shares, for the one-year, five-year and ten-year periods (as applicable) ended
May 31, 2000 and for the period from inception through May 31, 2000,
respectively, using the performance of the oldest class for periods prior to
the inception of the newer classes, as described above, were as follows:
<TABLE>
<CAPTION>
Annual Total Return
--------------------------------------------
One Year Five Years Ten Years From Inception
Ended Ended Ended through
May 31, May 31, May 31, May 31,
2000 2000 2000 2000
-------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Nuveen Georgia Municipal
Bond Fund
Class A Shares............ -8.05% 3.58% 5.72% 6.22%
Class B Shares............ -8.42% 3.62% 5.69% 6.21%
Class C Shares............ -4.61% 3.91% 5.57% 5.94%
Class R Shares............ -3.89% 4.57% 6.21% 6.57%
Nuveen Louisiana Municipal
Bond Fund
Class A Shares............ -8.83% 3.56% 6.30% 6.32%
Class B Shares............ -9.16% 3.58% 6.26% 6.29%
Class C Shares............ -5.36% 3.87% 6.17% 6.16%
Class R Shares............ -4.73% 4.58% 6.82% 6.81%
Nuveen North Carolina
Municipal Bond Fund
Class A Shares............ -7.89% 2.97% 5.33% 5.68%
Class B Shares............ -8.10% 3.03% 5.29% 5.67%
Class C Shares............ -4.28% 3.28% 5.19% 5.41%
Class R Shares............ -3.53% 4.00% 5.85% 6.05%
Nuveen Tennessee Municipal
Bond Fund
Class A Shares............ -7.73% 3.09% 5.53% 6.25%
Class B Shares............ -7.96% 3.12% 5.49% 6.24%
Class C Shares............ -4.21% 3.40% 5.39% 6.02%
Class R Shares............ -3.40% 4.08% 6.03% 6.66%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
S-32
<PAGE>
The cumulative total return figures for the Funds, including the effect of
the maximum sales charge for the Class A Shares, and applicable CDSC for Class
B Shares, for the one-year, five-year and ten-year periods (as applicable)
ended May 31, 2000, and for the period since inception through May 31, 2000,
respectively, using the performance of the oldest class for periods prior to
the inception of the newer classes, as described above, were as follows:
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------
From
One Year Five Years Ten Years Inception
Ended Ended Ended through
May 31, May 31, May 31, May 31,
2000 2000 2000 2000
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Nuveen Georgia Municipal Bond
Fund
Class A Shares................. -8.05% 19.24% 74.38% 135.20%
Class B Shares................. -8.42% 19.48% 73.89% 134.88%
Class C Shares................. -4.61% 21.13% 71.94% 126.56%
Class R Shares................. -3.89% 25.02% 82.73% 146.45%
Nuveen Louisiana Municipal Bond
Fund
Class A Shares................. -8.83% 19.13% 84.18% 92.83%
Class B Shares................. -9.16% 19.25% 83.60% 92.30%
Class C Shares................. -5.36% 20.91% 81.92% 89.67%
Class R Shares................. -4.73% 25.12% 93.46% 102.53%
Nuveen North Carolina Municipal
Bond Fund
Class A Shares................. -7.89% 15.75% 68.11% 118.79%
Class B Shares................. -8.10% 16.09% 67.51% 118.71%
Class C Shares................. -4.28% 17.51% 65.80% 110.99%
Class R Shares................. -3.53% 21.68% 76.62% 130.04%
Nuveen Tennessee Municipal Bond
Fund
Class A Shares................. -7.73% 16.41% 71.28% 114.41%
Class B Shares................. -7.96% 16.61% 70.67% 114.21%
Class C Shares................. .-4.21% 18.21% 69.06% 108.70%
Class R Shares................. -3.40% 22.11% 79.66% 124.94%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. The taxable equivalent total return of a tax-exempt fund
represents the pre-tax total return a hypothetical taxable fixed-income
investment paying the same after-tax income as the tax-exempt fund (based on an
assumed income tax rate) and otherwise experiencing the same investment
performance as the tax-exempt fund would have provided. This figure can
facilitate the comparison of otherwise comparable taxable and tax-exempt funds.
Taxable equivalent total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, computing the total return for each calendar year in the period in the
manner described above, and increasing the total return for each such calendar
year by the amount of additional income that a taxable fund would need to have
generated to equal the income on an after-tax basis, at a specified income tax
rate (usually the highest marginal federal tax rate), calculated as described
above under the discussion of "taxable equivalent yield." The resulting amount
for the calendar year is then divided by the initial investment amount to
arrive at a "taxable equivalent total return factor" for the calendar year. The
taxable equivalent total return factors for all the calendar years are then
multiplied together and the result is then annualized by taking its Nth root (N
representing the number of years in the period) and subtracting 1, which
provides a taxable equivalent total return expressed as a percentage.
S-33
<PAGE>
Using a 43.0% combined marginal federal and state tax rate for 2000, the
annual taxable equivalent total return for the Nuveen Georgia Municipal Bond
Fund's Class A shares at net asset value for the one-year period ended May 31,
2000 was -.36%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U.S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Funds primarily invest in investment grade Municipal
Obligations in pursuing their objective of as high a level of current interest
income which is exempt from federal and state income tax as is consistent, in
the view of the Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury
securities funds, corporate bond funds (either investment
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grade or high yield), or Ginnie Mae funds. These types of funds, because of the
character of their underlying securities, differ from municipal bond funds in
several respects. The susceptibility of the price of treasury bonds to credit
risk is far less than that of municipal bonds, but the price of treasury bonds
tends to be slightly more susceptible to change resulting from changes in
market interest rates. The susceptibility of the price of investment grade
corporate bonds and municipal bonds to market interest rate changes and general
credit changes is similar. High yield bonds are subject to a greater degree of
price volatility than municipal bonds resulting from changes in market interest
rates and are particularly susceptible to volatility from credit changes.
Ginnie Mae bonds are generally subject to less price volatility than municipal
bonds from credit concerns, due primarily to the fact that the timely payment
of monthly installments of principal and interest are backed by the full faith
and credit of the U.S. Government, but Ginnie Mae bonds of equivalent coupon
and maturity are generally more susceptible to price volatility resulting from
market interest rate changes. In addition, the volatility of Ginnie Mae bonds
due to changes in market interest rates may differ from municipal bonds of
comparable coupon and maturity because bonds of the sensitivity of Ginnie Mae
prepayment experience to change in interest rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
The minimum initial investment is $3,000 per fund share class ($50 if you
establish a systematic investment plan), and may be lower for accounts opened
through fee-based programs for which the program Sponsor has established a
single master account with the fund's transfer agent and performs all sub-
accounting services related to that account.
Class A Shares may be purchased at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. Shareholders may qualify
for a reduced sales charge, or the sales charge may be waived in its entirety,
as described below. Class A Shares are also subject to an annual service fee of
.20%. See "Distribution and Service Plan." Set forth below is an example of the
method of computing the offering price of the Class A shares of a Fund. The
example assumes a purchase on May 31, 2000 of Class A shares from the Nuveen
Georgia Municipal Bond Fund aggregating less than $50,000 subject to the
schedule of sales charges set forth in the Prospectus at a price based upon the
net asset value of the Class A shares.
<TABLE>
<S> <C>
Net Asset Value per share......................................... $10.01
Per Share Sales Charge--4.20% of public offering price (4.40% of
net asset value per share)....................................... .44
------
Per Share Offering Price to the Public............................ $10.45
</TABLE>
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The Funds receive the entire net asset value of all Class A Shares that are
sold. Nuveen retains the full applicable sales charge from which it pays the
uniform reallowances shown in the Prospectus to Authorized Dealers.
Reduction or Elimination of Up-Front Sales Charge on Class A Shares and Class R
Shares Purchase Eligibility
Rights of Accumulation. You may qualify for a reduced sales charge on a
purchase of Class A Shares of any Fund if the amount of your purchase, when
added to the value that day of all of your prior purchases of shares of any
Fund or of another Nuveen Mutual Fund, or Nuveen exchange-traded fund, or units
of a Nuveen Defined Portfolio, on which an up-front sales charge or ongoing
distribution fee is imposed, or is normally imposed, falls within the amounts
stated in the Class A Sales Charges and Commissions table in "How You Can Buy
and Sell Shares" in the Prospectus. You or your financial advisor must notify
Nuveen or the Fund's transfer agent of any cumulative discount whenever you
plan to purchase Class A Shares of a Fund that you wish to qualify for a
reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How You
Can Buy and Sell Shares" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A Shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Mutual Fund
that you already own on which you paid an up-front sales charge or an ongoing
distribution fee and any Class B or C Shares of a Nuveen Mutual Fund that you
purchase over the next 13 months towards completion of your investment program,
but you will receive a reduced sales charge only on new Class A Shares you
purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without
a sales charge through investment of distributions from a Nuveen Mutual Fund,
Nuveen Exchange-Traded Fund or a Nuveen Defined Portfolio, or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount specified, you must pay
Nuveen an amount equal to the difference between the amounts paid for these
purchases and the amounts which would have been paid if the higher sales charge
had been applied. If you do not pay the additional amount within 20 days after
written request by Nuveen or your financial advisor, Nuveen will redeem an
appropriate number of your escrowed Class A Shares to meet the required
payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as
attorney to give instructions to redeem any or all of your escrowed shares,
with full power of substitution in the premises.
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You or your financial advisor must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Defined Portfolio Distributions. You may purchase
Class A Shares without an up-front sales charge by reinvestment of
distributions from any of the various Defined Portfolios sponsored by Nuveen.
There is no initial or subsequent minimum investment requirement for such
reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten or more participating members, has agreed to
include Fund sales publications in mailings to members and has agreed to comply
with certain administrative requirements relating to its group purchases.
Under any group purchase program, the minimum initial investment in Class A
Shares of any particular Fund or portfolio for each participant is $50,
provided that a group invests at least $3,000 and, the minimum monthly
investment in Class A Shares of any particular Fund or portfolio by each
participant is $50. No certificates will be issued for any participant's
account. All dividends and other distributions by a Fund will be reinvested in
additional Class A Shares of the same Fund. No participant may utilize a
systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out the appropriate application materials, which the
group administrator may obtain from the group's financial advisor, by calling
Nuveen toll-free (800) 257-8787.
Reinvestment of Redemption Proceeds from Unaffiliated Funds Subject to Merger
or Closure. You may also purchase Class A Shares at net asset value without a
sales charge if the purchase takes place through a broker-dealer and represents
the reinvestment of the proceeds of the redemption of shares of one or more
registered investment companies not affiliated with Nuveen that are subject to
merger or closure. You must provide appropriate documentation that the
redemption occurred not more than one year prior to the reinvestment of the
proceeds in Class A Shares, and that you either paid an up-front sales charge
or were subject to a contingent deferred sales charge in respect of the
redemption of such shares of such other investment company.
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and may be purchased by the following
categories of investors:
. investors purchasing $1,000,000 or more; Nuveen may pay Authorized
Dealers on Class A sales of $1.0 million and above up to an additional
0.25% of the purchase amounts.
. officers, trustees and former trustees of the Nuveen and former Flagship
Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
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<PAGE>
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services; and
. any eligible employer-sponsored qualified defined contribution retirement
plan. Eligible plans are those with at least 25 employees and that either
(a) make an initial purchase of one or more Nuveen Mutual Funds
aggregating $500,000 or more or (b) execute a Letter of Intent to
purchase in the aggregate $500,000 or more of fund shares. Nuveen will
pay authorized dealers a sales commission on these purchases equal to 1%
of the first $2.5 million, plus 0.50% of the next $2.5 million, plus
0.25% of any amount purchased over $5.0 million. For this category of
investors a contingent deferred sales charge of 1% will be assessed on
redemptions within 18 months of purchase, unless waived. Municipal bond
funds are not a suitable investment for individuals investing in
retirement plans.
Also, investors will be able to buy Class A shares at net asset value by
using the proceeds of sales of Nuveen Exchange-Traded fund shares or the
termination/maturity proceeds from Nuveen Defined Portfolios. You must provide
Nuveen appropriate documentation that the fund sale or Defined Portfolio
termination/maturity occurred not more than one year prior to reinvestment. In
addition, investors also may buy Class A shares at net asset value without a
sales charge by directing their monthly dividends from Nuveen Exchange-Traded
funds.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. Holders of Class C Shares purchased after that date will not have
the option to convert those shares to Class A Shares.
Class B Shares will automatically convert to Class A Shares eight years after
purchase. The purpose of the conversion is to limit the distribution fees you
pay over the life of your investment. All conversions will be done at net asset
value without the imposition of any sales load, fee, or other charge, so that
the value of each shareholder's account immediately before conversion will be
the same as the value of the account immediately after conversion. Class B
Shares acquired through reinvestment of distributions will convert into Class A
Shares based on the date of e initial purchase to which such shares relate. For
this purpose, Class B Shares acquired through reinvestment of distributions
will be attributed to particular purchases of Class B Shares in accordance with
such procedures as the Board of Trustees may determine from time to time. A
Class B Shares that are converted to Class A Shares will remain subject to an
annual service fee that is identical in amount for both Class B Shares and
Class A Shares. Since net asset value per share of the Class B Shares and the
Class A Shares may differ at the time of conversion, a shareholder may receive
more or fewer Class A Shares than the number of Class B Shares converted. Any
conversion of Class B Shares into Class A Shares will be subject to the
continuing availability of an opinion of counsel or a private letter ruling
from the Internal Revenue Service to the effect that the conversion of shares
would not constitute a taxable event under federal income tax law. Conversion
of Class B Shares into Class A Shares might be suspended if such an opinion or
ruling were no longer available.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial advisor must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
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<PAGE>
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $10 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and former Flagship
Funds; and their immediate family members or trustees/directors of any
fund, sponsored by Nuveen, any parent company of Nuveen and subsidiaries
thereof and their immediate family members;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. officers, directors or bona fide employees of any investment advisory
partner of Nuveen that provides sub-advisory services for a Nuveen
product, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisors, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services;
Any shares purchased by investors falling within any of the first five
categories listed above must be acquired for investment purposes and on the
condition that they will not be transferred or resold except through redemption
by the fund.
In addition, purchasers of Nuveen Defined Portfolios may reinvest their
distributions from such Defined Portfolios in Class R Shares, if, before
September 6, 1994, such purchasers of Nuveen unit investment trusts had elected
to reinvest distributions in Nuveen Fund shares (before June 13, 1995 for
Nuveen Municipal Bond Fund shares). Shareholders may exchange their Class R
Shares of any Nuveen Fund into Class R Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time.
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<PAGE>
If you are eligible to purchase either Class R Shares or Class A Shares
without a sales charge at net asset value, you should be aware of the
differences between these two classes of shares. Class A Shares are subject to
an annual service fee to compensate Authorized Dealers for providing you with
ongoing account services. Class R Shares are not subject to a distribution or
service fee and, consequently, holders of Class R Shares may not receive the
sale types or levels of services from Authorized Dealers. In choosing between
Class A Shares and Class R Shares, you should weigh the benefits of the
services to be provided by Authorized Dealers against the annual service fee
imposed upon the Class A Shares.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 257-8787.
Reduction or Elimination of Contingent Deferred Sales Charge
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value because the purchase amount exceeded $1
million, where the Authorized Dealer did not waive the sales commission, a CDSC
of 1% is imposed on any redemption within 18 months of purchase. In the case of
Class B Shares redeemed within six years of purchase, a CDSC is imposed,
beginning at 5% for redemptions within the first year, declining to 4% for
redemptions within years two and three, and declining by 1% each year
thereafter until disappearing after the sixth year. Class C Shares are redeemed
at net asset value, without any CDSC, except that a CDSC of 1% is imposed upon
redemption of Class C Shares that are redeemed within 12 months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, and then will redeem shares held for the longest period,
unless the shareholder specifies another order. No CDSC is charged upon shares
purchased as a result of automatic reinvestment of dividends or capital gains
paid. In addition, no CDSC will be charged on exchanges of shares into another
Nuveen Mutual Fund or Nuveen money market fund. The holding period is
calculated on a monthly basis and begins the first day of the month in which
the order for investment is received. The CDSC is calculated based on the lower
of the redeemed shares' cost or net asset value at the time of the redemption
and is deducted from the redemption proceeds. Nuveen receives the amount of any
CDSC shareholders pay. If shares subject to a CDSC are exchanged for shares of
a Nuveen money market fund, the CDSC would be imposed on the subsequent
redemption of those money market shares, and the period during which the
shareholder holds the money market fund shares would be counted in determining
the remaining duration of the CDSC. The Fund may elect not to so count the
period during which the shareholder held the money market fund shares, in which
event the amount of any applicable CDSC would be reduced in accordance with
applicable rules by the amount of any 12b-1 plan payments to which those money
market funds shares may be subject.
The CDSC may be waived or reduced under the following seven special
circumstances: 1) redemptions within one year following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended, of a shareholder; 2) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge; 4)
in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are
reinvested in shares of certain Funds within a specified number of days; 5) in
connection with the exercise of a Fund's right to redeem all shares in an
account that does not maintain a certain minimum balance or that the applicable
board has determined may have material adverse consequences to the shareholders
of such Fund; 6) involuntary redemptions caused by operation of law; 7)
redemptions in connection with a payment of account or plan fees; 8)
redemptions made pursuant to a Fund's systematic withdrawal plan, up to 1%
monthly, 3% quarterly, 6% semiannually or 12% annually of
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an account's net asset value depending on the frequency of the plan as
designated by the shareholder; and 9) redemptions of Class A, B or C Shares if
the proceeds are transferred to an account managed by another Nuveen Adviser
and the adviser refunds the advanced service and distribution fees to Nuveen.
If a Fund waives or reduces the CDSC, such waiver or reduction would be
uniformly applied to all Fund shares in the particular category. In waiving or
reducing a CDSC, the Funds will comply with the requirements of Rule 22d-1 of
the Investment Company Act of 1940, as amended.
Shareholder Programs
Exchange Privilege
You may exchange shares of a class of the Fund for shares of the same class
of any other Nuveen Mutual Fund with reciprocal exchange privileges, at net
asset value without a sales charge, by sending a written request to the Fund,
c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green Station, New York,
NY 10274-5186. Similarly, Class A, Class B, Class C and Class R Shares of other
Nuveen Mutual Funds may be exchanged for the same class of shares of the Fund
at net asset value without a sales charge. Exchanges of shares from any Nuveen
money market fund will be made into Class A Shares, Class B Shares, Class C
Shares or Class R Shares (if eligible) of the Fund at the public offering
price. If, however, a sales charge has previously been paid on the investment
represented by the exchanged shares (i.e., the shares to be exchanged were
originally issued in exchange for shares on which a sales charge was paid), the
exchange of shares from a Nuveen money market fund will be made into shares of
the Fund at net asset value. All shares may be exchanged for shares of any
Nuveen Money Market Fund.
If you exchange shares subject to a CDSC, no CDSC will be charged at the time
of the exchange. However, if you subsequently redeem the shares acquired
through the exchange, the redemption may be subject to a CDSC, depending on
when you purchased your original shares and the CDSC schedule of the fund from
which you exchanged your shares.
The shares to be purchased must be offered in your state of residence and you
must have held the shares you are exchanging for at least 15 days. The total
value of exchanged shares must at least equal the minimum investment
requirement of the Nuveen Mutual Fund being purchased. For federal income tax
purposes, any exchange constitutes a sale and purchase of shares and may result
in capital gain or loss. Before making any exchange, you should obtain the
Prospectus for the Nuveen Mutual Fund you are purchasing and read it carefully.
If the registration of the account for the Fund you are purchasing is not
exactly the same as that of the fund account from which the exchange is made,
written instructions from all holders of the account from which the exchange is
being made must be received, with signatures guaranteed by a member of an
approved Medallion Guarantee Program or in such other manner as may be
acceptable to the Fund. You may also exchange shares by telephone if you
authorize telephone exchanges by checking the applicable box on the Application
Form or by calling Nuveen Investor Services toll-free 800-257-8787 to obtain an
authorization form. The exchange privilege may be modified or discontinued by
the Fund at any time.
The exchange privilege is not intended to permit the Fund to be used as a
vehicle for short-term trading. Excessive exchange activity may interfere with
portfolio management, raise expenses, and otherwise have an adverse effect on
all shareholders. In order to limit excessive exchange activity and in other
circumstances where Fund management believes doing so would be in the best
interest of the Fund, the Fund reserves the right to revise or terminate the
exchange privilege, or limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such action to the extent
required by law.
Reinstatement Privilege
If you redeemed Class A, Class B or Class C Shares of the Fund or any other
Nuveen Mutual Fund that were subject to a sales charge or a CDSC, you have up
to one year to reinvest all or part of the full amount of
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the redemption in the same class of shares of the Fund at net asset value. This
reinstatement privilege can be exercised only once for any redemption, and
reinvestment will be made at the net asset value next calculated after
reinstatement of the appropriate class of Fund shares. If you reinstate shares
that were subject to a CDSC, your holding period as of the redemption date also
will be reinstated for purposes of calculating a CDSC and the CDSC paid at
redemption will be refunded. The federal income tax consequences of any capital
gain realized on a redemption will not be affected by reinstatement, but a
capital loss may be disallowed in whole or in part depending on the timing, the
amount of the reinvestment and the fund from which the redemption occurred.
General Matters
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen Mutual Funds
during specified time periods. Promotional support may include providing sales
literature to and holding informational or educational programs for the benefit
of such Authorized Dealers' representatives, seminars for the public, and
advertising and sales campaigns. Nuveen may reimburse a participating
Authorized Dealer for up to one-half of specified media costs incurred in the
placement of advertisements which jointly feature the Authorized Dealer and
Nuveen Funds and Nuveen Defined Portfolios.
Such reimbursement will be based on the number of Nuveen Fund shares sold,
the dollar amounts of such sales, or a combination of the foregoing, during the
prior calendar year according to an established schedule. Any such support or
reimbursement would be provided by Nuveen out of its own assets, and not out of
the assets of the Funds, and will not change the price an investor pays for
shares or the amount that a Fund will receive from such a sale.
To help advisors and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software, electronic information sites, or additional sales literature to
promote the advantages of using the Funds to meet these and other specific
investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
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emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
The Funds have reserved the right to redeem in kind (that is, to pay
redemption requests in cash and portfolio securities, or wholly in portfolio
securities), although the Funds have no present intention to redeem in kind.
The Funds voluntarily have committed to pay in cash all requests for redemption
by any shareholder, limited as to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value of a Fund at the
beginning of the ninety-day period.
Shares will be registered in the name of the investor or the investor's
financial advisor. A change in registration or transfer of shares held in the
name of a financial advisor may only be made by an order in good form from the
financial advisor acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
A fee of 1% of the current market value of any shares represented by a
certificate will be charged if the certificate is lost, stolen, or destroyed.
The fee is paid to Seaboard Surety Company for insurance of the lost, stolen,
or destroyed certificate.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Shares" in
the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Nuveen Flagship Multistate Trust III, dated February 1, 1997
and last renewed on July 31, 2000 ("Distribution Agreement"). Pursuant to the
Distribution Agreement, the Trust appointed Nuveen to be its agent for the
distribution of the Funds' shares on a continuous offering basis. Nuveen sells
shares to or through brokers, dealers, banks or other qualified financial
intermediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of the Trust.
Pursuant to the Distribution Agreement, Nuveen, at its own expense, finances
certain activities incident to the sale and distribution of the Funds' shares,
including printing and distributing of prospectuses and statements of
additional information to other than existing shareholders, the printing and
distributing of sales literature, advertising and payment of compensation and
giving of concessions to Dealers. Nuveen receives for its services the excess,
if any, of the sales price of the Funds' shares less the net asset value of
those shares, and reallows a majority or all of such amounts to the Dealers who
sold the shares; Nuveen may act as such a Dealer. Nuveen also receives
compensation pursuant to a distribution plan adopted by the Trust pursuant to
Rule 12b-1 and described herein under "Distribution and Service Plan." Nuveen
receives any CDSCs imposed on redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
May 31, 1998 May 31, 1999 May 31, 2000
------------------------ ------------------------ ------------------------
Amount of Amount Amount of Amount Amount of Amount
Underwriting Retained By Underwriting Retained By Underwriting Retained By
Commissions Nuveen Commissions Nuveen Commissions Nuveen
Fund ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Nuveen Georgia Municipal
Bond Fund.............. 300 41 387 19 83 11
Nuveen Louisiana
Municipal Bond Fund.... 367 39 303 -- 93 15
Nuveen North Carolina
Municipal Bond Fund.... 289 40 308 37 131 --
Nuveen Tennessee
Municipal Bond Fund.... 662 67 752 67 262 --
</TABLE>
S-43
<PAGE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended May 31, 2000, 100% of service fees and distribution
fees were paid out as compensation to Authorized Dealers. The service fee for
the Class A, Class B and Class C Shares was .20% and the distribution fee for
the Class B Shares was .75% and for the Class C Shares was .55%.
<TABLE>
<CAPTION>
Compensation Paid to
Authorized Dealers During
the Year Ended May 31, 2000
---------------------------
<S> <C>
Nuveen Georgia Municipal Bond Fund
Class A........................................... $230,031
Class B........................................... $116,789
Class C........................................... $159,678
Nuveen Louisiana Municipal Bond Fund
Class A........................................... $173,309
Class B........................................... $180,255
Class C........................................... $155,907
Nuveen North Carolina Municipal Bond Fund
Class A........................................... $331,705
Class B........................................... $105,308
Class C........................................... $129,949
Nuveen Tennessee Municipal Bond Fund
Class A........................................... $520,890
Class B........................................... $120,337
Class C........................................... $195,064
</TABLE>
S-44
<PAGE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast in person at a meeting called for the
purpose of considering such amendments. During the continuance of the Plan, the
selection and nomination of the non-interested trustees of the Trust will be
committed to the discretion of the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago, Illinois 60603 has been selected as auditors for the Trust. In
addition to audit services, the auditors will provide consultation and
assistance on accounting, internal control, tax and related matters. The
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for prior periods set forth under
"Financial Highlights" in the Prospectus have been audited by the auditors as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of those auditors in giving their reports.
The custodian of the Funds' assets is The Chase Manhattan Bank, 4 New York
Plaza, New York, New York 10004. The custodian performs custodial, fund
accounting, and portfolio accounting services.
The Funds' transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Report. Each Fund's Annual Report accompanies this
Statement of Additional Information.
S-45
<PAGE>
APPENDIX A
Ratings of Investments
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
A-1
<PAGE>
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
Futures and Index Transactions
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
B-1
<PAGE>
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
Index Contracts
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash--rather than any security--equal to specified dollar amount times the
difference between the index value at the close of the last trading day of the
contract and the price at which the index future was originally written. Thus,
an index future is similar to traditional financial futures except that
settlement is made in cash.
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
Repurchase Agreements
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or
B-2
<PAGE>
delays. If the seller becomes insolvent and subject to liquidation or
reorganization under applicable bankruptcy or other laws, the Fund's ability to
dispose of the underlying securities may be restricted. Finally, it is possible
that the Fund may not be able to substantiate its interest in the underlying
securities. To minimize this risk, the securities underlying the repurchase
agreement will be held by the custodian at all times in an amount at least
equal to the repurchase price, including accrued interest. If the seller fails
to repurchase the securities, the Fund may suffer a loss to the extent proceeds
from the sale of the underlying securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-3
VAI-MS3 9-99
<PAGE>
NUVEEN Investments
--------------------------------------------------------------------------------
Municipal Bond
Funds
------------------------------------------------------
ANNUAL REPORT MAY 31, 2000
--------------------------------------------------------------------------------
Dependable, tax-free income to help you keep more of what you earn.
--------------------------------------------------------------------------------
[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
<PAGE>
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
<PAGE>
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
<PAGE>
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
--------------------------------------------------------------------------------
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
<PAGE>
GEORGIA
Top Five Sectors
------------------------------------
Tax Obligation (Limited) 22%
------------------------------------
Housing (Multifamily) 17%
------------------------------------
U.S. Guaranteed 12%
------------------------------------
Healthcare 9%
------------------------------------
Water and Sewer 8%
------------------------------------
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
<PAGE>
NUVEEN FLAGSHIP GEORGIA MUNICIPAL BOND FUND
Fund Spotlight as of May 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Quick Facts
------------------------------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 10.01 $ 10.02 $ 9.99 $ 9.98
------------------------------------------------------------------------------------------------------------
Latest Monthly Dividend* $0.0440 $0.0375 $0.0390 $0.0455
------------------------------------------------------------------------------------------------------------
Fund Symbol FGATX N/A N/A N/A
------------------------------------------------------------------------------------------------------------
CUSIP 67065P501 67065P600 67065P709 67065P808
------------------------------------------------------------------------------------------------------------
Inception Date 3/86 2/97 1/94 2/97
------------------------------------------------------------------------------------------------------------
</TABLE>
*Paid June 1, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Total Returns as of 5/31/00+
------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------------------------------------
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>
------------------------------------------------------------------------------------------------------------
Total Returns as of 3/31/00+
------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------------------------------------
5-Year 5.43% 4.53% 4.77% 4.60% 4.86% 5.52%
------------------------------------------------------------------------------------------------------------
10-Year 6.47% 6.02% 6.00% 6.00% 5.87% 6.51%
------------------------------------------------------------------------------------------------------------
</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>
------------------------------------------------------------------------------------------------------------
Tax-Free Yields as of 5/31/00
------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------------------------------------
SEC 30-Day Yield 3.81% 3.65% 3.06% 3.25% 4.00%
------------------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 5.86% 5.62% 4.71% 5.00% 6.15%
------------------------------------------------------------------------------------------------------------
</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>
------------------------------------------------------------------------------------------------------------
Index Comparison.
------------------------------------------------------------------------------------------------------------
[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>
------------------------------------------------------------------------------------------------------------
Portfolio Statistics
------------------------------------------------------------------------------------------------------------
<S> <C>
Total Net Assets $136.8 million
------------------------------------------------------------------------------------------------------------
Average Effective Maturity 21.92 years
------------------------------------------------------------------------------------------------------------
Average Duration 8.96
------------------------------------------------------------------------------------------------------------
</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 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
--------------------------------------------------------------------------------
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
<PAGE>
PART C--OTHER INFORMATION
Item 22: Financial Statements.
Financial statements:
Included in the Prospectus:
Financial Highlights
Accompanying the Statement of Additional Information are the Funds' most
recent Annual Reports:
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Report of Independent Public Accountants
Item 23: Exhibits.
<TABLE>
<C> <S> <C>
a.1. Declaration of Trust of Registrant. Filed as Exhibit 1(a) to
Registrant's Registration Statement on Form N-1A (File No.
333-16611) and incorporated herein by reference thereto.
a.2. Amendment to Declaration of Trust of Registrant dated Septem-
ber 15, 2000.
a.3. Amended Establishment and Designation of Series of Shares of
Beneficial Interest dated September 15, 2000.
a.4. Certificate for the Establishment and Designation of Classes
dated July 10, 1996. Filed as Exhibit 1(c) to Registrant's
Registration Statement on Form N-1A (File No. 333-16611) and
incorporated herein by reference thereto.
a.5. Incumbency Certificate. Filed as Exhibit 1(d) to Post-Effec-
tive Amendment No. 1 to Registrant's Registration Statement on
Form N-1A (File No. 333-16611) and incorporated herein by ref-
erence thereto.
b. By-Laws of Registrant. Filed as Exhibit 2 to Registrant's Reg-
istration Statement on Form N-1A (File No. 333-16611) and in-
corporated herein by reference thereto.
b.1. Amendment to By-Laws. Filed as Exhibit b.1 to Post-Effective
Amendment No. 4 to Registrant's Registration Statement on Form
N-1A (File No. 333-16611) and incorporated herein by reference
thereto.
c. Specimen certificates of Shares of each Fund. Filed as Exhibit
4 to Registrant's Registration Statement on Form N-1A (File
No. 333-16611) and incorporated herein by reference thereto.
d. Investment Management Agreement between Registrant and Nuveen
Advisory Corp. Filed as Exhibit 5 to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 333-16611) and incorporated herein by reference
thereto.
d.1. Renewal of Investment Management Agreement dated June 1, 2000.
e. Distribution Agreement between Registrant and John Nuveen &
Co. Incorporated. Filed as Exhibit 6 to Post-Effective Amend-
ment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 333-16611) and incorporated herein by reference
thereto.
e.1. Renewal of Distribution Agreement dated July 31, 2000.
f. Not applicable.
g. Custodian Agreement between Registrant and Chase Manhattan
Bank. Filed as Exhibit 8 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No.
333-16611) and incorporated herein by reference thereto.
h. Transfer Agency Agreement between Registrant and Chase Global
Funds Services Company. Filed as Exhibit h to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A (File No. 333-16611) and incorporated by reference there-
to.
i. Opinion of Morgan, Lewis, and Bockius LLP.
j. Consent of Arthur Andersen LLP, Independent Public Accoun-
tants.
k. Not applicable.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
l. Not applicable.
m. Amended Plan of Distribution and Service Pursuant to Rule 12b-
1 for the Class A Shares, Class B Shares and Class C Shares of
each Fund. Filed as Exhibit m to Post-Effective Amendment No.
4 to Registrant's Registration Statement on Form N-1A (File
No. 333-16611) and incorporated herein by reference thereto.
o. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Ex-
hibit 18 to Registrant's Registration Statement on Form N-1A
(File No. 333-16611) and incorporated herein by reference
thereto.
99(a). Original Powers of Attorney for all of Registrant's trustees
authorizing, among others, Gifford R. Zimmerman and Alan G.
Berkshire to execute the Registration Statement on his or her
behalf.
99(b). Certified copy of Resolution of Board of Trustees authorizing
the signing of the names of trustees and officers on the Reg-
istrant's Registration Statement pursuant to power of attor-
ney.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
Item 24: Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 25: Indemnification
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an
C-2
<PAGE>
undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she shall have had reasonable cause to believe this conduct was
unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 26: Business and Other Connections of Investment Adviser
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Multistate Trust I, Nuveen
Multistate Trust II, Nuveen Multistate Trust III, Nuveen Multistate Trust IV,
Nuveen Municipal Trust, Nuveen Taxable Funds Inc., Nuveen Municipal Money
Market Fund, Inc., and Nuveen Money Market Trust. It also serves as investment
adviser to the following closed-end management type investment companies:
Nuveen Municipal Value Fund, Inc., Nuveen California Municipal Value Fund,
Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen Municipal Income Fund,
Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen Performance Plus
Municipal Fund, Inc., Nuveen California Performance Plus Municipal Fund, Inc.,
Nuveen New York Performance Plus Municipal Fund, Inc., Nuveen Municipal
Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund, Inc., Nuveen
California Municipal Market Opportunity Fund, Inc., Nuveen Investment Quality
Municipal Fund, Inc., Nuveen California Investment Quality Municipal Fund,
Inc., Nuveen New York Investment Quality Municipal Fund, Inc., Nuveen Insured
Quality Municipal Fund, Inc., Nuveen Florida Investment Quality Municipal Fund,
Nuveen New Jersey Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania
Investment Quality Municipal Fund, Nuveen Select Quality Municipal Fund, Inc.,
Nuveen California Select Quality Municipal Fund, Inc., Nuveen New York Select
Quality Municipal Fund, Inc., Nuveen Quality Income Municipal Fund, Inc.,
Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income
Municipal Fund, Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen
Ohio Quality Income Municipal Fund, Inc., Nuveen Texas Quality Income Municipal
Fund, Nuveen California Quality Income Municipal Fund, Inc., Nuveen New York
Quality Income Municipal Fund, Inc., Nuveen Premier Municipal Income Fund,
Inc., Nuveen Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income
Municipal Fund 2, Inc., Nuveen Insured California Premium Income Municipal
Fund, Inc., Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen
Select Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund,
Inc., Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan
Premium Income Municipal Fund, Inc., Nuveen New Jersey Premium
C-3
<PAGE>
Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 4, Inc.,
Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen
Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland Premium Income
Municipal Fund, Nuveen Massachusetts Premium Income Municipal Fund, Nuveen
Virginia Premium Income Municipal Fund, Nuveen Connecticut Premium Income
Municipal Fund, Nuveen Georgia Premium Income Municipal Fund, Nuveen Missouri
Premium Income Municipal Fund, Nuveen North Carolina Premium Income Municipal
Fund, Nuveen California Premium Income Municipal Fund, Nuveen Insured Premium
Income Municipal Fund 2, Nuveen Dividend Advantage Municipal Fund, Nuveen
California Dividend Advantage Municipal Fund and Nuveen New York Dividend
Advantage Municipal Fund. Nuveen Advisory Corp. has no other clients or
business at the present time. The principal business address for all of these
investment companies is 333 West Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than John P.
Amboian, of the investment adviser has engaged during the last two years for
his account or in the capacity of director, officer, employee, partner or
trustee, see the descriptions under "Management" in the Statement of Additional
Information.
John P. Amboian is President, formerly Executive Vice President and Chief
Financial Officer, and Director of Nuveen Advisory Corp., the investment
adviser. Mr. Amboian has, during the last two years, been President, formerly
Executive Vice President and Chief Financial Officer of Nuveen Investments, the
John Nuveen Company and Nuveen Institutional Advisory Corp.; Executive Vice
President of Rittenhouse Financial Services, Inc. and President and Chief
Operating Officer of Nuveen Senior Loan Asset Management Inc. (since September
1999).
Item 27: Principal Underwriters
(a) Nuveen Investments ("Nuveen") acts as principal underwriter to the
following open-end management type investment companies: Nuveen Multistate
Trust I, Nuveen Multistate Trust II, Nuveen Multistate Trust III, Nuveen
Multistate Trust IV, Nuveen Municipal Trust, Nuveen Municipal Money Market
Fund, Inc., Nuveen Taxable Funds Inc., Nuveen Money Market Trust Nuveen
Investment Trust, Nuveen Investment Trust II, and Nuveen Investment Trust III.
Nuveen also acts as depositor and principal underwriter of the Nuveen Tax-
Exempt Unit Trust, and Nuveen Unit Trusts, registered unit investment trusts.
Nuveen has also served or is serving as co-managing underwriter to the
following closed-end management type investment companies: Nuveen Municipal
Value Fund, Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York
Municipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium
Income Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc.,
Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York
Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc.,
Nuveen Municipal Market Opportunity Fund, Inc., Nuveen California Municipal
Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc.,
Nuveen California Investment Quality Municipal Fund, Inc., Nuveen New York
Investment Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund,
Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey
Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality
Municipal Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California
Select Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal
Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured
Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund,
Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc., Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund, Nuveen
Georgia Premium Income Municipal Fund, Nuveen Missouri Premium Income Municipal
Fund, Nuveen North Carolina Premium Income Municipal Fund, Nuveen California
Premium Income Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2,
Nuveen Select Tax-Free Income Portfolio, Nuveen Select Tax-Free Income
Portfolio 2, Nuveen Insured California Select Tax-Free Income Portfolio, Nuveen
Insured New York Select Tax-Free Income Portfolio, Nuveen Select Tax-Free
Income Portfolio 3, Nuveen Dividend Advantage Municipal Fund, Nuveen California
Dividend Advantage Municipal Fund and Nuveen New York Dividend Advantage
Municipal Fund.
C-4
<PAGE>
(b)
<TABLE>
<CAPTION>
Name and
Principal
Business Positions and Offices Positions and Offices
Address with Underwriter with Registrant
-----------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Chairman of the Board, Chairman of the Board
Schwertfeger Chief Executive Officer and Trustee
333 West and Director
Wacker Drive
Chicago, IL
60606
John P. President None
Amboian
333 West
Wacker Drive
Chicago, IL
60606
William Executive Vice President None
Adams IV
333 West
Wacker Drive
Chicago, IL
60606
Alan Senior Vice President and Secretary Vice President and
Berkshire Assistant Secretary
333 West
Wacker Drive
Chicago, IL
60606
Robert K. Vice President None
Burke
333 West
Wacker Drive
Chicago, IL
60606
Peter H. Vice President and Treasurer Vice President and Treasurer
D'Arrigo
333 West
Wacker Drive
Chicago, IL
60606
Stephen D. Vice President Vice President and Controller
Foy
333 West
Wacker Drive
Chicago, IL
60606
Benjamin T. Vice President None
Fulton
333 West
Wacker Drive
Chicago, IL
60606
Richard D. Executive Vice President None
Hughes
Two Radnor
Corporate
Center
Radnor, PA
19087
Anna R. Vice President None
Kucinskis
333 West
Wacker Drive
Chicago, IL
60606
Robert B. Vice President None
Kuppenheimer
19900 MacAr-
thur Blvd.
Irvine, CA
92612
Larry W. Vice President and Vice President and
Martin Assistant Secretary Assistant Secretary
333 West
Wacker Drive
Chicago, IL
60606
Thomas C. Vice President None
Muntz
333 West
Wacker Drive
Chicago, IL
60606
Paul C. Wil- Vice President None
liams
333 West
Wacker Drive
Chicago, IL
60606
Allen J. Group President None
Williamson
333 West
Wacker Drive
Chicago, IL
60606
Margaret E. Vice President and Corporate Controller None
Wilson
333 West
Wacker Drive
Chicago, IL
60606
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices Offices
Business Address with Underwriter with Registrant
-------------------------------------------------------------------------------------
<S> <C> <C>
Gifford R. Zimmerman Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
Item 28: Location of Accounts and Records
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004 maintains
all general and subsidiary ledgers, journals, trial balances, records of all
portfolio purchases and sales, and all other required records not maintained by
Nuveen Advisory Corp. or Chase Global Funds Services Company.
Chase Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts,
maintains all the required records in its capacity as transfer, dividend
paying, and shareholder service agent for the Funds.
Item 29: Management Services
Not applicable.
Item 30: Undertakings
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that this Registration Statement
meets all the requirements for effectiveness under paragraph (b) of Rule 485
under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 5 to Registration Statement No. 333-16611 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
and State of Illinois, on the 28th day of September, 2000.
NUVEEN MULTISTATE TRUST III
/s/ Gifford R. Zimmerman
------------------------------------------
Gifford R. Zimmerman, Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <C> <S>
/s/ Stephen D. Foy
-------------------------------
Stephen D. Foy Vice President and September 28, 2000
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal
Executive Officer)
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
William J. Schneider Trustee
Judith M. Stockdale Trustee
</TABLE>
/s/ Gifford R. Zimmerman
By_____________________________
Gifford R. Zimmerman
Attorney-in-Fact
September 28, 2000
An original power of attorney authorizing, among others, Gifford R. Zimmerman
and Alan G. Berkshire to execute this Registration Statement, and Amendments
thereto, for each of the Trustees of the Registrant has been executed and is
filed as an exhibit to this Registration Statement.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
------- ------- ------------
<C> <S> <C>
a.2 Amendment to Declaration of Trust of Registrant dated
September 15, 2000.
a.3 Amended Establishment and Designation of Shares dated
September 15, 2000.
d.1 Renewal of Investment Management Agreement dated June
1, 2000.
e.1 Renewal of Distribution Agreement dated July 31,
2000.
i. Opinion of Morgan Lewis & Bockius LLP.
j. Consent of Arthur Andersen LLP, Independent Public
Accountants.
99(a). Powers of Attorney.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
